ISLAMABAD: The federal government is to bear the brunt of over Rs 7.6 billion due to settlement agreement with Turkish firm, M/s Karkey Rental Power Plant Power, well informed sources in Finance Ministry told Business Recorder. Sharing details, the sources said a loan of Rs 6.4 billion was obtained with respect to Karkey Rental Power Plant from National Bank of Pakistan (NBP) by executing Syndicated Finance Agreement between Lakhra Power Generation Company Limited (LPCCL - GENCO IV) and NBP on 9 May, 2009 against Government of Pakistan (GoP) sovereign guarantee; and it was obtained and fully utilized for 14.16% (US S 80 million) down payment to Karkey in respect of 231.8 MW Rental Power Plant (Karkey RPP).
The contract was awarded by GoP to Karkey and assigned to LPGCL (GENCO-IV) for its execution on 6 Nov 2008, and the Rental Services Contract (RSC) was executed on 5 Dec 2008 and revised and restated on 23 April 2009.
The sources said since the tariff of an RPP could be determined only to a Nepra licenced resident company, hence, the Karkey RPP was assigned to LPGCL for execution as a special assignment in view of the then prevailing power crises in the country; and that LPGCL being 100% State Owned Entity (SOE) was used as an agency on behalf of GoP.
NBP loan was to be repaid in 60 equal monthly installments of Rs 106.667 million each, starting from 31 December 2009 to be completed on 30 November 2014 with markup at one-month KIBOR plus 215 basis points.
The sale price of the NBP Finance Facility was Rs. 10.715 billion composed of the principal amount plus mark-up, out of which Rs 4.933 billion had been paid to NBP during the course of the RSC.
Meanwhile, Supreme Court of Pakistan in its decision of March 30, 2011 declared all the Rental Power Plants (RPPs) void ab-initio and rescinded them forthwith and directed NAB to investigate and recover the amounts from those responsible.
The sources said the liabilities recoverable from Karkey were calculated to be $ 128.135,897 as on November 30, 2012. An Admiralty Suit, No. 07 of 2013, was also filed against Karkey in the High Court of Sindh at Karachi for recovery of the amount. The SHC issued arrest orders, on May 29, 2013, for 4 vessels of Karkey in Pakistan territorial waters, at Port Qasim.
Karkey filed an arbitration Suit against Pakistan in International Centre for Settlement of Investment Disputes (ICSID).
The sources maintained that due to scrapping of the RPPs the loan amount could not be repaid to NBP in full and due to default NBP called sovereign guarantee which remained un-entertained due to Karkey arbitration.
The sources said pursuant to rules NBP resorted to Lahore High Court for recovery and made LPGCL, GoP and NTDC parties, for recovery of Rs.7,630,633,642 along with markup, interest, etc. The court decided the case in favour of NBP, on July 31, 2018 and its execution of petition No. 232968/2018 for recovery of the decretal amount is under proceedings at LHC.
Power Division argues that a settlement agreement was executed on 20 December 2019 between Government of Pakistan (GoP) and M/s Karkey concerning the full and final resolution of the arbitration proceedings at ICSID Tribunal. The cabinet, on December 3, 2019 approved the draft settlement agreement and authorization of the office/ Division of the GoP to execute the agreement on behalf of GoP.
Pursuant to the settlement agreement, the admiralty suit at SHC, for recovery of $ 128,135,897 from Karakey was withdrawn and the court rendered an order on January 15, 2020 for release of all arrested Karkey vessels. ECC approved the summary, on January 29, 2020 for waiver of all charges, levies, taxes and encumbrances against Karkey till departure of all Karkey vessels from the port, which was ratified by the cabinet on February 11, 2020.
The Karkey RPP was assigned to LPGCL for execution as a special assignment with all the financial costs and burdens relating and consequential to the assignment, including the NBP loan under question, pertaining to the assignment. Further, the balance sheet of LPGCL is negative and it has no funds to pay off any liability.
Pursuant to the Settlement Agreement the recovery claims against Karkey and its vessels by means of admiralty suit have also been withdrawn, hence, the loan and markup amounts cannot be expected to be paid out of recovery from Karkey.
Power Division has proposed that ECC of the Cabinet may allow in relation to the Settlement Agreement between GoP and Karkey: (i) write off of all the recoverable amounts by NBP in relation to Civil Org. Suit No. 19576/2017 - NBP verses LPGCL, GoP and NTDC, and execution applications ancillary thereto amounting to Rs.7,630,633,642 along with markup interest, cost, and other charges; OR (ii) to allocate GoP grant to NBP in relation to Civil Org. Suit No. 19576-2017 - NBP verses LPGCL, GoP and NTDC and execution applications ancillary thereto, for settlement of Rs. 7.630.633.642 along with markup/ interest, cost, and other charges.
Finance Division, in its comments, has supported writing off the entire recoverable amount of Rs 7.64 billion.—MUSHTAQ GHUMMAN
