Pakistan escapes $1.2 billion penalty as Turkey helps resolve Karkey dispute

Business Recorder | 4 November 2019

Pakistan escapes $1.2 billion penalty as Turkey helps resolve Karkey dispute

The Karkey dispute between the government and a Turkish ship-based energy firm has finally been resolved due to efforts of Turkish government, a tweet by Prime Minister Imran Khan transpired on Monday.

In his latest tweet, Imran Khan stated, “PTI Govt, with the help of President Erdogan, has amicably resolved the Karkey dispute and saved Pak USD 1.2 billion penalty imposed by ICSID."

In another tweet he added, “I want to congratulate the government’s negotiating team for doing an excellent job in achieving this."

In 2018, the International Centre for Settlement of Investment Disputes (ICSID), an international arbitration institution established for legal dispute resolution and conciliation between international investors, had asked Pakistan to pay $760 million along with interest to Karkey Karadeniz Elektrik Uretim, the Turkish ship-based energy firm involved in provision of floating power generation facilities, after it filed arbitration claims against the country under the Bilateral Investment Treaty.

Pakistan lost the case in World Bank’s ICSID in 2017, which was filed by Karkey. Following the decision, Karkey approached different platforms for enforcing the court’s ruling.

At that time, Pakistan’s assets abroad were at major risk of being taken over as security to enforce the international court’s verdict, which could had huge financial implications for the country.

In June 2019, Islamabad decided to open an escrow account in a European bank for depositing $50 million in partial security while seeking extension of stay in enforcement of the international court’s verdict. However, in October Pakistan Tehreek-e-Insaf (PTI) leader and senior lawyer Babar Awan announced that the $1.2 billion penalty that Pakistan had to pay to Turkey’s Karkey rental power plant was likely to be waived.

“International institutions, through high-level backdoor contacts, have agreed to waive off the penalty. This is very good news for Pakistan," said Awan.

Karkey was one of the 12 rental power companies awarded contracts for electricity production by the Pakistan Peoples Party-led government in 2009.

The Turkish firm installed a 232-megawatt ship-based rental power plant and signed a rental services agreement in April 2009 under the Rental Power Policy 2008 to produce electricity in collaboration with Lakhra Power Generation Company.