ISLAMABAD  - International Centre for Settlement of Investment Disputes (ICSID) in Washington DC has fixed September 29th for the submission of Pakistan’s defence in Karkay case against Government of Pakistan and just ten days after submission of Pakistan’s defence on October 8th the final decision would be announced.

When contacted an official of the National Accountability Bureau (NAB) to ask the current situation of the case on the condition of anonymity informed that the investigation against Karkay one of the Rental Power Plants (RPPs) installed to cope up with the acute energy crisis in the country, the inquiry is underway and near completion. He further said although this project was solicited but it delivered nothing and just took money in advance. He claimed that NAB found misappropriation and corrupt practices in the contract of Karkay.

The first ICSID hearing took place this past Monday, September 16, the same day Prime Minister Nawaz Sharif arrived in Turkey.  His visit to Turkey this week has once again brought fore-front the multi-million dollar legal dispute between the Government and Turkish energy company, Karadeniz Holding’s subsidiary Karkey.

According to reports, the Prime Minister hoped to sign eight economic cooperation agreements with Turkish counterparts and is seeking a $300m credit facility from the Export Credit Bank of Turkey. Although Karkay claimed that NAB investigated the Karkey project and found Karkey was innocent of any wrongdoing and issued a No Objection Certificate (NOC) in favour of Karkey but the NAB official refused and said no NOC was issued to Karkay.

Unable to reach an out of court settlement, KARKEY has taken its case for compensation and damages to the World Bank-affiliated International Centre for Settlement of Investment Disputes (ICSID) in Washington DC. Monday’s hearing included questioning by the arbitration tribunal of both parties to the dispute and resulted in the decision that the final hearing on provisional measures would be held on the 8th of October, just ten days after the Pakistani Counsel’s submission of Pakistan’s defence on September 29. This decision was taken in large part due to the consensus for the need of an urgent decision on the provisional measures requested by Karkey. 

Karkey spokesman said: “Increased economic cooperation between Turkey and Pakistan is in both countries’ best interest. This unnecessary dispute has clouded the climate for bilateral cooperation and damaged investor and business confidence. We hope it can be settled quickly and fairly, preventing it becoming an obstacle to successful future Turkish collaboration with the Government of Pakistan in the energy and other sectors.”

Karkey is a Turkish company that is an international leader in the design, construction and operation of floating power plants known as Power ships. Pakistan currently detains four of Karkey’s vessels within its territorial waters, including two power ships being maintained by a skeleton crew of 30 Turkish nationals. This condition has persisted since April 2012. Karkey has developed and financed a major power project in Pakistan, making Karkey one of the largest foreign direct investors in that country. The purpose of the project was to supply Pakistan with electricity generated by Karkey’s two industrial power ships. Karkey’s investments in Pakistan originated when the Pakistani Private Power Infrastructure Board (PPIB) announced an international competitive bid for energy firms to provide relief from continuing power shortages through the use of rental power projects (RPP). Karkey won one of the bids and sent four vessels, including two of its Turkish-flagged Power ships, to Pakistan in April 2011 to begin generating electricity for Pakistan, supplying 232 Megawatts of power to Pakistan.

However, Pakistan defaulted on its contractual payment obligations to Karkey for the electricity generated and fuel costs incurred, forcing Karkey to self-finance millions of dollars to continue to provide power to the people of Karachi, on the basis that Pakistan would ultimately pay for it through a sovereign guarantee. In the meantime, in March 2012 the court cancelled all past and present RPPs in the country and the Supreme Court (SC) ordered the Pakistan anti-corruption body National Accountability Bureau (NAB) to launch an investigation into alleged corruption in connection with all of the rental power projects, including the one involving Karkey.

However, the Supreme Court ordered NAB to demand additional monies from Karkey without any just or legal basis. In response, NAB continued to detain four of Karkey’s ships in Pakistani waters, and demanded around $128 million from Karkey on claims without merit, for funds which Karkey does not owe Pakistan.  Since the new Pakistan government was elected in May, the NAB has reopened inquiries into the RPP projects, and further charges are expected. As a result, Karkey’s vessels have been immobilized in Pakistan since April 2012, and prevented from being redeployed to other productive destinations, causing Karkey enormous financial harm. Moreover, the vessels — collectively worth several hundred million dollars — are endangered in their current locations. For all these reasons, Karkey has requested emergency provisional measures in the ICSID arbitration, seeking immediate release of the ships, as well as compensation for its financial losses.