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September 25, 2017

The Karkey case

Editorial

 
September 25, 2017

Pakistan found itself in another case of international arbitration after the Supreme Court of Pakistan – in 2012 – annulled a questionable deal in the power sector. The cost of settling the case initiated by the Turkish power firm, Karkey Karadeniz, could end up being over $1 billion for the Pakistani exchequer after the arbitration court ruled in its favour. It seems that the Pakistani government is so embarrassed by the decision that it told the Turkish company not to make any details public. This is where the crux of the problem lies; secrecy has surrounded most of the international business deals made by one government after another. Questionable agreements with international foreign companies are made. When they are taken to court, they are annulled. The public still remains clueless about the terms of the deal with the Turkish firm in the first place and why it was annulled. This has not just happened in the Karkey Karadeniz case and the Reko Diq case, but goes back to the first IPP agreements made in the 1990s when the process of privatising power generation began. Pakistan has continued to offer foreign companies exceptionally favourable terms, instead of allowing them to enter the country through a competitive process.

The importance of restoring a competitive and public process of awarding contracts to local and foreign firms cannot be stressed enough. This is the fundamental reason why the country continues to suffer one setback after another in international arbitrations. The courts cannot be asked to rubber stamp deals that do not meet the rules and regulations just because of the financial cost it would impose on the government. The cost is a bitter pill that Pakistan will have to incur for the failing of its own rulers. The Karkey Karadeniz affair is a product of the murky Rental Power Plants affair, when numerous political leaders were accused of making billions in bribes for a short-term solution to the power crisis. Karkey sent ships in 2011 that were to dock in the Karachi bay and generate electricity – to much fanfare. According to reports, it was being paid Rs41 per unit to generate around 30-55MWs. This was an astonishing amount for adding a negligible amount of electricity to the grid, and there was little surprise when the agreement was annulled by the SC. The international arbitration court has asked Pakistan to pay the cost of docking the Turkish vessels in the Karachi port for almost 16 months due to the ongoing case. The problem is not that the courts need to be more considerate towards foreign investors. If anything, given the secrecy with which these agreements are shrouded, there is a case for courts to be even harsher. But there is a need to make the process to award contracts in major sectors, such as mining and power, to be completely open and transparent. Anyone should be able to check if the rules have been followed. Until that time, the courts will have to act as a check against unfavourable deals. The cost is one that will have to be incurred.

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