ISLAMABAD: The government is trying to downplay the international arbitration loss in a rental power project case to Turkish firm Karkey Karadeniz, which claims to have secured an $800 million compensation award.

The office of the Attorney General of Pakistan (AGP), which coordinated the arbitration proceedings, and the Power Division under the Ministry of Energy separately confirmed on Thursday that the arbitration by the International Centre for Settlement of Investment Disputes (ICSID) of the World Bank had gone against Pakistan.

However, both of them said in their statements that the amount of the compensation award had not been concluded and was still subject to a mutual settlement.

Exact amount of compensation award is still subject to mutual settlement, according to AGP office

Both institutions have been avoiding media queries about the issue for more than a week. Now they have said the amount of the award quoted in newspapers – $700 million and $1.6 billion – is incorrect. They advised the media to be careful in reporting on the issue.

On the other hand, the Turkish firm said the ICSID tribunal in its award “unanimously found in favour of Karkey, granting it one of the highest damages amounts in ICSID history (approximately $800m, including interest)”.

A senior government official claimed the two sides — ICSID and Karkey — were bound by a non-disclosure agreement and would finalise a settlement amount. He claimed the arbitration tribunal had given more than one and a half dozen parameters on the basis of which the amount would be calculated. It has not determined per se the amount of damages, he added. Hence, it is subject to interpretations and claims.

The AGP office on the other hand said “the delay in the issuance of award (by the ICSID) is by itself a ground for setting aside the exaggerated claim” and added that the Ministry of Energy was studying the award and reserved the right to initiate further legal proceedings for its annulment.

The AGP office said Karkey Karadeniz Electrik Uterim, a Turkish company that made arrangements for the supply of electricity through generation plants installed on three ships, filed a claim before the ICSID after the Supreme Court of Pakistan terminated all rental power contracts.

The ICSID tribunal subsequently initiated hearings in March 2013 and concluded the proceedings in March 2016. The ICSID tribunal announced its award on August 22, it said.

The AGP said the government was in contact with the Turkish company to attempt a mutually acceptable settlement of the matter. A spokesman for the ministry said the government was examining the award from all aspects, including all legal remedies under the international arbitration laws.

The Turkish firm said it initiated arbitration proceedings against Pakistan for its breaches of the bilateral investment treaty and the unlawful expropriation of various rights and assets of Karkey.

Karkey said the ICSID tribunal first declared that it had jurisdiction over the claims it was making. After this declaration, it concluded that Pakistan violated its obligations under the Turkish-Pakistan bilateral investment treaty by expropriating Karkey’s investments as well as restricting the company’s right to the free transfer of its investment. “Conversely, the tribunal rejected all of the claims and defences asserted by Pakistan,” it claimed.

Earlier in 2014, the ICSID tribunal issued a provisional measures decision in which it ordered Pak­istan to immediately release Kara­deniz Powership Kaya Bey, said the Turkish firm.

The tribunal ordered Pakistan to indemnify Karkey for all outstanding invoices that were issued by the company, other contractual payments that remained unpaid, repair costs and revenue losses, replacement value of the detained vessels and their revenue losses, and indirect losses suffered by the company.

Published in Dawn, September 22nd, 2017