Pakistan fights back against $800mn damages in rental power vessel case

LAHORE: Pakistan has applied to annul an order of the International Centre for Settlement of Investment Disputes (ICSID) directing it to pay $ 800 million for detaining power generation vessels used during a power crisis in Karachi, Pakistan Today has learnt.

According to a report of the Global Arbitration Review (GAR), Pakistan filed an application for annulment with the ICSID on November 7, which is aimed at trying to quash a final award in favour of Turkish Karkey Karadeniz Elektrik Uretim.

Pakistan’s loss in the case against Karkey Karadeniz Elektrik Uretim had first come about in September of this year when the Attorney General of Pakistan (AGP), which coordinated the arbitration proceedings and the Power Division under the Ministry of Energy separately, confirmed that the arbitration by the ICSID of the World Bank had gone against Pakistan.

The case had been initiated in the ICSID tribunal in March 2013 after Karkey alleged that Pakistan had breached their agreement by not allowing freedom of movement to their investment and holding onto the generators they had provided for emergency situations in Karachi. Karkey had originally been awarded a $ 560 million contract for power ship operations in Pakistan to overcome the country’s power crisis. This contract had been for the provision of power generation vessels for the port city of Karachi in 2009 and was part of the famous “rental power projects” managed under former prime minister Raja Pervez Ashraf.

The ICSID tribunal subsequently initiated hearings in March 2013 and concluded the proceedings in March 2016. The ICSID tribunal announced its award on August 22, it said.

Then again in September, Karkey had released a press statement saying that “the tribunal unanimously upheld jurisdiction over the claims before finding that Pakistan had breached the Pakistan-Turkey bilateral investment treaty by expropriating Karkey’s investment and restricting its right to free transfer of its investment.”

The initial media reports from then had been contradictory with many outlets claiming the figure to be around $ 700 million and others saying it was a mammoth figure of $ 1.6 billion. This came from the fact that Karakey had said that the amount was a “record amount of damages given by the ICSID.”

The matter had become even more confusing given the non-disclosure agreements between the two signatories; however, it was later revealed that the amount was actually $ 800 million, indeed an ICSID record.

Pakistan had indicated appealing back then too with the office of the Attorney General of Pakistan saying “the delay in the issuance of award (by the ICSID) is by itself a ground for setting aside the exaggerated claim” and added that the Ministry of Energy was studying the award and reserved the right to initiate further legal proceedings for its annulment.

The move, however, seems to be not more than the government grasping at straws end as in addition to the $ 800 million damages bill, they will also have to pay other charges. According to the GAR report, these will include “interest and Karkey’s legal costs, indemnity payment to Karkey for outstanding invoices, payments and other costs and losses relating to one of the detained vessels, the Kaya Bey.”

Paolo Di Rosa, the lawyer fighting the annulment application, described it as a “groundless” claim, and that Pakistan is “grasping at straws” to avoid complying with the award. He did, however, admit that the damages are “unduly conservative” and do not reflect the actual losses suffered by Karkey. He adds that it is the first time Pakistan has faced a damages award at ICSID.

Abdullah Niazi
Abdullah Niazi
Abdullah Niazi is senior editor at Profit. He can be reached at [email protected]

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