A labyrinthine mess

We can expect further costly and embarrassing arbitrations into the far future


Editorial November 02, 2017

Outside the arcane world of finance reporting few will have been following the tale of the Independent Power Producers (IPPs) and the many woes that came with them. Of late, Pakistan has been losing cases that have gone to international arbitration and the latest is that the London court of International Arbitration (LCIA) has made a final award that asks Pakistan to pay more than Rs14 billion to nine IPPs. Seemingly this award is not binding because the basis for the award itself is still the subject of litigation in Pakistani courts. The government is said to want to defend its case and we are unlikely to have heard the last of the matter.

The IPPs became entangled in the culture of non-payment against commitments and circular debt that has plagued the power sector for years. The National Transmission and Dispatch Company (NTDC) fell out with the IPPs in 2011 over the non-availability of plants. They alleged this was due to a fuel shortage that was blamed directly on the NTDC for not having paid its dues. No dues means no fuel which means offline power generators. The IPPs had a point. They had liquidity problems as a result and the LCIA has rejected all the submissions made in its defence by the NTDC and by extension the government of Pakistan itself.

The IPPs contest that they had no choice but to approach the LCIA as attempts to get satisfaction from the NTDC had failed miserably. There will now be a period of ducking and diving as the NTDC attempts to worm its way out of the result of the arbitration decision — which includes a bill from the LCIA for 271,417GBP which is the claimants’ costs incurred by referral to the LCIA. Ultimately the bill is going to have to be met by the government of Pakistan. None of this would have been necessary had contracts been honoured in letter and in spirit and payments made on time to those contracted for a service, in this case the IPPs. But that is not the way of things in Pakistan. We can expect further costly and embarrassing arbitrations into the far future.

Published in The Express Tribune, November 2nd, 2017.

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COMMENTS (1)

Sun Tzu | 6 years ago | Reply In both Pakistan and India, there is a widespread belief in business that delaying payments is "good business". Finding ways around rules and contracts is being "smart". Exploiting business-partners when they can't go elsewhere is "aggressive business practice".
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