Reko Diq Deal

The federal and Balochistan governments and two international firms — Antofagasta PLC and Barrick Gold Corporation — have reached an agreement in principle on a framework to reconstitute the development project at Reko Diq which is one of the largest undeveloped copper and gold deposits globally, capable of producing 200,000 tons of copper and 250,000 ounces of gold a year for more than half a century. The historic development came on March 20 when the federal government, the Balochistan government, and Barrick Gold Corporation of Canada signed the agreement after successfully resolving the longstanding dispute with the Tethyan Copper Company (TCC). Under the out-of-court deal, an $11 billion penalty, slapped against Pakistan by a World Bank arbitration court, and other liabilities will be waived and Barrick and its partners will invest $10 billion in the project, including one billion dollars to be invested in social uplift projects such as roads, schools, hospitals and creation of technical training institute for mining. The investment shall create over 8,000 new jobs and will make Balochistan the largest recipient of foreign direct investment in Pakistan.

What is Reko Diq?
Located in the Chagai district of Balochistan, Reko Diq hosts one of the world’s largest undeveloped copper and gold deposits. It has estimated resources of 12.3 million tonnes of copper and 20.9 million ounces of gold. A total of 14 mineralised porphyry bodies have additionally been discovered, making Reko Diq one of the world’s significant undeveloped copper prospects.

How did we get here?
To understand why we are 30 years behind schedule we have to turn back the clock. The history of Reko Diq has been turbulent to say the least, since its discovery in the 90’s, it has been mired in controversy. These delays can partly be attributed to the remote and rugged location of these minerals in the remote hills of Chagai wedged between the borders of Afghanistan to the North and the Iranian border to the South.

The main reasons that has caused these colossal delays is a combination of facts that are nobody’s fault but our own for the most part. Firstly, as is apparent and indicated by the fact that Pakistan globally is ranked among the lowest on Corruption Perception Index, which means most of us believe that the people in power are corrupt in some way or another. It’s not hard to look up examples of this either, this is one of the reasons that greatly concerns international investors.

After signing an agreement with Balochistan’s then-caretaker administration, led by chief minister Naseer Mengal, the resources were initially discovered in 1993 by the Australian corporation, BHP Billiton. The ‘Chagai Hills Exploration Joint Venture Agreement’ (CHEJVA) gave BHP a 75 percent stake in the venture, while the government got a 25 percent share on a joint-investment basis with a 2 percent royalty.

In 1996, the Joint Venture received ten Prospecting Licences (PLs) for a total area of 1000 square kilometres. Up until 1999, BHP conducted reconnaissance and extensive studies in these areas, reporting substantial quantities of copper, gold and other metals at Reko Diq. The Joint Venture then surrendered eight PLs while keeping two PLs from Reko Diq.

To get a better picture of what the situation was, we need to understand what was happening in Pakistan and the region at that time. To put it bluntly, at the time, the military and political establishment was at each other’s throats. These uncertainties were a cause of concern for all international businessmen as there was no way to be sure of what can happen.

Pakistan’s nuclear ambitions during the 90s were at their peak, pressured by the Indian tests in the 70’s. Pakistan focused on going nuclear to maintain deterrence towards its Eastern front with India. This brought with it sanctions and condemnations from the US and other global powers, this had a huge impact on the overall economic position of Pakistan during that period.

BHP stopped exploratory activities in April 2000 around a year after Pakistan’s nuclear tests. The operations were then transferred to Mincor Resources, an Australian business. The company didn’t make any progress up till 2006. Mincor was purchased by TCC in the same year (2006), which is a subsidiary of a joint venture between Barrick Gold, based in Canada, and Antofagasta, based in Chile.

In the same year (2006), former MNA of Jammat-e-Islami Maulana Abdul Haq Baloch challenged the legality of CHEJVA in the Balochistan High Court. He claimed that CHEJVA was carried out in violation of applicable Pakistani laws, that the parties failed to properly register the agreement, and that the Balochistan government unlawfully loosened local legislation in order to carry it out. The high court, on the other hand, overruled the case and declared CHEJVA to be lawful.

It took the government 11 years to realise that something was amiss with the CHEJVA that raised questions regarding its legality. It is highly unlikely that the issue was raised because our politicians “cared” about the adverse effect such a deal would have on the people of Balochistan.

In 2006, Pakistan ranked 142nd out of the 163 countries as per data analysed by Transparency international. To put that into perspective our Corruption Perception Index score was comparable to the likes of Sierra Leone and Republic of Congo.

The TCC performed a bankable feasibility assessment in 2010 that laid the groundwork for excavation and construction at Reko Diq. The TCC feasibility study estimated that 12.3 million tons of pure copper and 20.9 million ounces of pure gold would be extracted during a 56-year timeframe.

Roughly 2.2 billion tonnes of the minerals are commercially extractable out of a total of 5.9 billion tonnes. The Reko Diq mines are said to cover an area of 13,000 square kilometres.

The petitioners, dissatisfied by the Balochistan High Court’s orders in 2007, filed petitions with the Supreme Court, challenging the licences granted to TCC on the grounds of lack of fairness, non-transparency, violations of laws, and concerns to Balochistan’s and Pakistan’s vital interests.

In a detailed order issued in 2011, the Supreme Court’s three-member bench, led by Chief Justice Iftikhar Muhammad Chaudhary, held that the 1993 agreement was contrary to law and public policy, and that the agreement, as well as the consequent adjustments made to it, were void.

By the time the provincial government suddenly declined to award them the mining lease, an investment of more than $220 million (Rs35 billion) had already been made, according to TCC. Before any mining project is carried out, there are a lot of studies and surveys involved. This part of the project is extremely important to conclude whether the minerals are present or not and if it is economically possible to extract said minerals.

TCC claimed that it had done all necessary to earn a legal entitlement to a mining lease for Reko Diq through 10 years of research and feasibility work that cost hundreds of millions of dollars. However, the Supreme Court ruled that the CHEJVA was null and unconstitutional, and that TCC no longer had the right to Reko Diq.

The company then filed a complaint with the International Centre for Settlement of Investment Disputes (ICSID) in 2012, claiming $11.43 billion in damages after the Balochistan government denied the company’s request for a lease.

In January 2013, when the case was heard at ICSID, the Supreme Court of Pakistan had already declared CHEJVA illegal and ruled that the TCC had no statutory rights to develop and mine in Reko Diq. Based on allegations of corruption and a violation of mining regulations.The government actually wanted a higher royalty rate, increased involvement of the local populace and a revision of the overall financial model.

A major setback was the fact that as per CHEJVA, ICSID had the ultimate authority to rule on this matter. And in July 2017, the ICSID ruled against Pakistan, saying that there had been no wrongdoing in CHEJVA, the premise on which Pakistan’s Supreme Court had terminated the agreement.

Consequently, TCC was granted a whopping $5.976 billion (Rs950 billion) in damages by a World Bank tribunal of the International Centre for Settlement of Investment Disputes (1CSID) which declared that Islamabad had violated the Pakistan-Australia Bilateral Investment Treaty and that Pakistan unlawfully denied the TCC a lease to mine copper and gold deposits at the Reko Diq mine.

However, only days after this verdict, PM Imran Khan set up, in August 2019, a special committee to steer the talks to aim for the early development of the mines. In this effort, the federal and provincial governments were assisted by international advisors. So, after these negotiations, the recent agreement has been signed and it bodes well for the future of this project.

The deal
According to settlement, 50% of the new project’s shares will be owned by Barrick Gold, while the remaining shares shall be owned by Pakistan, divided equally between the Centre and the Balochistan government. The federal government’s shares of 25% will be divided equally among three state-owned entities – namely the Oil and Gas Development Corporation Limited (OGDCL), Pakistan Petroleum Limited (PPL), and Government Holdings Pakistan Limited (GHPL).

Balochistan’s shares shall be held by a company wholly-owned and controlled by the provincial government. As part of Imran Khan’s vision for Balochistan, the provincial government’s share of capital and operating expenses for the project shall be borne by the Centre. In other words, the Balochistan government will not incur any expenses in development of the mines. Its share of expenses shall be borne by the federal government.

To ensure optimal utilisation of the nation’s mineral wealth, the government is also considering setting up a smelter. Moreover, to ensure the deal is compliant with all the laws, the government will submit the matter before parliament and the Supreme Court.

Conclusion
Indeed, the new agreement seems to be an improvement from the past when international investors held 75% of the project. But questions remain. For instance, the details made public so far don’t inform us if the investor plans to set up a refinery at Reko Diq for exporting precious metals or intends to take minerals out of the country in their raw form like the Chinese operator in Saindak. In case Barrick decides to export the metals in their raw form, do we have the capacity for determining the quantity extracted and moved out of the country, and to verify the exact revenue? Will there be a cap on the quantity of minerals to be excavated annually? Will Barrick and Pakistan share the anticipated investment equally according to their shareholding? If yes, where will $5 billion come from for investment in five to six years? The government owes it to the people of Balochistan as well as the rest of Pakistan to make all the details public for the purpose of transparency.
The writer is an Advocate High Court.