Pakistan has ‘amicably resolved’ Karkey dispute: PM

ISLAMABAD: Prime Minister Imran Khan on Monday announced that his government, with the help of Turkish President Erdogan, has “amicably resolved” the Karkey dispute.

The prime minister congratulated the government’s negotiating team for doing an excellent job in achieving this, saving the country from having to pay the $1.2 billion penalty imposed by the International Centre for Settlement of Investment Disputes (ICSID).

I want to congratulate the government’s negotiating team for doing an excellent job in achieving this. https://t.co/B03qgr1gDv

— Imran Khan (@ImranKhanPTI) November 4, 2019

Last month, the PTI leader and senior lawyer Babar Awan had said that the $1.2 billion sum was likely to be waived off due to backdoor negotiations between the two countries.

He said that international institutions, through high-level backdoor contacts, have agreed to waive off the penalty. He added that this was very good news for Pakistan that they have shown trust in Prime Minister Imran Khan.

The ICSID — an arm of the World Bank that offers arbitration and conciliation services for disputes between governments and private foreign investors — had slapped a penalty worth $760 million plus interest against Pakistan.

Turkish ship-based energy firm, Karkey Karadeniz Elektrik Uretim (KKEU), had registered arbitration claims against Pakistan, which were decided in the company’s favour in September 2017.

The Turkish firm had registered a claim with the ICSID against Pakistan in 2013 over the violation of a contract worth as much as $564.6 million for a five-year period to build rental power plants in Karachi.

The KKEU was one of the two rental power companies that had been awarded contracts in 2008-09 to resolve the power crisis. A ship was brought to Karachi port in April 2011 to provide electricity to the national grid to overcome the energy crisis.

However, it failed to generate 231 megawatts as was required under the agreement, even though $9m had been paid to the company in advance as capacity charges.

The plant produced only 30-55 MW of electricity and that too at a cost of Rs41 per unit, which was a serious breach of contract. This led to a 50 percent increase in the refund claim by the government from $80m to $120m.

National Accountability Bureau (NAB) filed the reference against Karkey. The company agreed to pay $18m to the anti-corruption watchdog and promised not to go for international arbitration.

However, the Supreme Court was moved and then chief justice Iftikhar Mohammad Chaudhry struck down the deal and insisted on recovering the full $120m from the Turkish firm.

As a result, Karkey moved the ICSID in 2013, seeking compensation for the losses incurred by its vessels for not being allowed to leave Karachi port for almost sixteen months. The Turkish company won the case in 2017.