Clearing power sector mess
The shady deals made by the previous governments in the past has pushed power sector into deep financial crisis in addition to litigations in the International Arbitration Courts with disastrous outcomes of imposing huge penalties on Pakistan. The present government is clearing the accumulated mess for which the Prime Minister Imran Khan himself is doing trouble shooting. It was by virtue of his involvement in dispute resolution with Turkish power Company Kerkey that President RecepTayyipErdogan intervened in the matter to exempt Pakistan from the payment of $1.2 billion penalty on account of breach of agreement. The agreement was then struck by the Supreme Court. This is what a political leader of impeccable integrity does for his country.
Because of agreed clauses of the agreement, KerkeyKarandeniz Electric Utrin had approached International Centre for Settlement of Investment Disputes (ICSID) which gave award asking Pakistan to pay penalty to the Turkish Company, which was one of the 12 Rental Power Companies with whom PPP government had signed contracts in 2008-09. The power company had failed to generate 231 megawatt of electricity as per the provisions of the agreement and could produce 30 megawatt at an exorbitant cost of Rs.41 per unit.
Pakistan has always lost cases in the international courts of arbitration because of lack of transparency and elements of kickbacks in the contracts that were made with foreign and local power companies. After the Kerkey debacle in November 2017, few weeks later, London Court of Arbitration (LCA) gave award asking Pakistan to pay around Rs.14 billion inclusive of mark up to 9 local power companies known as IPPs.
In both cases there was room available for out of court resolution of dispute but the ruling political leadership did not exercise this option. Pakistan accrued financial expenses on litigations in the International Court of Arbitration in the shape of legal fee and related arbitration costs. In the Kerkey case alone, Rs.1.5 billion were paid to a foreign law firm, besides expenses on the visits of official delegations.
Previous governments of two mainstream political parties finalised business deals through third party and award of contracts was rushed to achieve personal narrow objectives at the cost of national and public interest. It explains the annual payment liability of Rs.865 billion to IPPs on account of idle capacity charges for which a binding clause had been inserted in the power purchase agreement in 1994. National Electric Power Regulatory Authority (NEPRA) had to approve electricity tariff hike at Rs.1.826 per unit as fuel price adjustment because of this capacity trap and obduracy of IPPs owners to convert their thermal plants from expensive furnace oil to relatively cheap compressed gas. It will be acknowledgement of the mandate of the people that Nitti Gritty of these agreements is laid bare including their cut off dates in the national interest as no contract is made to be binding for indefinite period. The electricity tariff has to be lowered to the affordable level for the turn around of the economy.
Although the number of arbitration cases had increased, but successive governments had not paid attention to develop a specialized pool of local legal experts in arbitration and contract writing. Evolving a uniform law for standardizing contracts and arbitral framework was utterly neglected and cash strapped Pakistan was slapped with huge penalties by arbitration courts in cases of investment disputes. Hopefully, PTI government will effectively address this issue.