$1.2b penalty in Karkey dispute waived, says PM Imran

Premier says PTI govt has amicably resolved the dispute with the help of Turkish President Erdogan

Prime Minister Imran Khan on Monday said his Pakistan Tehreek-e-Insaf (PTI) government has saved the country $1.2 billion that Pakistan had to pay to Turkey’s Karkey rental power plant as penalty.

“PTI government, with the help of Turkish President Recep Tayyip Erdogan, has amicably resolved the Karkey dispute and saved Pakistan USD 1.2 billion penalty imposed by ICSID (International Centre for Settlement of Investment Disputes),” he said in a tweet on Monday.

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

I want to congratulate the government's negotiating team for doing an excellent job in achieving this. https://t.co/B03qgr1gDv

— Imran Khan (@ImranKhanPTI) November 4, 2019

Last year, the ICSID had asked Pakistan to pay $760 million along with interest to Karkey Karadeniz Elektrik Uretim, the Turkish ship-based energy firm, after it filed arbitration claims against the country under the Bilateral Investment Treaty.

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.

'$1.2b penalty in Karkey case likely to be waived'

In 2012, the Supreme Court of Pakistan took suo motu action against rental power projects, 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.

In April 2019, Laeeq Ahmed Sheikh, the key suspect in the rental power plants case who is in NAB’s custody, confessed to have received kickbacks worth $350,000 for brokering a deal between the government of Pakistan and the Turkish company to address the power shortage in the country.

The sources in NAB had said that unearthing this scheme of corruption could save the state from the hefty penalty.