Home »Articles and Letters » Articles » Reko Diq: Exorbitant penalty or small price to pay?
Prime Minister wants to set up yet another Commission. The latest one seeks to assign responsibility for the abortion of Balochistan's Agreement with Tethyan Copper Company (TCC). The terms of reference of the Commission are yet to be made public but ostensibly the intention is to name and shame (or worse?) people who might have had something to do with our 'reneging' on the Agreement.

We think the idea of such a Commission is wholly misplaced. What led the Government of Balochistan to deny to TCC the mining lease (ML) is well known, and was surely the basis of our defence before ICSID (International Centre for Settlement of Investment Disputes).

The idea also carries the risk of jeopardizing further negotiations with TTC. TTC has the ICSID ruling in its favour but like any decree-holder knows quite well the distance between a verdict and its satisfaction. Indeed, it can be a Pyrrhic victory: you won the case but the defaulter can't pay!

Surely, TCC would want to negotiate, despite the favourable verdict. TCC Chairman William Hayes hinted as much when he said, following the ICSID ruling, "We remain willing to reach an agreement with Pakistan". Being serious business players they would have little interest in getting PNSC ships 'arrested' or our assets abroad attached!

If further talks are on the cards, if the fat lady has not sung yet, would it be wise to undertake public investigations into who did what to scuttle the Agreement? Wouldn't it weaken our negotiating ploy if in forming the Commission we are suggesting we were wrong in revoking the Agreement?

Knives are already out. The most succulent lamb to roast is CJ Iftikhar Chaudhry. Add the Steel Mills and Karkey spices and he is the most perfect dish. And, aloha, the case for judicial restraint is settled: Supreme Court should stay clear of such complex cases as it lacks the expertise. What sophistry!

Those rushing to pass a guilty verdict against Iftikhar Chaudhry overlook that Reko Diq was not suo motu action. It ensued from Tariq Asad's constitutional petition towards the end of 2010, followed by more petitions, including of 26 senators led by current cabinet Minister Azam Swati. Earlier, in 2006, the exploration license had been unsuccessfully challenged before the Balochistan High Court.

They also get their timelines wrong. Supreme Court did not give its judgment - holding the Agreement 'illegal, void, and non est' - until 7 January 2013; but TCC's cause of action had got triggered much before that - in February 2011, when it applied for ML. It proceeded to commence arbitration proceedings as early as November 2011.

Of course, we should honour our commitments with investors, and it matters little if the Bilateral Investment Treaties (BIT) we signed (including with Australia that gave ICSID jurisdiction in this case) were poorly negotiated. What does matter is when it has outright exploitation written all over it.

Way back in 1993 when BHP Minerals of Australia showed interest in Reko Diq, where Geological Survey of Pakistan's exploration had already established very interesting prospects, Balochistan officialdom rolled out the red carpet. Everyone wanted to take credit for enticing a major mining company into the impoverished and troubled but mineral-rich province.

Between that glint of Solomon's fortune and blindness to its capacity imitations Balochistan became an easy prey for exploitation; not in the geological sense but snatching a candy from a child sense. The candy flipped through several hands - from BHP to Mincor to TCC (does Muslim Lakhani ring a bell?) to Atacama(an equal-share partnership between Antofagasta of Chile and Barrack Gold of Canada).

Flipping cost Antofagasta-Barrack partnership a cool 250 million dollars. Obviously, someone was seeing something there!

What was Balochistan getting out of it? A few hundred jobs and the usual Corporate Social Responsibility giveaways like schooling and healthcare. That's about it - all that would have been there no matter who got the concession.

TCC even sought to bind Balochistan from making any fiscal or regulatory changes over the 50 years life of the concession. In other words, it could not even jack up its princely royalty rate of 2% that it charged on mineral extractions, mostly from local coal mines. Also, it would have little control over determination of returns on its 25% equity share.

All that TCC had to show for its 16 year hold over the area, and the purported 200 million dollars plus of expenditure, was a feasibility report covering only two of the fourteen deposits. To those in Balochistan who could wade through this report (prepared by SNC-Lavalin, subsequently black-listed by World Bank) it appeared everything had not been shared.

To secure maximum value addition Balochistan was insisting on local smelting. TCC refused, on the pretext that smelting outside was cheaper because of lots of idle global capacity. Instead, they proposed to construct an almost 700 km pipeline to Gwadar to transport the slurry for onward dispatch for smelting. Really?

Resource nationalism is the refrain of countries with riches but not the technical and financial resources. Reko Diq is instructive: the sheer one-sidedness of the Agreement is hard to miss.

Government of Balochistan bent over backwards to accommodate TCC - from 13 relaxations to its Mining Concession Rules (1994), to the Addendum (2000), to the Novation Agreement (2006). It kept extending the licences until 2009 when the rules clearly limited their validity to two years (extendable only once, for three years, provided feasibility had been initiated).

What was Balochistan being promised from the bonanza, estimated at a minimum of $ 100 billion, perhaps closer to 250 billion? Not even a pittance. It is significant that despite Balochistan's open resistance, if not outright hostility, TCC claimed 'specific performance', i.e. grant of ML, when it first went into arbitration. Only when it failed to get 'provisional measures' towards this end (ICSID 1212) that it shifted its stance to damages/loss of profits.

We are all for a Reko Diq Commission - to enquire into who got us into this one-sided Agreement; not who scuttled it. The fault was in getting into it, not getting out of it.

The second term of reference of the Commission should be to determine if the ICSID verdict is a small price to pay for this deposit. We think it is.

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Copyright Business Recorder, 2015


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