Pakistan and the Tethyan Copper Company are negotiating a ‘confidentiality agreement’ as part of their out of court settlement of their dispute over the multi-billion-dollar Reko Diq copper and gold reserve in Balochistan. They have been fighting legal battles and arbitration proceedings for over five years now.

On the conclusion of their arbitration proceedings in Paris in October, the president of the International Centre for Settlement of Investment Disputes (ICSID) tribunal had encouraged the two sides to try to resolve the matter mutually before the tribunal came out with an award that would be binding on both sides.

Both sides indicated their willingness for a negotiated settlement,, since both have a fair idea of their strengths and weaknesses.

The Tethyan Copper Company (TCC) is a joint venture of Chile’s Antofagasta and Canada’s Barrick Gold, and was responsible for developing the Reko Diq block in the Chaghai district of Balochistan.

Normally, the ICSID panel takes 4-6 months after the conclusion of the proceedings to issue an arbitration award. The two sides could request delaying the award if they are satisfied with the progress of their negotiations and seek suspension of the arbitration if they reach a mutual settlement.

Pakistan has now a relative strategic advantage, as an early negotiated settlement could result in the transfer of the settlement cost to a third party that will subsequently take over the rights and interests of the lucrative natural resource mines.

This means a future investor — whether contracted through international competitive bidding or a strategic deal — would be required to buy out the cost claimed by the TCC and agreed to by Pakistan, and open up the huge mining potential in Balochistan blocked for decades and usher in an era of indigenous development.

Therefore, the Attorney General of Pakistan, assisted by Balochistan Chief Minister Dr Abdul Malik, is engaged in negotiations with TCC and its lawyers under a confidentiality agreement. The agreement sets some basic ground rules for negotiations between Antofagasta and Barrick Gold and the governments of Pakistan and Balochistan for amicable solution of the dispute.

The negotiations would be without prejudice to the rights and claims before the ICSID and the International Criminal Court (ICC) and both sides would be bound not to disclose the contents of the negotiations to the media or any other party, including the two arbitration tribunals.

Although it has given up the major claim of specific performance or mining licence, the TCC consortium is expecting to recover about $400m as cost of its expenditure and the loss of potential profit. It claimed to have invested $220-300m in the Reko Diq block.

There are indications that the arbitration costs would be transferred to a future investor as part of fresh agreement that should be better negotiated on the basis of certified mineral data produced by the TCC. Moreover, the award, or negotiated settlement, would enable the provincial government to invite fresh investment in the area, blocked for more than six years because of the high profile Reko Diq limbo.

The fact that an investment agreement between the Balochistan government and the TTC was not terminated on the basis of any proven corruption, Pakistan, at minimum, would be required to bear the cost of the TCC’s exploration and infrastructure expenditures in Reko Diq, along with the value of the certified data, which would be mutually agreed to or determined by the ICSID.

Alongside this, the TCC would also be entitled to a potential profit of the impugned Reko Diq lease, although its main case for ownership of the deposit has no future as also confirmed by the TCC.

The Supreme Court of Pakistan, led by then-Chief Justice Iftikhar Mohammad Chaudhry, had declared all agreements with the TCC as illegal ab initio, on the basis of which the company had also lost a couple of cases in the International Court of Arbitration.

The apex court had also declared invalid the Chagai Hills Exploration Joint Venture Agreement (CHEJVA) — the initial 1993 exploration agreement between the Balochistan government and the Australian mining group BHP from which the TCC had purchased the Reko Diq exploration rights.

Under an agreement signed during the government of former President General Pervez Musharraf, the TCC was granted exploration and development rights over the H14 block of Reko Diq in the Chaghi Hills for about 60 years at less than a billion dollars return to Balochistan.

Mineral reserves in the block are widely estimated between $150bn and $3trn. Certified data produced on the completion of TCC’s exploration for professional estimation are still a secret.

According to TCC’s public statement, Reko Diq deposit’s annual production has been estimated at 200,000 tonnes of copper and 250,000 ounces of gold, contained in 600,000 tonnes of concentrate.

Published in Dawn, Economic & Business, December 22th , 2014