ISSN 2330-717X

The Riveting Story OF Resolving The Karkey Dispute – OpEd

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The settlement of Karkey Karadeniz Electrik Uterim dispute is a unique and interesting example of resolving complex bilateral issues without causing any international uproar and dent to bilateral relations between Pakistan & Turkey.

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One of the 12 rental power companies Karkey Karadeniz Elektrik Uretin (KKEU) had been awarded contracts by the Pakistan People’s Party government in 2008-09 to resolve the power crisis. In April 2011, a ship was brought to Karachi port for aiding the national grid to provide electricity under the then government’s Rental Power Plants (RPP) policy to overcome the energy crisis. However, the company was unable to generate 231 megawatts as per the clauses of the agreement, even though $9 million had been paid to the company in advance as capacity charges. The plant was able to produce 30-55 MW of electricity with a cost of Rs 41 per unit, which was a serious breach of the agreed contract. Since the agreed terms could not be met, it reciprocated into an increase in the refund claim by the government of Pakistan.

According to the data of National Accountability Bureau (NAB), the Turkish company came forward with a request of plea-bargain deal after a reference was filed against Karkey. The company said it was ready to pay $18m to NAB as a result of which international arbitration will be ruled out. However, after some politicians approached the then Chief Justice Iftikhar Mohammad Chaudhry he struck down the deal and asked for a full recovery of $120m from the Turkish firm. In response to it, Karkey approached ICSID in 2013, they filed a case to recover the damages incurred by its vessels in terms of damage or depreciation for not being allowed to leave Karachi port for almost 16 months. In 2017 the Turkish company won the case with a $1.2bn penalty.

Karkey Karadeniz Electrik Uterim (Karkey) was found involved in corruption, a core committee comprised of civil and military leadership led to the uncovering of evidence of corruption in Turkey, Switzerland, Lebanon, Panama and Dubai (the UAE). This evidence was presented to the International Centre for Settlement of Investment Disputes (ICSID) Tribunal by the Core Committee. With consistent pursuance and following of the case, Pakistan Army amicably resolved the Karkey dispute eventually while saving Pakistan USD 1.2 billion penalty imposed by ICSID. If the dispute had not been settled and Pakistan would have paid the amount, Pakistan’s GDP would have shrunk by nearly 2pc and Pakistan would have defaulted on its international obligations.

The President of Pakistan on August 14, 2020, conferred civil award of Sitara-e-Imtiaz to three officers of ISI, who played a pivotal role in successful settlement of the Karkey dispute. The settlement of Karkey issue once again demonstrates pivotal role Pakistan Army leadership continues to play in helping and assisting the governments of the day towards resolving key national issues thus saving Pakistan from financial and diplomatic losses.

Humais Sheikh is an independent Defence Analyst based in Islamabad. He has completed his Masters in Defence and Strategic Studies from Quaid-I-Azam University, Islamabad.

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