Karkey fine

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IT is a welcome development that the government has succeeded in negotiating a waiver of the fine imposed on the country in the dispute with Karkey Karadeniz, the Turkish company that had set up a rental power plant in Pakistan and that became the subject of intense judicial intervention. The amount that was awarded to Karkey by the International Centre for the Settlement of Investment Disputes was $1.2bn, a substantial sum for a country that is on an IMF programme. Having the disputed amount settled through the government’s intervention has surely helped the country.

Also Read: Pakistan absolved of paying $1.2b penalty to Karkey

What is worth considering here, however, is how much it took to extricate the government from the mess that was created by that judicial intervention in a set of commercial agreements. The governments of Pakistan and Turkey had to take up the matter at the highest levels — such accommodations do not usually come without some sort of quid pro quo. So if Pakistan has saved itself from being obligated to pay a fine of $1.2bn, it is hopefully because of a goodwill gesture on the part of Turkey. Moreover, the option to settle via government channels is not open in other disputes where Pakistan is facing similar fines, most notably in the case of the Reko Diq arbitration. Such extraordinary interventions are possible in limited cases, and even in those it is debatable whether they are worth the cost that they must inevitably entail. There is no substitute, in short, for a sound policy environment and enduring respect by the various pillars of state for each other’s responsibilities. In the case of the Karkey dispute, there is the real possibility that new disclosures made subsequent to the case might have played a role in helping persuade the Turkish authorities to waive the fine. But the real lesson here is that acting without solid evidence, particularly when it comes to foreign investors who enjoy certain protections, carries enormous costs for the country.

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Published in Dawn, November 6th, 2019

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