Business Recorder | 8 May 2019
Rental power plant: Escrow account created to avert negative ruling
by MUSHTAQ GHUMMAN
The Government of Pakistan has reportedly created an Escrow Account worth $ 150 million to avert a negative ruling by the international arbitration tribunal in case of M/s Kakey uriterium rental power plant, well informed-sources told Business Recorder.
The government is trying for an out-of-court settlement with the Turkish company, for which Pakistani officials have visited Turkey a couple of times.
Power Division stated that M/s Karkey, a Turkish Power Company, set up a 232 MW ship-mounted rental power project pursuant to Rental Power Policy 2008, announced by the Government of Pakistan (GoP). M/s Karkey entered into Rental Services Contact (RSC) on April 23, 2009 for generation of electric power with the Lakhra Power Generation Company Limited (LPGCL). M/s Karkey achieved commercial operations in April 2011.
The Supreme Court in exercise of its original jurisdiction initiated suo motu proceedings against the rental power projects and through its detailed judgment of March 30, 2012, declared all the RSCs void ab initio being illegal and against public policy. The Supreme Court also directed the National Accountability Bureau (NAB) to carry out an investigation under the NAB Ordinance 1999.
NAB commenced investigation and placed caution on M/s Karkey ships restraining them from leaving the territorial water of Pakistan. M/s Karkey filed an arbitration claim against the GoP under Pakistan- Turkey Bilateral Investment Treaty (BIT), 1995, for various breeches, unilateral termination of the RSC and detention of its ships before the International Centre for Settlement of Investment (ICSID).
On August 22, 2018, the ICSID awarded against GoP along with interest thereupon. After the award Karkey has gone into enforcement of arbitration award against Pakistan in various jurisdictions including the USA, UK, Germany and France. The GoP has filed an application to resist the recognition and enforcement of award. Further, various initiatives/remedies including revision, review etc, has commenced to resist the award.
According to sources, in the revision proceedings against the award, the ICSID tribunal decided on the request for an extension of stay order on the enforcement of award decided to extend the stay of the enforcement of the award until April 30, 2019, conditional on Pakistan providing by the same date a partial security payment of award in the amount of $ 150 million to be deposited in an escrow account.
Power Division conveyed to the government that if the partial security is not constituted on April 30, 2019, the stay shall be lifted ipso facto (by the fact itself). They further decided that if the partial security is constituted, the stay of the enforcement of the award shall be further extended until the tribunal decides on the admissibility of the revision. Subsequent to the meeting with the then Finance Minister, it was decided that such arrangement be done in the State Bank of Pakistan instead of any other foreign or local banks. This point of view was later confirmed by the Advisor to the Prime Minister on Finance. GoP’’s counsels have proposed the same mechanism to ICSID tribunal on May 1, 2019.
The sources said, Power Division recently requested the ECC for approval of the mechanism submitted to the ICSID tribunal. The details of this arrangement along with other modalities required will be presented before the ECC once the tribunal gives concurrence on GoPs’’ proposal.
"ECC has approved mechanism for creation of Escrow Account as security for extension in stay on enforcement of award," the sources added.