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May 24, 2018

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Payment to IPPs: London court restrains Pakistan to challenge its ruling

ISLAMABAD: The London Court of International Arbitration (LCIA) has permanently restrained Pakistan from challenging its rulings regarding payment of Rs14 billion plus interest (Kibor+4.5%) to nine independent power producers (IPPs) in local courts of Pakistan.

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The LCIA has also maintained its earlier partial award in favour of nine independent power producers under which the Government of Pakistan was to pay Rs14 billion to IPPs. This means government of Pakistan is left with no option but to pay Rs14 billion with interest of Kibor-4.5 percent.

These nine IPPs generated electricity for state-owned NTDC (National Transmission Dispatch Company) — the sole buyer of electricity. Under the latest scenario, the Government of Pakistan needs to pay Rs235 billion to IPPs.

The nine companies that include Atlas Power, Liberty Power Tech, Nishat Chunian Power, Nishat Power, Hub Power Company, Saif Power, Orient Power Company, Sapphire Electric Company, and Halmore Power Generation Company were the plaintiff and against the Pakistan government owned NTDC.

In its anti-suit injunction decision dated May 4, 2018, of which copy is available with The News, the LCIA concluded clearly saying: “The IPPs are entitled to a final anti-suit injunction, continuing the interim injunction granted by Males J, on the entirely straightforward basis that the seat of the arbitration is London. NTDC is to be restrained on a permanent basis from challenging the Partial Final Award in proceedings in Lahore, Pakistan, or anywhere other than England and Wales.” The judgment has been authored by LCIA judge Justice Phillips over the dispute between nine IPPs and National Transmission and Dispatch Company (NTDC).

Last year, a partial final award was issued in favour of the IPPs by holding that the NTDC should provide interim security for the IPPs’ claims. Later, the LCIA had also directed the NTDC to pay more than Rs14 billion to the private power producers.

In the arbitration claim issued on August 15, 2017, the IPPs sought a final anti-suit injunction to restrain the NTDC from challenging the partial final award in LCIA arbitration between the IPPs and NTDC by way of proceedings in Pakistan, or any jurisdiction other than England and Wales.

The bone of contention between the parties was if the courts of Pakistan have supervisory jurisdiction over the arbitration.

The IPPs argued that the seat of the arbitration is London and therefore the courts of England and Wales have exclusive supervisory jurisdiction. On the other hand, NTDC’s contention was that the courts of Pakistan should have concurrent jurisdiction, even if the seat is London. Alternatively, NTDC contended that if there can be only one supervisory jurisdiction, being exclusively that of the courts of the jurisdiction where the seat of the arbitration is located, the seat must therefore be Lahore, Pakistan.

The LCIA in its recent verdict says that NTDC cannot resist the present claim on the grounds that the seat of arbitration was not London.

The story of rifts between IPPs and NTDC emerged in January over non-availability of plants due to fuel shortage which the companies blamed on non-payment of dues by the NTDC. It led to severe liquidity crunch as the IPPs were unable to procure fuel for operating their plants at full capacity.

The LCIA’s final award had rejected all submissions, arguments and requests to the contrary by the NTDC and finally resolved all claims and defences in this arbitration.

The LCIA "ordered the respondent to pay the claimants Rs10.977 billion pursuant to the expert determination, Rs2.547 billion as pre-award interest in respect of expert determination, Rs82.82 million for breach of the arbitration agreements, Rs15.16 million and US $5.51 million constituting the claimants’ costs of the proceedings, and British pound sterling 271,417 constituting the claimants’ LCIA costs of the Arbitration”.

The LCIA also ordered payment of interest on all amounts awarded to the IPPs at Kibor-plus 4.5 per cent, compounded semi-annually, from the date of the final award (being Oct 29, 2017) and until full payment of these amounts by the respondent.

The power producers said they had approached the LCIA as a last resort due to continuous failure of the NTDC and its guarantor, the Government of Pakistan, to make payment and resolve capacity deduction issue.

The IPPs invoked the Supreme Court’s jurisdiction under Article 184 (3) in 2012 and the court directed the NTDC to pay the outstanding amount, but the company cleared only some amount and signed a MoU with the IPPs and the government to resolve all issues by invoking the dispute resolution mechanism set out in the power purchase agreements (PPAs).

As an expert, retired Justice Sair Ali ruled that NTDC’s commitment to pay within 30 days must precede IPPs’ obligation to maintain a 30-day inventory, and deductions by the NTDC were unauthorised. However, Justice Ali’s verdict was not implemented and the IPPs approached the LCIA, requesting it to declare the expert determination final and binding as per the PPA provisions.

However, in LCIA in its recent verdict says that NTDC cannot resist the present claim on the grounds that the seat of arbitration was not London.

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