Pakistan’s hostile environment for private-public partnership

By Ali Salman

Originally Published in The Express Tribune, July 11th, 2016.

During the wee hours of June 24, 2016, officials of Pakistan Railways barged into one of Lahore’s premier clubs; the Royal Palm Golf and Country Club.

With the help of some 400 Railways police personnel, the management of the club was removed, and the premises were forcibly occupied.

Next day, there were advertisements in newspapers from the Railways saying that the Royal Palm Golf and Country Club has become “ex” for violation of the contract.

So much for investment climate and credibility of the government in this country; so much for Lahore’s only world class facility for events of all kinds.

Royal Palm’s management signed a lease agreement with the railway authorities for operational purposes back in 2001, and over the years, heavy investments were made to transform the club into a world-class facility.

The owners already paid a sizeable part of the amount due to the railways, and also presented the club for accountability at the National Accountability Bureau (NAB) previously. Understandably, the Club was still reporting losses.

Pakistan Railways in their advertisements referred to the losses the Railways is incurring in the same phrase where it mentioned the revenue earned by the Royal Palm Club owners, implying as if the Royal Palm Club was responsible for Railway losses.

The arbitrary and unlawful action by the government i.e. the Ministry of Railways has sent an irrevocably clear message to the private investors both home and abroad: ‘don’t even think of any public-private partnership.’

A concession was awarded in 2001, after due legal process. If 15 years on, some minister wakes up to it, and argues that the concession was offered at cheap rates, he cannot turn back on the contract and unilaterally cancel it. Or worst, even without cancelling, he cannot resort to a physical re-possession of the property under question.

But unfortunately, this is not a supposition, it is a fact.

In the last five years, there have been several incidents of unilateral actions by the courts and governments which have led to annulment of bona fide contracts with the investors.

The Supreme Court, in an order passed in January 2013, had declared void the Chagai Hills Exploration Joint Venture Agreement (CHEJVA) signed between the Balochistan government and Australian mining company BHP in 1993.

The Reko Diq case, as famously known, has become another precedent of why private foreign investors should think a hundred times before investing in Pakistan.

The gold and copper reserves in Chagai-Balochistan were long proven, however, they remained unexplored.

If one party feels that the terms should be re-negotiated, there is always a room of contractual amendments. However, if a court fifteen years later wakes up and says the price or royalty was too low, it cannot just rule the contract as void.

However, we know that it has already happened. This has also given a wrong signal to the private foreign investors in this country. There has been no private investment in the mining industry in Balochistan since then.

Also consider the Supreme Court decision in the case of Rental Power Projects in 2012. That decision led to a long battle between foreign investors and the government ultimately leading them to International Centre for Investment Disputes.

According to earlier news, Pakistan has almost lost its case against Karkey Karadeniz Elektrik Uretim at International Centre for Investment Disputes (ICSID) as the World Bank’s body has directed the Turkish power company not to return its vessel “Kaya Bey” to Pakistan. Karkey Karadeniz Elektrik Uretim that moved the ICSID has claimed $2.1 billion damages against the Government of Pakistan (GoP).

A company spokesperson had reacted to the Supreme Court decision in these words: “We became the victim of political rivalries in Pakistan and we understand now that we cannot expect a healthy and logical decision in this atmosphere from the Pakistani authorities.”

While the private investors, local and foreign alike, risk their capital to political uncertainty, judicial activism and state arbitrariness in Pakistan, the government keeps fixated  on state sponsored foreign investment, aka CPEC.

While CPEC is good news, it should not come at the cost of a level playing field, trust and credibility for all investors. Government is using police to kick out investors in one place, and is protecting investors in another. All business takes place in an environment of trust — and from Reko Diq to Rental Power to Royal Palm, the trust has become the first casualty.

 

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