ISLAMABAD: The London Court of International Arbitration (LCIA) has reportedly rejected the plea of National Transmission and Despatch Company (NTDC) against nine Independent Power Producers (IPPs) and ordered the state-owned company to withdraw application from a Lahore-based civil court and refrain from taking any further step which can disrupt arbitration, well informed sources told Business Recorder.

The following nine IPPs had approached the LCIA: (i) M/s Atlas Power Limited; (ii) Halmore Power  Generation Company Limited; (iii)  The Hub  Power  Company Limited; (iv) Liberty  Power  Tech  Limited; (v)  Nishat Chunian Power  Limited; (vi) Nishat Power Limited; (vii) Orient Power Company (Private ) Limited; (viii) Saif  Power  Limited; and (ix) Saphire Electric Company Limited.

The IPPs have filed enforcement claims against NTDCL in light of the determination given by an expert under the Power Purchase Agreements (PPAs) with NTDCL. The decision was in favour of IPPs which NTDCL failed to challenge within the prescribed time limit.

The LCIA arbitrator has rejected the arguments of NTDCL with regards to its assertions that the performance of the arbitration agreement is illegal, the purpose of arbitration is unlawful, and the arbitration agreement is incapable of being performed by either party, the sources added.

The LCIA arbitrator found that the interests of the NTDCL, PPIB and the GoP are very closely aligned, speaking generally and as concerns the outcome of the PPIB application before the Civil Court Lahore and arbitration. This is clear from their unitary ownership structures with the GoP at the head and the GoP’s exclusive control over managerial appointments to the boards of the two government entities. The issue needs to be considered also in the context of the surrounding circumstances and merits of the PPIB Application before the Civil Court Lahore.

The LCIA further found that taking into account its findings earlier regarding the close alignment of the interests of PPIB, GoP and NTDCL, both in terms of their ownership structures and their interest in the validity of the expert determination decision and the arbitration, the LCIA arbitrator agreed with the claimants’ submission that the proceedings before the Lahore Court are contrived. The timing of the application considered in the context of close relationship between the entities arouses strong suspicion in this regard in the mind of LCIA arbitrator.      

When contacted Barrister Asghar Khan, a power sector and legal expert, opined that NTDCL had raised “irrelevant” grounds before the LCIA and was unable to satisfy the Arbitrator with regards to the genuineness and good faith of PPIBs application before Civil Court Lahore with regards to suspension of expert determination which had allowed payment of capacity charges to the IPPs due to delay in payments by the NTDCL, a proposition unavailable to the IPPs under the (PPAs). Moreover, NTDCL counsel allowed clubbing of all claims by the IPPs resulting in syndication and consortium of IPPs in single proceedings which will be hard for NTDCL to defend although all the claimant IPPs have separate PPAs and causes of actions are varied.

Barrister Asghar contended that the NTDCL has “failed” to show that the GoP as the guarantor under the GoP guarantee cannot be notionally imputed with same rights and obligations as NTDCL under the PPA. The arbitrator himself acknowledged that the expert did not imply PPIB/GoP as a party to the expert determination proceeding in a manner that would cause it to be subject to full liability as a party to the bilateral PPAs and yet it came to the conclusion that all the entities NTDCL, PPIB and GoP have the same interest in outcome.

“Having similar interests is not legally barred but that does not imply that all these entities are same,” he added.   The arbitrator further found that the expert determination imposed no liability/obligations upon PPIB. The findings of the arbitrator have gone unchallenged unfortunately, he said.

Barrister Asghar noted that the GoP/PPIB is kept out of the arbitration proceedings before LCIA in order to avoid any finding of co-extensive liability under the IA and the guarantee as these are separate legal instruments which will come into effect subject to the outcome of NTDCL IPPs’ arbitration upon crystallization of claims so that GoP should save its remedies for a rainy day. It is in the interest of NTDC to invoke substantive issues before the LCIA with regards to illegality and unlawfulness of deemed capacity payments that is payments when the IPPs were not available for power generation under the laws of Pakistan in breach of express clauses of the PPA especially when LCIA arbitrator has found the laws of Pakistan to be laws of arbitration agreement between the parties.—MUSHTAQ GHUMMAN