THE dispute between Pakistan and the Turkish energy firm Karadeniz Holding’s subsidiary Karkey took a dramatic turn this month after the National Accountability Bureau refused to allow one of its ships, Kaya Bey, to sail off to Dubai for maintenance inspection.

Kaya Bey was permitted to temporarily sail by the World Bank-affiliated International Centre for Settlement of Investment Disputes (ICSID), which is hearing Karkey’s petition against Pakistan, as a ‘provisional measure’ for its mandatory dry-docking by November 1.

The tribunal ruled that the claimant would have the obligation to return the vessel to Pakistan once the inspections and necessary repairs were over.

The ICSID tribunal in its October 16 decision stated that the state of Pakistan shall grant all authorisations and clearance required for the vessel’s departure, and that it shall take necessary action required to allow the vessel to depart lawfully into international waters.

The tribunal had, however, rejected all other requests of Karkey for provisional measures, including an unconditional release of all the four vessels detained in Pakistan.

Karkey was one of 12 rental power companies that were awarded contracts in 2009. However, the Supreme Court cancelled all contracts in March 2012 after learning about lack of transparency and the companies’ failure to produce power in the required quantity despite having received money in advance.

A senior government official was reported to have said last month that if the government did not allow Kaya Bey to leave Pakistani waters by November 1, it might have to pay a fine of more than Rs10 billion for violating the ICSID’s decision, even though the tribunal’s October 16 decision did not contain any such provision.

In case Pakistan loses the case filed by the Turkish firm under the bilateral investment treaty and does not implement the verdict of the ICSID, some think it may become an issue with the World Bank.

However, Pakistan is serious in contesting the case, and Rs260 million has been released to the ministry of water and power for payment of fees to the law firm that has been engaged to pursue the case, and for the ICSID secretariat fee.

NAB did not allow the Turkish vessel to sail off because the Supreme Court had stated in its judgment that it would hold the NAB chairman personally responsible if the ship left Pakistani waters without reimbursing $128 million, which the firm refuses to do.

NAB, in turn, has said that if the ministry of water and power wants to allow the Turkish ship to leave, then it should extend a guarantee of $128 million (the recoverable amount) to NAB.

The court made the payment of this amount a pre-condition last year for Karkey to leave the national waters along with its ship-mounted plants. This amount includes various payments made in advance to the firm and the penalty for not producing the agreed 232MW of electricity; the firm produced only 30MW.

Meanwhile, the dispute took a another turn earlier this month when the Sindh High Court (SHC) issued an order restraining Turkish power-ships, including Kaya Bey, from leaving territorial waters until bank guarantees for the recovery of damages and docking charges, in the sum of Rs220 million, were furnished by Karkey to the court.

The claim had been filed in a lawsuit by the Bulk Shipping and Trading Company, which said it was hired by the Turkish company for handling the four power vessels.

The SHC’s single bench observed that since the question involved the recovery of docking and shipper charges, the defendants’ ships may not leave the territorial jurisdiction of the court until further orders, or subject to the provision of bank guarantee to the extent of the amount claimed to the satisfaction of the nazir of the court.

The court also directed all concerned authorities, including port authorities, to ensure compliance of its order without fail.

Pakistan’s relations with Turkey have always been friendly and warm. Only recently, a leading Turkish business group, the Nurol Group, was seeking to invest in Pakistan’s power sector (the Gadani Power Park), despite the fact that one of its fellow groups, Karkey Karadeniz ElektrikUretim, has been in trouble by investing in the same sector. But how the new developments can affect the bilateral relations is not clear at this moment.

During the past five years, Turkish firms have invested billions of rupees in various sectors of Punjab, in particular. They entered the Pakistani market in 1992 and have since completed 37 projects worth $2.4 billion.

Karkey had opted to seek relief from the ICSID by invoking provisions of the Pakistan-Turkey Bilateral Investment Treaty, after all its attempts to have an out-of-court settlement proved futile. The case was registered on February 8, and its first hearing took place on September 16, the day Prime Minister Nawaz Sharif arrived in Turkey.

Karkey is seeking compensation of $700 million for the losses incurred by its vessels, in terms of damage or depreciation.