Turkish power firm’s damages suit: ICSID rejects Pakistan’s plea against tribunal’s jurisdiction

* ICSID decision on $2 billion Karkey damages suit against Pakistan soon

ISLAMABAD: Washington-based International Centre for Settlement of Investment Disputes (ICSID) has rejected the plea of Water and Power Ministry against the jurisdiction of a tribunal hearing the $2 billion damages suit of Turkish power firm Karkey Karadeniz Elektrik Uretim (KKEU) against Pakistan.
Official sources disclosed to Daily Times that while rejecting the request of Pakistan’s Water and Power Ministry, the ICSID has started scrutiny of relevant documents, and is to take a decision shortly over the $2 billion damage suit filed by the Turkish power firm against Pakistan. Earlier, Pakistan moved to international forum against the Turkish power firm and challenged the jurisdiction of a tribunal, which has been hearing a damage suit sought by Karkey Karadeniz Elektrik Uretim (KKEU), against Pakistan.
The ICSID was asked to dispose of the damage suit against Pakistan sought by the Turkish power company, as the matter does not fall in its jurisdiction or mandate. Pakistan was of the stand that the matter does not fall in its jurisdiction as only London International Court of Arbitration can hear this case because ICSID can only hear the matters related to investment, while the matter of Turkish power firm is related to a contract, and not about the investment.
In March 2013, the Turkish company, which established a power plant in a ship berthed at Karachi port to provide electricity to the national grid, moved ICSID against Pakistan for not allowing it to move out from the port and for breaching Article VII of Bilateral Investment Treaty (BIT) inked on March 16, 1995, by the government of Pakistan due to which it allegedly suffered a huge loss.
The ship-based Karkey rental power project is also probably the most controversial project among all the RPPs (Rental Power Projects). The PPP-led coalition government, in April 2011, commissioned the Karkey Rental Plant but Karkey failed to generate the promised 231MW of electricity. The actual production came to be mere 30-55 MW per day at the cost of Rs 41 per unit.
Under the agreement, the government had paid $ 9 million as capacity charges to Karkey power plant management. The Supreme Court later took suo moto notice of all the RPPs installed in Pakistan from 2006 onwards including Karkey Plant. The court, in its March 2012 judgment, declared all the RPP deals as void. It also authorised National Accountability Bureau (NAB) to take action against all the 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. The NAB had also obtained and issued a freezing order against Karkey’s banks accounts in Pakistan.
The foreign power company, which has so far summarily refused to deposit the amount, has instead accused the Pakistani 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. Karkey, in a damage suit it filed with ICSID for compensation of financial losses, also served $2billion 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.

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