ISLAMABAD: The federal government, in a bid to resolve the arbitration proceeding at International Center for Settlement of Investment Disputes (ICSID) Tribunal, has withdrawn $128 million recoverable liabilities from Karkey Karadeniz Elektrik Uretim A.S. (Karkey) under a settlement agreement.
According to well-informed sources, the government withdrew $128 million recoverable liabilities from Karkey rental power plant (RPP) under a settlement agreement dated 20-12-2019 to resolve the arbitration proceeding at the ICSID Tribunal.
Due to this settlement agreement between the government and Karkey, Lakhra Power Generation Company (LPGC) had remained unable to pay back billions of rupees, approximately Rs6bn in loans which it had obtained from the National Bank of Pakistan (NBP) on the basis of government sovereign guarantee for the down payment to Karkey in respect of 231.8 MW Karkey RPP.
“However, the NBP has sought payment of loan amount and power division has requested the federal cabinet’s economic coordination committee (ECC) to either write off the entire recoverable amount of NBP or allocate grant to NBP for settlement of Rs7,630,633,642 along with markup and other charges,” said sources.
Sources added that ECC had directed power division on October 14 to refer the case to finance division for advice on the issue in consultation with State Bank of Pakistan and NBP and submit a report to the ECC in its next meeting for consideration.
As per details, the loan was obtained by executing Syndicated Finance Agreement between Lakhra Power Generation Company Limited (LPGCL) and NBP dated 09-05-2009 against government’s sovereign guarantee and this loan was fully utilized for $80 million down payment to Karkey in respect of 231.8 MW Rental Power Plant (Karkey RPP).
The NBP loan was to be repaid in 60 equal monthly instalments of Rs106.667 million each, starting from 31st December 2009 and was to be completed on November 30, 2014, with the markup at the rate one-month KIBOR plus 215 basis points.
The contract as awarded by the government to Karkey and assigned to LPGCL for its execution on 6th November 2008 and the Rental Services Contract (RSC) was executed on 05th December 2008 and revised and restated on April 23, 2009.
Meanwhile, Supreme Court in its decision dated March 30, 2012, declared all the RPPs void ab-initio and rescinded them forthwith and directed the National Accountability Bureau (NAB) to investigate and recover the amounts from the responsible.
It is relevant to note that Karkey filed an arbitration suit against the Islamic Republic of Pakistan in the ICSID.
Due to scrap of the RPPs, the loan amount could not be repaid to NBP in full and due to default, NBP called sovereign guarantee which remained un-entertained due to Karkey arbitration.
It is pertinent to mention that NBP in a bid to recover Rs7,630,633,642 along with markup/interest & cost etc had approached Lahore High Court and LHC decided in favour of NBP on July 31, 2018. However, pursuant to the settlement agreement, the recovery claims against Karkey have also been withdrawn and the loan and markup cannot be expected to be paid out of recovery from Karkey.