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Pakistan Saved from Paying $1.2 Billion Penalty as Karkey Dispute Resolved

On Monday, Pakistan’s prime minister announced that his government has resolved the Karkey dispute amicably. It has happened with the help of Turkish president Erdogan.

However, the settlement has saved Pakistan from the penalty worth 1.2 billion dollars. The International Center for Settlement of Investment Disputes (ICSID) had imposed the penalty on Pakistan.

The prime minister in a tweet congratulated the negotiation team for doing an excellent job. Yet he did not share the details of how the dispute was resolved.

The Karkey Karadeniz Elektrik Uretin (KKEU) was one of the 12 rental power companies whom the PPP government awarded contracts.

The then government gave the contracts to the company to resolve the power crisis. The contract was awarded in 2008-09.

The plant only produced only 30-55 MW of electricity and that also at the cost of Rs 41 per unit.

According to the prosecution, this was a serious breach of contract.

This led to a 50 % increase in the refund claim by the government from $80m to $12m.

According to the National Accountability Bureau (NAB), the Turkish company had requested a plea bargain deal and promised not to go for international arbitration.

However, the Supreme Court struck down the deal and insisted on recovering the full $120 million from the Turkish firm.

As a result, Karkey moved ICSID in 2013 seeking compensation for the losses.

The losses incurred in terms of damage and depreciation of the vessels. Because Pakistani officials did not allow the vessel to leave port for almost 16 months.

The Turkish company later won the case in 2017.

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