ISLAMABAD: In another arbitration setback, the London Court of International Arbitration (LCIA) has in its final award asked Pakistan to pay more than Rs14 billion to nine independent power producers (IPPs).

A senior government official told Dawn that the final award was not binding because its very basis was under litigation in sovereign Pakistani courts under the law of the land.

“The government is thoroughly examining the award and will exhaust all available options to defend the case,” said a spokesman for the ministry of energy’s power division.

The LCIA held that its partial final award required the National Transmission and Dispatch Company (NTDC) to implement expert determination within 75 days from the date of expert award, but the company failed to do so, hence the final award along with mark-up payments to the IPPs.

The nine IPPs in the case are Atlas Power Limited, Liberty Power Tech Limited, Nishat Chunian Power Limited, Nishat Power Limited, The Hub Power Company Limited, Saif Power Limited, Orient Power Company (Pvt) Limited, Sapphire Electric Company Limited and Halmore Power Generation Company Limited.

Interestingly, the sponsors of some of these IPPs have been securing contracts for the past four years to set up mega power projects as the international arbitration progressed. These companies had signed a memorandum of understanding (MoU) with the government as part of settlement of Rs480bn circular debt in 2013 outside the court.

Govt says very basis of London Court of International Arbitration’s final award is under litigation

Differences between the IPPs and the NTDC had developed in January 2011 over non-availability of plants due to fuel shortage which the companies blamed on non-payment of dues by the NTDC. It led to severe liquidity crunch as the IPPs were unable to procure fuel for operating their plants at full capacity.

Sources in the IPPs said the LCIA’s final award had rejected all submissions, arguments and requests to the contrary by the NTDC and finally resolved all claims and defences in this arbitration.

The LCIA “ordered the respondent to pay the claimants Rs10.977 billion pursuant to the expert determination, Rs2.547 billion as pre-award interest in respect of expert determination, Rs82.82 million for breach of the arbitration agreements, Rs15.16 million and US$5.51 million constituting the claimants’ costs of the proceedings, and British pound sterling 271,417 constituting the claimants’ LCIA costs of the Arbitration”.

The LCIA also ordered payment of interest on all amounts awarded to the IPPs at Kibor-plus 4.5 per cent, compounded semi-annually, from the date of the final award (being Oct 29, 2017) and until full payment of these amounts by the respondent.

The power producers said they had approached the LCIA as a last resort due to continuous failure of the NTDC and its guarantor, the government of Pakistan, to make payment and resolve capacity deduction issue.

The IPPs invoked the Supreme Court’s jurisdiction under Article 184 (3) in 2012 and the court directed the NTDC to pay the outstanding amount, but the company cleared only some amount and signed an MoU with the IPPs and the government to resolve all issues by invoking the dispute resolution mechanism set out in the power purchase agreements (PPAs).

As an expert, retired Justice Sair Ali ruled that NTDC’s commitment to pay within 30 days must precede IPPs’ obligation to maintain a 30-day inventory, and deductions by the NTDC were unauthorised. However, Justice Ali’s verdict was not implemented and the IPPs approached the LCIA, requesting it to declare the expert determination final and binding as per the PPA provisions.

The spokesman for the power division said the expert determination on the basis of which the final award had been announced was still under litigation in the country’s high court, besides a separate litigation in a civil court.

He said the NTDC had taken the plea that since the expert determination had been under litigation and suspended by the appropriate court, the award should not be based on it.

Published in Dawn, November 1st, 2017