Covid-19 and force majeure.

Byline: HASSAN YOUSAF SHAH

Only few months ago, it was inconceivable that international trade agreements might be cancelled under force majeure, economies like stock markets swing between extremes, and food supply chains become a point of contention between governments, but today all this is not only a possibility, it has assumed the dimensions of a fact. Pakistan is no different in undergoing such an ordeal. Pakistan too has international commitments and contracts, of which two are of pressing interest. One, being those related to oil, gas supplies and the other ones related to international debt obligations.

Amidst the advent of corona, has the government of Pakistan, decided what it will do towards unfavourable contracts? Will the government reviews some of these contracts? Whether the government can afford frustrating 'iron-clad' commitments, and how will the state of Pakistan move if such contracts are challenged in international arbitration councils? Is there a plan? Has anyone developed a plan and measured the consequences?

According to sources and newspaper reports, the Government of Pakistan is considering cancelling the international contract of supply of LNG from Qatar. The Government may also like to review many other obligations or deals, including Pakistan's debt repayments. These two distinct contracts and obligations need to be analyzed separately. Oil, gas contracts are suppl-based products, and by that definition have distinct contracts which have a force majeure clause inserted in them. The LNG gas supply contracts have been in the limelight because those contracts were dubbed as being a deal which locked Pakistan into buying 'expensive' LNG. Pakistan has been trying to wiggle its way out of the so-called LNG contract and has had different options evaluated in that scenario.

The present political government wanted to renew the contract at lower rates. Does the arrival of the coronavirus provide a reason to back out of the contract? This must be analyzed in light of international arbitration and the principle of force majeure if Pakistan is not repeat the mistakes made in Reko Diq and the Indus Water Treaty and Kishenganga. Reko Diq is more relevant in this scenario as the international contractors went and challenged the cancellation of contract in the international arbitration court. The net result was a penalty running in billions of dollars.

Bilateral agreements and loans from international multilateral organizations...