The Turkish ship-based power firm Karkey Karadeniz Elektrik Uretim seems determined to seek relief from an international arbitration court after failing to settle its dispute with Pakistan. The country may now be facing three costly litigation cases abroad. 

The other two are the Reko Diq case filed by Tethyan Copper Company (TCC) in the World Bank-hosted International Centre for Settlement of Investment Disputes (ICSID) against the federal and Balochistan governments, and the Kishanganga dam case filed by Pakistan against India in the Court of Arbitration located in The Hague under the provisions of the Indus Water Treaty (IWT)of 1961.

Although the verdict in the Kishanganga case is expected some time next year, the court has restrained India from constructing any permanent works on the controversial Kishanganga hydro-electricity project on River Neelum/Kishanganga at Gurez in the Indian-held Kashmir. Pakistan had stated that the dam would inhibit the river flow to its natural channel and thus harm its Neelum-Jhelum hydro-electricity project.

The court issued the unanimous order in September last year on an appeal filed by Pakistan for ‘interim measures’ arguing India was diverting the flow of the river and thus violating IWT between the two countries. There has been no activity of the court since then.

In Karkey’s case, its project manager, Asad Mahmood is reported to have said that since all attempts for an amicable solution have failed, the Turkish company is left with no choice but to seek justice from an arbitration court. Only a fortnight ago, National Accountability Bureau spokesman Zafar Iqbal had talked of a compromise settlement with the firm after recovering Rs1.65 billion from it.

A legal notice to Islamabad was sent in May this year seeking compensation in six months for the losses the company claims to have suffered after the rental service contract, signed for five years, was abruptly cancelled. In the same month, the commerce minister had turned down a request by the visiting Turkish economy minister for settling the dispute, saying after the apex court’s verdict nothing much can be done. The company will invoke the provisions of article V11 of the Pakistan-Turkey bilateral investment treaty.

In the TCC case, the ICSID tribunal has completed hearings and reserved the verdict on November 6. The TCC had invoked the bilateral investment treaty between Pakistan and Australia while moving the ICSID against the federal government. The International Chamber of Commerce is seized with the dispute between the TCC and the Balochistan government over the latter’s rejection of mining lease to the company for exploration at Reko Diq.

The TCC is a Canadian-Chilean consortium of Barrick Gold and Antofagasta Minerals formed 18 years ago to explore gold and copper in Reko Diq, a small desert town in Chagai district of Balochistan, located in the Tethyan copper belt known for having fifth largest deposits of gold and copper in the world.

The Supreme Court of Pakistan which continues to hear the case simultaneously warned the federal government on November 16 that it would be held responsible if the ICSID issued an adverse verdict in this case. It wants to know under which law the TCC had been given mining rights and what provoked it to approach the ICSID if the agreement was transparent and legal. Fears of an adverse verdict gained currency after the ICSID tribunal raised the question (during arbitration process) as to who would be liable to pay compensation to the TCC if the contract was declared null and void.

Bilateral investment treaties are known to be pro-investor and grant foreign investors the right to directly sue the host states at international tribunals which usually favour them in their verdicts. Most of the tribunals hold their meetings in secret unless agreed otherwise by both parties. Opportunities to challenge their awards are very limited. Philip Morris, Total, Siemens and Cargill have all taken countries to arbitration, with Sri Lanka suffering the first award against a developing country in 1990. There are around 2,500 BITs worldwide.

Currently, the world is witnessing a surge in arbitration cases. According to UNCTAD, the number of arbitration cases has grown from five in 1995 to a total of 390 cases by 2010. A major factor contributing to the rapid growth in cases has been the take-over of legal business by a new breed of lawyers and legal firms who specialise in settlement of disputes. As a result, it has emerged as a big business for these lawyers. Average hourly rates for appearing in the court range from $500 to $1000 an hour.

Since the cases are handled by a team of lawyers and the arbitration process takes two or more years to complete, the legal bill for countries, particularly those in the Third World, is prohibitive. Similarly, an arbitrator earns $3,000 a day. In a recent award made to Chevron, Ecuador’s costs for legal representation and assistance came to $18 million dollars.

Then, in another case filed by Occidental Petroleum, the ICSID ordered Ecuador to pay more than $1.7 billion in damages to the company. Frustrated by the costly litigation, the country’s president decided to fight not to pay any money to Occidental.

Similarly, South Africa has terminated a bilateral investment treaty with Belgium and Luxembourg in the first of a series of planned scraping of post-apartheid-era agreements now coming up for renewal.

These BITs, it says, were signed in a hurry to attract investment after apartheid but have proved to be of little benefit. But the western investors and trade officials are worried over its measures being taken in frustration.

South Africa has 13 agreements with EU states and all of them are to be cancelled. Existing investments will enjoy the same protection for 10 years, but new investments will not be covered by the agreements. Karel de Gucht, the EU’s trade commissioner, told a recent conference that he was ‘disappointed’ at the recent move, which will “certainly affect the investment climate in that country”.