Karkey serves Rs33b damage notice on Pakistan; Approaches ICSID against water and power ministry

The Nation, Pakistan

Karkey serves Rs33b damage notice on Pakistan; Approaches ICSID against water and power ministry

18 July 2013

By Ahmad Ahmadani

ISLAMABAD - The Turkish power firm Karkey Karadeniz Elektrik Uretim (KKEU) has approached the Washington based International Centre for Settlement of Investment Disputes (ICSID) against Pakistan’s water and power ministry and also served a Rs33billion damage notice on the ministry, sources said on Wednesday.
The ship-based Karkey rental power project also is probably the most controversial project among the RPPs (Rental Power Project) cases. The PPP government, in April 2011, commissioned the Karkey rental plant but it failed to generate the promised 231MW of electricity. The actual production came to be mere 30-55 MW per day at the cost of Rs41 per unit.

Under the agreement, the government had paid $9 million as capacity charges to Karkey power plant management. The Supreme Court took suo moto notice of all the RPPs starting from 2006 onwards including Karkey plant. The court in its March 2012 judgment declared all RPP deals as void. It also authorised NAB to take actions against all RPPs.

The NAB inquiry uncovered that as per the deal, KKEU had to reimburse $17.5 million to Pakistan but the Supreme Court insisted on recovering $120 million from the company. Previously, NAB had sought payment of over $180 million from KKEU during an inquiry initiated after the court verdict calling for the dissolution of all RPP contracts. NAB had also obtained and issued a freezing order against Karkey’s banks accounts in Pakistan.

The company, which has summarily refused to deposit the amount, has instead accused Pakistan government of breaching the Bilateral Investment Treaty (BIT) executed between Turkey and Pakistan on May 19, 2012, which is in violation of the international law. Sources said the power company has filed a case against Pakistan’s water and power ministry for compensation of losses in the International Center for Settlement of Investment Disputes (ICSID) and also served Rs33billion damage suit to the ministry over alleged violation of the Rental Service Contract (RSC). It says it has suffered – and continued to suffer – substantial losses arising out of the inquiry, for which the ministry should reimburse the firm.

Sources also said that the ministry has initiated consulting with legal brains to cope with the matter responsibly as the country’s courts have no jurisdiction to challenge ICSID awards. A senior official of the ministry confirmed that the ministry has received a legal notice from the Turkish firm, and added that negotiations were being held with the Turkish government to resolve the issue.

ICSID is an autonomous international institution established in 1965 under the Convention on the Settlement of Investment Disputes between States and Nationals of Other States. It is based in Washington, DC and operating under the World Bank. It is said to be an impartial international forum providing facilities for arbitration of international investment disputes. The ICSID does not itself arbitrate disputes but provides the rules and procedures for independent arbitration tribunals to resolve disputes. The use of ICSID arbitration has increased rapidly over the past 20 years, as the number of bilateral investment treaties (BITs) has risen.