Ambush at Reko Diq

Irfan HusainJuly 20, 2019

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THE sum the international tribunal for investment settlement has awarded the Tethyan Copper
Company (TCC) is a cool $5.9 billion. This nearly equals the IMF bailout of $6bn that Pakistan has
been negotiating for months, and that has now been approved, albeit with many strings attached.

Prime Minister Imran Khan has set up a commission to fix responsibility for this staggering loss.
Meanwhile, the TCC has signalled its willingness to negotiate the amount we finally fork out. But there is
little doubt that after winning its case after years of arbitration in which Pakistan is said to have spent $100
million in legal fees, we will have to pay the firm a large percentage of the amount of the award.

However, I fear the prime minister’s commission will be wasting its time because we know who was
ultimately guilty of causing this colossal loss. In his freewheeling days as Pakistan’s chief justice, Iftikhar
Chaudhry went about his merry way, issuing suo motu notices, humiliating politicians and bureaucrats, and
even removing an elected prime minister. He has also caused the exchequer massive losses by his cavalier
disregard of economic realities. The Reko Diq disaster was only one of a series of ill-informed judgements
that we are having to pay for years after his retirement. This newspaper carried a recent editorial going
over this case in some detail.

Had Chaudhry permitted the privatisation of the Pakistan Steel Mills to go through, taxpayers would not be
saddled with the billions of debts this white elephant devours every year.

ARTICLE CONTINUES AFTER AD

The disaster was only one of several questionable judgements.

In both cases, Chaudhry cited corrupt practices as reasons for his intervention, although this was not
proved at any stage. In fact, some have asked whether it would not have been preferable to overlook any
suspected transgressions on the part of the entities mentioned in order to avoid the billions in penalties and
losses that we are now stuck with.

Another thing the higher judiciary ignored at that time, at our peril, was that to attract foreign investments,
we need to establish our credentials as a country where investors have a level playing field. As it is,
interference by institutions in the affairs of others makes it very difficult to conclude deals and make a
profit. This can lead to a poor reputation for the country.

This is especially true of long-gestation projects in the mining sector. TCC, for example, spent $220m over
five years to undertake detailed technical and financial studies of the potential of the copper and gold
deposits at Reko Diq. No wonder the company felt aggrieved when it was told that it would not be granted
a mining licence. Although its case was upheld by the Balochistan High Court, the Supreme Court under
Iftikhar Chaudhry very quickly overruled the judgement and brought the project to a halt.

And this brings us to a crucial point: should cases be taken on if technical expertise is lacking and the
realities of global finance do not appear to be well understood? Reko Diq is the perfect example of how to
discourage investment.

If the prime minister’s commission finds that Iftikhar Chaudhry was responsible for coming to a decision
that led to this loss, what will this government do? Ask him to reimburse the $5.9bn? A mild rebuke is the
best we can hope for.
It does seem that accountability is for politicians and civil servants only. The military establishment claims
it has its own in-house anti-corruption mechanisms in place. True, the Supreme Judicial Council is
operational, but we must ask how often we have heard of judges facing charges for suspected wrongdoing
over the years. In fact, a huge backlog of cases has been allowed to accumulate (2m and counting) in
courts across Pakistan.

Against this backdrop, it is somewhat surprising to assume that our judiciary has the answers to Pakistan’s
many ills. The recently (and mercifully) retired chief justice, Mian Saqib Nisar, enjoyed being in the
limelight so much that he constantly issued edicts on everything from clean drinking water to school fees
to how dams should be financed and built. So much so that he brought the work of the government —
never very swift — to a virtual halt. Some say that he connived with higher forces to bring down Nawaz
Sharif.

So it is refreshing to have a chief justice who does not feature daily on the front pages of our newspapers.
Indeed, most people in other countries would be hard-pressed to name their senior-most judge.

There was a time when judges would decline invitations to social events to avoid a possible conflict of
interest. Now a judge of an accountability court can confess to hobnobbing with a dubious character, and
telling him he was pressurised to give a guilty verdict against Nawaz Sharif. How times have changed.

Military eyes role in giant copper, gold mine

Manoeuvring behind project shows growing involvement in Pakistan’s
business affairs

Published:  March 12, 2019 16:41Reuters

  

Minister of Information Fawad Chaudhry (centre)Image Credit:

Ashfaq Ahmed/Gulf News

Islamabad: Pakistan’s military is taking a key role in the development of

one of the world’s biggest untapped copper and gold deposits, which is
currently stalled by a multi-billion dollar legal wrangle with foreign mining
firms, multiple sources familiar with the situation said.

The Reko Diq mine has become a test case for Prime Minister Imran Khan’s
ability to attract serious foreign investment to Pakistan as it struggles to
stave off an economic crisis that has forced it to seek an International
Monetary Fund bailout.
Ten current and former provincial and federal government officials and
mining sources familiar with the project in the Balochistan region say the
military has become the most important voice on the future of Reko Diq,
which it sees as a strategic national asset.

The military will not only be in a position to decide which investors develop
the deposit, but an army-controlled engineering firm, Frontier Works
OrganiSation (FWO), is positioning itself to be a member of any consortium
involved, these people said.

“This has been taken over by GHQ,” said a senior Balochistan government
official, referring to the Pakistan army’s General Headquarters in the
garrison city of Rawalpindi.

In a statement in response to Reuters’ questions about its role in Reko Diq,

the military spokesman’s office said: “(The military) may only participate in
government’s plan of development of Reko Diq, as per national
requirements.” But it acknowledged that FWO, best known for building
roads through Pakistan’s rugged and lawless border regions, has developed
“substantial” mining capability in recent years and would be interested in
taking a role in the project.

“If an opportunity arises of participating in developing Reko Diq, FWO may

work at par with other competitors (or) companies provided the project is
financially viable (or) suitable,” the statement said. When asked, a
spokesman declined to elaborate on the statement.

Pakistan’s Information Minister Fawad Chaudhry said civilian authorities

in the insurgency-hit southwestern province of Balochistan were in charge
of Reko Diq and, along with Khan, would take a decision, but added that
the military “and all other stakeholders are obviously important players”.

FWO referred questions to the military spokesman’s office.

Khan’s spokesman Iftikhar Durrani said Balochistan province was in charge
of Reko Diq, and referred questions to the provincial government and the
military spokesman’s office.

The manoeuvring behind the project shows how the military, which has
historically dictated Pakistan’s security and foreign policy, is leveraging its
sway over the civilian government at federal and provincial level to carve a
growing role in the nation’s business affairs.

The army has ruled the nuclear-armed nation for nearly half its history and
is considered to have a major influence over Khan’s recently elected
government. A military spokesman declined to comment.

“The military has taken a front seat,” said Ayesha Siddiqa, author of the
book “Military Inc.”, which analyses the army’s business interests and
influence in Pakistan.

“They’ve understood that the economy is important for having a strong

military,” she said. “Control of the economy also gives the military a handle
over expanding their business interests.”

Buried at the foot of an extinct volcano near the frontier with Iran and
Afghanistan, the mine’s development has long been delayed by a dispute
with previous investors in the project, Canada’s Barrick Gold and Chile’s
Antofagasta.

The government is urgently trying to settle the dispute as a World Bank

arbitration tribunal, which ruled against Pakistan in 2017, is in the next few
months expected to announce how much in damages the country must pay
to the foreign firms, who are claiming more than $11 billion.

The dispute relates to the withholding of a mining lease.

Islamabad is also trying to find new partners to invest in the project.

But any new investors will need the blessing of Pakistan’s military,
according to government officials and mining sources.

The last serious attempt at settling the Reko Diq case was scuppered in
2016 by the military, which vetoed paying hundreds of millions of dollars to
TCC, according to a senior Balochistan official and two former senior
officials in Islamabad.

But the military has since changed its stance and is more open to a
settlement with TCC, according to a lawmaker close to the military and a
source close to Prime Minister Khan. The military was also involved in
appointing Pakistan’s current legal team.

When a mining company approached former general Abdul Quadir Baloch

about Reko Diq around 2016, when he was federal minister for the frontier
regions, he took their proposal not only to then-premier Nawaz Sharif, but
also to the army chief.

“The military has to give a (security) guarantee to any company coming in

to explore or exploit this project, so they are a stakeholder,” said Baloch.

The military declined to comment on Baloch’s assertions.

Sharif, who has since been jailed on corruption charges, could not be
reached for comment.

The army-run FWO does not have the funds or the expertise to develop the
Reko Diq project, which boasts 5.9 billion tons of ore. But it could be part of
a consortium alongside global miners who have the know-how to mine such
a gargantuan deposit.

The military’s role in developing natural resources in Balochistan also

carries risks, however, analysts say.
Indigenous Baloch people view outsiders with suspicion, and their anger
about Islamabad exploiting the province’s vast natural resources has been
one of the key themes fuelling a separatist insurgency that began around
2004.

Swati, others sought annulment of Reko

Diq mining lease in SC
Listen

ISLAMABAD: Senator Azam Swati, Minister for Parliamentary Affairs, figured

among nearly three dozens of petitioners who had challenged in the Supreme Court
of Pakistan the award of Reko Diq mining contract to Tethyan Copper Company
Limited (TCC).

Reacting to the $5.9 billion penalty slapped on Islamabad for the termination of the
Reko Diq contract, Prime Minister Imran Khan has ordered formation of a
commission to investigate as to how Pakistan ended up in this predicament. It is
understood that the persons who petitioned against lease to Tethyan will also be
quizzed. A tribunal of the International Centre for Settlement of Investment
Disputes (ICSID), seized with a dispute between Pakistan and the TCC, has
slapped the whopping $5.97bn award against Pakistan that includes $4.08bn
penalty and $1.87bn in interest.

At the time, Swati was a Jamiate Ulemae Islam-Fazl (JUI-F) senator. Ten days
after quitting this party, he had joined the Pakistan Tehreek-e-Insaf (PTI) on
December 17, 2011. At the time, he had stated that the foreign consortium namely
TCC has failed to prepare complete feasibility in the stipulated time as well as its
activity remained confined to mere 5-6km while the deposits were available in
around 8,000km area. He added that Pakistan can use services of the same
scientists and manpower who gave Pakistan the nuclear technology.

According to a report of January 24, 2011, a total of twenty-six senators including

Swati, Maulana Abdul Ghafoor Hyderi, Dr Ismail Buladi, Maulana Gul Naseeb
Khan, Abdul Ghafoor Qureshi, Eng. Malik Rashid Ahmed Khan, Mohammad
Ghufran Khan and others announced to become party in the Reko Diq proceedings
in the Supreme Court by filing a petition under Article 184(3) of the Constitution.

“Swati etc.” had filed constitutional petition number 4 of 2011 and civil
miscellaneous application (CMA) number 295 of 2011 in the apex court, according
to the judgment delivered by a three-member headed by the then Chief Justice,
Iftikhar Muhammad Chaudhry, and comprising Justice Gulzar Ahmed and Justice
Sheikh Azam Saeed on January 7, 2013 during the Pakistan People’s Party (PPP)
government.

Apart from the senators, other petitioners included the then member of the Punjab
Assembly of Jamaat-e-Islami Ehsanullah Waqas, Tariq Asad, advocate, Watan
Party and another, and Qazi Sirajuddin Sanjrani and another. Khawaja Ahmed
Tariq Rahim, advocate, had filed a human right application. An appeal against the
judgment of the Balochistan High Court (BHC), which had dismissed a similar
plea, had been bunched with these petitions invoking Article 184(3).

The Supreme Court had held that the civil petition for leave to appeal against the
BHC verdict was converted into appeal, and the appeal as well as the constitutional
petitions under Article 184(3) were allowed. In consequence, the Chagai Hills
Exploration Joint Venture Agreement dated July 23, 1993 was held to have been
executed contrary to the provisions of the Mineral Development Act, 1948, the
Mining Concession Rules, 1970 framed thereunder, the Contract Act, 1872, the
Transfer of Property Act, 1882, etc., which was even otherwise not valid, therefore,
the same was declared to be illegal, void and non est.

The judgment said that in pursuance of this declaration, Addendum No 1 dated

March 4, 2000, Option Agreement dated April 28, 2000, Alliance Agreement dated
April 3, 2002 and Novation Agreement dated April 1, 2006, which were based
upon, and emanated from, CHEJVA (Chagai Hills Exploration Joint Venture
Agreement) were also held to be illegal and void. It was further held that all those
instruments did not confer any right on BHP, MINCOR, TCC, TCCP, Antofagasta
or Barrick Gold in respect of the matters covered therein.
In 2006, Maulana Abdul Haq and others had filed a constitutional petition in the
BHC, challenging the legality of CHEJVA, validity of the act of relaxation of
BMCR (boiler maximum continuous rating) 1970 by the Balochistan government
and the failure of BHP to complete the exploration at a reasonable pace.

They had prayed that the BHC may declare that all transactions, starting from and
based upon the CHEJVA of 1992-93, including each grant of a licence or other
concession to any of the respondents and every transfer of interest in Reko Diq
leading up to the latest acquisition (whether contemplated or completed) are illegal,
ultra vines, unconstitutional and mala fide and liable to be set aside.

The BHC had on June 26, 2007 dismissed this petition. These petitioners had
sought the Supreme Court’s leave to appeal against this decision. After that others
had filed the petitions directly before the apex court under Article 184(3),
questioning the validity of the grant of licence on the ground of absence of
fairness, non-transparency, violation of laws/rules, and also alleged possible risks
to the vital interests of Balochistan and Pakistan in the grant of mining lease.

The commission being formed by the prime minister will investigate which
elements are responsible for making Pakistan suffer such a loss and what lessons
are learnt so that mistakes made are not repeated in the future. It is not yet known
who will head the forum.

Stance on Reko Diq project behind my

sacking: Raisani
BY AGENCIES , (LAST UPDATED JANUARY 18, 2013)
Former chief minister Balochistan Aslam Raisani has said that he
was sacked due to his stance on Reko Diq project.
In an interview, Raisani said that his government was ambushed
through a conspiracy because he had refused to hand over the
Reko Diq gold and copper mines.
He also thanked coalition partners for standing with him and said
that he will announce his future course of action very soon.
He further said that despite his sacking, he still enjoys the backing
of Maulana Fazlur Rehman and other coalition partners.

Reko Diq: a canary in a coal mine

Listen

Seen in a larger context, the adverse judgment of an international tribunal in the

Reko Diq case is a canary in a coal mine regarding the manner in which the
country has tried to integrate itself into the multilateral economic system. It also
warns us against the perils of making alleged corruption the leitmotif of national
narratives.

Pakistan has been slapped with a $5.9 billion penalty by an arbitration tribunal of
the International Centre for Settlement of Investment Disputes (ICSID). The
tribunal had ruled against Pakistan in 2017. Now it has announced its calculation
of the award that Pakistan is required to pay to the claimant, the Tethyan Copper
Company (TCC). The sum includes $4.087 billion in damages to the claimant,
which the arbitrators calculated as the fair value of the Reko Diq project when the
company went into arbitration, $1.75 billion in interest and $62 million in legal
costs.

A subsidiary of the World Bank Group, the ICSID provides facilities for settling
international investment disputes, particularly those involving a foreign investor
and the host government. The award handed down by an ICSID arbitration tribunal
is binding on all parties. In the event of the failure of a party to comply with the
award, the other party can seek to have the pecuniary obligations enforced in the
courts of any ICSID member state.

In the case at hand, the TCC, which is a joint venture of Canadian and Chile-based
multinational enterprises, conducted the exploratory work for mining copper and
gold in Reko Diq in district Chagai of Balochistan, and invested a pretty penny.
The company’s request for grant of a mining lease was, however, turned down by
the Balochistan government in 2011. The project feasibility report submitted by the
company was also termed unsatisfactory. Thus ensued a legal battle in Pakistani
courts, which ended when in 2013 the Supreme Court upheld the provincial
government’s decision not to award the mining project, on the ground that the
agreement between the two didn’t guarantee that the TTC would be allowed to
convert is exploration licence into a mining lease.

While the courts in Pakistan were adjudicating on the matter, the company invoked
the jurisdiction of the ICSID in 2012. The complainant rested its case on Pakistan’s
1998 Bilateral Investment Treaty (BIT) with Australia, where it was incorporated.
The treaty provides that each party shall ensure fair and equitable treatment to
investments from the other; and that – subject to its laws – it shall accord
protection and security to investments and “shall not impair the management,
maintenance, use, enjoyment or disposal of investments.”

The treaty also puts in place a mechanism for settlement of disputes arising
between the governments of the two countries as well as between the government
of Pakistan or Australia and an investor of the other state. As Pakistan is capital
deficient while Australia is relatively capital abundant, it is Australian enterprises
that will be mostly investing in Pakistan. Therefore, the investor-state dispute
provisions are almost always likely to be invoked by the businesses down under.

For resolving investor-state disputes, as in the Reko Diq case, the Pak-Australia
BIT provides for both domestic and international remedies. In the event that the
domestic judicial remedies are exhausted or otherwise, the foreign investor or the
host government may invoke the compulsory jurisdiction of the ICSID, which the
company did and got a favourable verdict. In its judgment, the ICSID tribunal has
been critical of the apex court for being ‘oblivious’ to international law and
conventions regarding agreements and contracts. However, it may also be
mentioned that – regardless of the merits of the Reko Diq case – the ICSID system
tends to favour foreign investors over host countries, especially when they fall into
the category of developing nations.

At any rate, the award handed down by an ICSID tribunal is final. However, under
the ICSID Convention, Pakistan – being an aggrieved party – has recourse to four
post-award remedies: it can request a supplementary decision; it can seek
interpretation of the award; it can get the award revised; and finally it can request
annulment of the award. In case Pakistan chooses to avail itself of any of the first
three remedies, the case will preferably be adjudicated by the original panel.

A party may request a supplementary decision on the ground that the tribunal has
omitted to decide a question in the award. In case of a dispute between the parties
with regard to the scope or meaning of the award, either may seek its
interpretation. A party may request revision of the award if a new fact is
discovered that can decisively affect that award. Finally, and in exceptional
circumstances, a party may seek annulment of the award on the ground that the
arbitration process circumvented fundamental legal principles. If the annulment
challenge is successful, a party may request constitution of another tribunal to hand
down another award.

While opting to use any of these remedies, Pakistan may also seek stay of the
award’s enforcement. Of course, an ‘out-of-court’ settlement is always open. The
TCC has also indicated its willingness to strike a deal with the government.
While the Reko Diq case will be settled one way or the other, it points to a deeper
malaise: Pakistan has gone headlong into opening up its economy over last three
decades in the name of economic reforms. It all started in the 1990s when customs
duties were scaled down in the name of tariff rationalization. From 225 percent in
1988-89, maximum applied import tariffs were slashed to 100 percent by 1992-93.
Likewise, average applied tariffs, which were 91 percent in 1992-93, were cut to
51 percent by 1995-96. By 2007-08, the average applied tariffs were further
curtailed to 13.5 percent.

Few other developing countries have reduced import tariffs so drastically. To make
matters worse, the economy was opened without preparing the domestic industry
to face up to the increased foreign competition. As a result, the manufacturing
sector, which on average grew 9.9 percent during the 1960s and 8.2 percent during
the 1980s, registered modest growth of 4.8 percent during the 1990s. It was even
less than the 5.3 percent growth recorded during the 1970s – the decade of
nationalization. Thus the country had to face de-industrialization.

In a related move, since the turn of the century, Pakistan has been on a spree to
sign bilateral trade and investment agreements without shoring up the capability of
domestic stakeholders to fulfil – and in some cases to even understand – the
commitments undertaken, on the premise that the conclusion of such treaties will
be sufficient to drive up exports and foreign direct investment (FDI) inflows.

Take Pakistan’s Free Trade Agreement (FTA) with China, which came into force
in 2007. Between 2008-09 and 2017-18, manufacturing registered lackluster
growth of 3.2 percent. At the same time, Pakistan’s imports to China have gone up
from $4.1 billion in 2007 to $14.5 billion in 2018, as machinery and electronic
equipment are importable from China duty free.

The perceived relationship between bilateral investment treaties (BITs) and

increased FDI inflows is also mistaken. The key determinants of FDI are market
size, the pace of economic growth, a stable macroeconomic environment and
strong and credible institutions of economic governance. To these we may add the
strategic priorities, such as the China-Pakistan Economic Corridor (CPEC), of
world powers. The BITs, if adroitly negotiated, can complement the FDI-
conducive domestic conditions but they can never be a substitute for them.

Pakistan has a BIT with most of the major economies of the world but it has been
receiving meagre FDI over the years, because of unsuitable market conditions.
Before 2015 when CPEC started, the US was the principal source of FDI in
Pakistan with which Pakistan does not have a BIT, while China with which we
signed an investment treaty in 1989 didn’t invest much in Pakistan. By the same
token, Pakistan doesn’t have a trade agreement with the US but still it’s the
country’s largest export market with $3.8 billion exports. Conversely, Pakistan’s
exports to China are only $1.8 billion despite receiving preferential market access
under the bilateral FTA.

The writer is an Islamabad-based columnist.

Email: hussainhzaidi@gmail.com

Twitter: @hussainhzaidi

Pakistan makes final push for Reko Diq

settlement
By Hasnaat Malik

Published: January 26, 2019

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STOCK IMAGE

ISLAMABAD: Pakistan is making a last-ditch effort for an out-of-court

settlement in the Reko Diq mining case, wherein the complainant company
whose contract was terminated is claiming $11.43 billion in damages in an
international tribunal.

In a related development, Law Minister Dr Farogh Nasim and Attorney

General for Pakistan Anwar Mansoor Khan are currently in the United
States (US). Though there is no official confirmation about the agenda of
their visit, government sources have confirmed that they are trying to
negotiate on the Reko Diq issue, wherein the International Center for
Settlement of Investment Disputes (ICSID) has already declared that
Pakistan is liable to pay liability. The hearing on the quantum of the award
has also concluded, but the final award has not been announced yet. The
announcement will likely come in about five months.
Before the announcement of the award, consultations had been initiated to
avoid a huge penalty being placed on the country. Sources said that both
senior officials undertook the US visit after taking all stakeholders into
confidence.

Pakistan ‘faces $11.43b damages claims’ in Reko Diq mining case

Earlier, efforts for an out-of-court settlement were not fruitful. The
Pakistani legal team, led by Cherie Blair – the wife of former British prime
minister Tony Blair – and judges of the ICSID had also advised that
negotiations should be initiated for an out-of-court settlement. Likewise, ex-
AGP Salman Aslam Butt also tried to do the same, but was unsuccessful.

Legal experts appreciated the government making an effort to negotiate for

a lower out-of-court settlement as the country is already facing penalties
running into billions of rupees in the Karkey and Broadsheet cases. They
also expect that Tethyan Copper Company’s (TCC) management must also
realise that execution of the award would take time and annulment will also
take another couple of years.

However, it is still not clear what are Pakistan’s chances of getting to a

more reasonable out-of-court settlement. The AGP and law minister are due
back in Pakistan on January 28.

Govt to offer Riyadh stakes in Reko Diq, power plants

Uphill battle

After the case was filed, Pakistan lost its first jurisdictional challenge, when
the international tribunal said that it has the jurisdiction to adjudicate the
Reko Diq matter. After that, the tribunal declared that there was no
wrongdoing in the agreement – the grounds on which the Supreme Court of
Pakistan terminated the deal in 2013 – and eventually, the tribunal held that
Pakistan is liable to pay the damages.
The only remaining issue in the case is the final quantum of liability, which
will be announced in summer.

In 2012, TCC filed claims for international arbitration before the ICSID of
the World Bank after the provincial government turned down a leasing
request from the company.

In the ICSID proceedings, the jurisdiction and liability have been decided
against Pakistan, as the tribunal has found that Pakistan has breached the
Bilateral Investment Treaty of 1998 between Pakistan and Australia, the
Balochistan mines secretary had informed the PAC.

According to the ICSID, the Supreme Court’s decision to declare the joint
venture agreement illegal did not diminish the TCC’s Investment.
According to the provincial government, even malpractices and corruption
by the TCC did not deny it investment rights.

In 2013, the Supreme Court declared that Chejva and all of its successor
agreements were void ab initio (from the start) and that TCC had no legal
rights to explore and mine in Reko Diq. As of March 2017, Pakistan has
incurred $15.5 million in expenses on the arbitration case, while the TCC’s
expenses are estimated at $39.2 million.

A number of senior lawyers have been critical of former chief justice

Iftikhar Muhammad Chaudhry for passing judgments which in ensuing
years have caused headaches for policymakers and concern for international
investors. “Why would international investors come to invest Pakistan when
your local courts are passing judgment without considering the prevailing
circumstances,” said a senior lawyer.

Reko Diq is part of the Tethyan Magmatic Arc, which is a mineralised belt
that originates in Eastern Europe and runs through to Iran, Afghanistan and
into Pakistan. It holds an estimated 5.9 billion tons of mineral resources,
with an average copper grade of 0.41 per cent and gold 0.22 grammes per
tonne.

Major losses

Pakistan recently lost another legal battle at an international forum, as the

London Court of International Arbitration (LCIA) awarded a penalty of $21
million (Rs2.92 billion) in the infamous Broadsheet LLC case.

At present, Pakistan is facing more than three dozen cases of different types
at international courts. Many of these have been filed by independent power
producers (IPPs) seeking clearance of their pending dues, which amount to
more than a trillion rupees.

Earlier, on August 22, 2017, the ICSID had awarded $846 million in
damages to Karkey Karadeniz Elektrik Uretim, a Turkish power company
whose rental power project was cancelled by a Supreme Court bench
headed by Iftikhar Chaudhry.

According to the ICSID award, Pakistan will not only pay damages
amounting to more than $800 million, but is also bound to pay $5.6 million
(Rs590 million) per month in interest to Karkey.

f Reko Diq indeed stands on the remains of a volcano, then it is perhaps apt that the

controversial mining project in the area continues to erupt every now and then, reminding

Pakistanis that they have to pay a fortune just to keep their treasure hidden. (For a background

on the Reko Diq Copper and Gold Mines Project, read: “What next for Reko Diq,” published

March 30, 2017). However, beyond the emotions of resource nationalism lie the stone cold

economic truths. So let’s get to them.

So what has happened this time was entirely expected. After seven years of trial, the World

Bank’s investment tribunal has awarded damages to the aggrieved party, Tethyan Copper

Company (TCC). Pakistan, which had in 2017 failed to establish its case on why TCC was

denied the mining lease in 2011, has a $6 billion penalty to pay. This sum is lower than the TCC

demand, but it should be happy.

What happens next is probably not as alarming as some people fear. Firstly, Pakistan, which is

already struggling to patch up financing for its external needs this year, is not expected to pay up

immediately. Although there is limited room on which Pakistan can challenge this ruling, Pakistan

can still choose to litigate the amount awarded. That will give the country at least one year before

the award attains finality.

Secondly, and perhaps most critically, the two parties may end up striking a deal and move on.

What that compromise will look like is premature to say, but the fact that the TCC bosses have

come out publicly in favor of reaching a bargain suggests that some progress has already been

made on this matter behind the scenes. For its part, the federal government has welcomed the
company’s openness to negotiate.

Reports in the recent past have suggested that Pakistan may involve another country – Saudi

Arabia or China – to develop the Reko Diq mines. Perhaps if a stake is offered to the TCC in

place of its awarded billions, all parties can call it a win-win and go about developing the mines

happily.

That still leaves some uncomfortable questions. Though the latest ICSID ruling is not a

catastrophic event, its magnitude should spark some introspection at home in the interest of

attracting FDI to this country.

For instance, why did the apex court at the time nullify the contract between TCC and

Balochistan government without regards to international consequences? Perhaps go back a bit

earlier into the nineties and examine why bureaucrats having no area expertise settled for

pittance? Dig a little deeper and ask why the federal government didn’t much care when the

project’s foreign interest changed twice, leading to different jurisdictions for future disputes?

Lessons must be learnt, and in that context, one hopes that the premier’s commission on the

matter will help in identifying flaws in Pakistan’s policy and institutional landscape for mineral

development. Pakistan possesses several metallic minerals’ reserves, mining of which can feed

export markets and reduce the import bill. (For more on this issue, read: “Mining metallic

minerals,” published March 31, 2017).

Overseas, mining giants will rejoice this ruling, knowing well that such steep penalties can

bankrupt a low-income country and send millions more into poverty. As for platforms like ICSID

that adjudicated this matter, letting a global mining giant go scot-free on a shady deal it willingly

struck and perpetuated puts an unfair and enormous burden on honest taxpayers that had no

role or say in such matters.