Govt to pursue corruption charges against Karkey in rental power project

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LAHORE: The government of Pakistan has decided to sever all efforts to reach an out of court settlement with the Turkish company Karkey on a $900 million award issued in favour of the company by the International Centre for Settlement of Investment Disputes (ICSID), after finding pressing evidence of corruption against the company.

The ICSID had earlier announced a decision in favour of the Turkish firm over a rental power project which was awarded to the company during the Pakistan Peoples’ Party (PPP) government’s tenure, which was later discontinued on the order of the Supreme Court of Pakistan. However, the decision by ICSID in favour of Karkey was later suspended.

Since then the government of Pakistan has found pressing evidence pertaining to corruption in acquiring the contract of the rental power project against the company. Moreover, official sources claim that since the discovery of the evidence, Pakistan is going to rigorously pursue the case at ICSID to get the decision reversed and turned in favour of Pakistan, with the approval of Prime Minister Imran Khan.

Pakistan has till July 26 to submit a reply and all the new evidence it has acquired. Moreover, officials state that confessional statements of former water and power secretary Shahid Rafi and two other officials would also be submitted to the tribunal as evidence of corruption in the procurement of the contract by the Turkish company.

Earlier this month, a delegation led by Attorney General for Pakistan (AGP) Anwar Mansoor Khan went abroad to negotiate for an out-of-court settlement with the company but remained unsuccessful.

However, after the recent developments, official sources have said that Pakistan will no longer opt for an out of court settlement and nor will it submit an offer to deposit $150 million (Rs23.55 billion) as a security payment to seek a stay in the enforcement of the $900 million award.

Earlier, ICSID had admitted an application of the government of Pakistan for revision of the award given in the Karkey Karadeniz case. This development took place in February and the tribunal for this case had also been reconstituted on February 7, according to the case details available on the ICSID website.

According to the timeline of events, Pakistan had filed a reply on the annulment of the award to Karkey on November 30 last year and a rejoinder in this regard was filed by the latter on February 5, 2019.

In a comment to Profit, Osama Malik, an Islamabad based lawyer on international investment and economic law said, “The enforcement proceedings have automatically stayed under Article 51(4) of the ICSID convention.

However, the automatic provisional stay against enforcement will not last for the entire duration of the revision proceedings, unless confirmed by the tribunal.”

In October, the government of Pakistan had sought the court to throw out the Karkey Karadeniz suit seeking to confirm an $846 million arbitral award stemming from a rental power project.

In June, Karkey had approached the D.C Federal judge to confirm the $846 million arbitration award issued to Pakistan for detaining power generation vessels used during a power crisis in Karachi.

It had demanded that Pakistan must pay as the court stay order is now over.

The tribunal initially ordered Pakistan to pay $501 million, however, due to nonpayment and accumulation of interest, the total has grown to nearly $846 million.

According to a report of the Global Arbitration Review (GAR), Pakistan filed an application for annulment with the ICSID on November 7th 2017, which was aimed at trying to quash a final award in favour of Karkey Karadeniz Elektrik Uretim.

Pakistan’s loss in the case against Karkey had first come about in September 2016, 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 Attorney General for Pakistan office last month in a rebuttal issued over a media report said the Karkey vs Pakistan case was also being administered by ICSID and legal processes are ongoing.

Pakistan which was gripped by acute power shortages in 2007-2008 forced the then Pakistan People’s Party (PPP) government to consider power generation via rental power projects.

Consequently, Karkey landed an agreement with the government of Pakistan to supply power generation services to the country.

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.

However, following serious corruption allegations, the Supreme Court of Pakistan voided the related contracts in 2012. Karkey claims that following this development, Pakistan detained four Karkey ships.

The ICSID tribunal ordered Pakistan to immediately release Karadeniz Powership Kaya Bey, however, the company pressed Pakistan for more than $2 billion in compensation related to its breach of the contract, lost earnings and costs associated with detention.

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