Quantum matters – Detention of power-ships by Pakistan

Daniel Turner Daniel Turner

On 20 June 2018, a Turkish investor sought to enforce in the US an $847.8 million ICSID award (including interest) against Pakistan following the detention of power-generation ships near the capital city Karachi.

On 20 June 2018, a Turkish investor sought to enforce in the US an $847.8 million ICSID award (including interest) against Pakistan following the detention of power-generation ships near the capital city Karachi.


In December 2008, Karkey Karadeniz Elektrik Uretim A.S. (Karkey or the Claimant), a Turkish energy company, signed a five-year contract with Lakhra Power Generation Company Ltd (Lakhra) to provide floating electricity generating units near Karachi, the capital city of Pakistan. Commercial operation of the powerships started in April 2011.

On 30 March 2012, Karkey terminated the contract following a dispute over unpaid fuel invoices. On the same day, the Supreme Court of Pakistan declared the contract void.

As part of the investigation that followed, Pakistan detained Karkey’s powerships, including the Kaya Bey, which was released in May 2014, the Alican Bey and two support vessels (Iraq and Enis Bey), which were still being detained at the date of the hearing.

In January 2013, Karkey filed a request for arbitration for breach of the Bilateral Investment Treaty (BIT) between Pakistan and Turkey.

Claimant’s position

Karkey put forward 16 heads of claim totalling $1.5 billion (before interest). This summary focuses on the two main loss of profit claims, namely:

  • $240.1 million for the Kaya Bey from detention date (30 March 2012) to June 2015 when the ship would be returned to full operations
  • $445.7 million for the Alican Bey, which was still being detained on the date on the award, from detention date to the end of its operating life (2031)

Karkey claimed the cash flows that the powerships would have generated if they had been deployed in other locations using a valuation date of 30 June 2015.

Karkey’s expert calculated a Weighted Average Cost of Capital (WACC) of 9%, including a cost of equity based on CAPM of 10.04% and a post-tax cost of debt of 6.5%.

Karkey used an interest rate of either 12%, as provided by the contract, or 8.9% based on the Pakistani sovereign bond yield.

Respondent’s position

For the Kaya Bey, the Respondent calculated lost profits of $91.2 million at 30 March 2012, the date of the alleged expropriation.

Pakistan’s expert used a WACC of 17% to 18%.This included a country risk premium of 7.5% to 9%. The WACC also included a size and project risk premium of 5% to reflect Karkey’s size and the fact that it was essentially a start-up company in that market.

For the Alican Bey, the Respondent considered that Karkey had not provided any evidence of a contract under which the ship could have continued operating until the end of its useful life. Compensation should thus be limited to the ship’s replacement cost of $120 million.

The Respondent considered that the interest rate on the loss of profit claims should reflect the cost of Karkey’s borrowings, at 7%. Other heads of claim based on the contract with Lakhra would bear the contractual rate of 12%.

Approach taken by the Tribunal

In August 2017, the Tribunal awarded Karkey a total of $500.7 million, including:

  • US$98.2 million for the Kaya Bey; the Tribunal mostly followed the Respondent’s calculation, which was deemed more reliable as it was based on a thorough analysis of historical data;
  • US$120 million for the replacement cost of the Alican Bey, and US$64.8 million for lost profits to the date the vessel could be replaced, assumed at March 2018.

The Tribunal agreed with the Respondent on interest rates and awarded interest at a rate of 7% or 12% (depending on the head of claim) compounded annually from 30 March 2012 to the date of full payment. The final award totalled more than US$847.8 million including interest.


This case illustrates the Tribunal’s approach to assessing evidence put before them to support a counterfactual scenario, in this instance evidence of contracts under which the Claimants could have continued to operate the powerships after March 2012. It also illustrates how the replacement cost of an asset can be relevant in an expropriation claim.

Case information

Claimant: Karkey Karadeniz Elektrik Uretim A.S.

Respondent: Islamic Republic of Pakistan

Case ref: ARB/13/1

Tribunal: Mr Yves Derains, President

Sir David A.O Edward

Dr Horacio A. Grigera Naon

Secretary of the Tribunal

Ms. Geraldine R. Fischer

For further information, please contact Daniel Turner

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