Representational image. PHOTO: REUTERS
ISLAMABAD: Pakistan has 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 decision on a case filed by Karkey rental power producer.
The Turkish ship-based energy firm, Karkey Karadeniz Elektrik Uretim, was one of the 12 rental power companies awarded contracts for electricity production by the Pakistan Peoples Party-led government in 2009.
Karkey 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.
Pakistan suffers setback in Karkey case as stay order vacated
Following the agreement, the government of Pakistan issued sovereign guarantees for securing payment obligations.
Karkey started commercial operations in April 2011. Later, the Supreme Court of Pakistan took suo motu action against rental power projects in 2012, declaring illegal all such agreements signed under the Rental Power Policy 2008.
The apex court also directed the National Accountability Bureau (NAB) to initiate investigation into the projects. The anti-corruption watchdog started probe and prevented the power producing ship of the Turkish company from leaving Pakistan.
According to NAB, Karkey ship was brought to Karachi Port in April 2011 to provide electricity to the national grid under the Rental Power Policy to overcome the energy crisis. However, it failed to generate 231MW as required under the agreement, although $9 million was paid in advance as capacity charges to its management.
The power plant produced only 30-55MW and that too at a cost of Rs41 per unit, which was a serious breach of the contract.
Karkey then filed arbitration claims against Pakistan before the International Centre for Settlement of Investment Disputes (ICSID) under the Bilateral Investment Treaty.
Sources told The Express Tribune that Pakistan government had approved a supplementary grant of $56 million, out of which $50 million would be kept in an escrow account to be opened in a European bank. The balance amount would be utilised on the establishment of the account.
Earlier, Pakistan asked the ICSID to allow the country to open escrow account in the State Bank of Pakistan (SBP) for depositing $150 million as partial security. However, Pakistan has now agreed to open the escrow account in a European bank where it will place $50 million.
Court extends remand of two accused in Karkey case
ICSID held case proceedings on March 23, 2018 and gave decision against Pakistan, asking it to pay $760 million along with interest on August 22, 2018. Following the decision, Karkey went to the US, the UK and Germany for enforcing the court’s ruling.
Pakistan’s assets abroad were at major risk of being taken over as security to enforce the international court’s verdict, which might have huge financial implications for the country.
Published in The Express Tribune, June 14th, 2019.
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