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Reko Diq deal


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INTO a thicket the Supreme Court has stepped again, and again with uncertain consequences. The Reko Diq deal has been struck down: a 1993 agreement signed under a caretaker government in Balochistan with an Australian mining company, which eventually fell into the hands of its present-day owners, Canadian- based Barrick Gold and Chile’s Antofagasta. At stake are copper and gold reserves that run apparently into tens of billions of dollars. Set aside the legal minutiae and two central issues are at stake here. One, will striking down a 20-year-old contract deliver a devastating blow to foreign investment, particularly in the mining and exploration sectors, in Pakistan? Two, are the mineral reserves of the country, essentially belonging to the people, to be sold off for a song just because the people do not have representatives in government with their best interest at heart? Lying between those two interests — often at odds with one another — is a third question: was the Reko Diq deal fair when assessed alongside similar contracts internationally and given the particular conditions of Balochistan?

To the last question first: privately, virtually all parties to the Reko Diq hearing in the Supreme Court suggest that the contract was not inherently unfair. Having spent $400m on exploration during various phases of ownership over the years, Tethyan Copper Company discovered that there are indeed vast sums of copper and gold to be mined in Reko Diq — with the Balochistan government not having spent a rupee of its own through the life of the project. Could, and should, the Balochistan government have pressed for a better deal than a small amount of royalties, a 25 per cent share of the project and sundry taxes to be imposed? Yes. But was the deal so outlandish that the companies involved should have known at the outset the danger of it being struck down? No.

Therein lies the difficulty with the Supreme Court judgment. Say a government in Balochistan today were to sign a mining lease on lucrative terms in unfavourable conditions: the government doesn’t have the money to even partially finance mega-investment projects; security conditions in the province are a concern for even the hardiest investor; and the medium-term outlook of the Pakistani economy is quite poor. Should the granting of lucrative terms to an investor today, reflecting present security and economic conditions, be struck down 20 years later if conditions at that future time render them ‘too generous’? The silver lining in Reko Diq is that investors are keen to begin mining — meaning the devastating impact on privatisation of the Steel Mills judgment is unlikely to be repeated in the mining sector.

Comments (7) Closed

Waseem Akhtar Jan 08, 2013 10:20am
our self correct SC judges are equally responsible for current econoc diseaster in the country. Where business deals are struck down by supposed standard of fairness, instead of written law and agreements. LNG import contract, Steel mill, Sugar price, CNG saga, and now Rikodiq project.
Fuzail Z. Ahmad Jan 08, 2013 01:17pm
I am glad at least someone thinks that honorable SC erred in its judgement on Steel Mills privatization. It was surely not a criminal neglect on the part of Privatization Commission, because otherwise SC would have gone ahead and punished the culprits. The judgement defied all laws of corporate finance that say that the going-concern value is not supposed to take into consideration the value of huge land that was being bundled by PC. Also, the remarks against M/S Arif Habib in the judgement, without hearing them, were unjust. But like I said before, many Pakistanis welcomed that judgement because it was against the government .
Avtar Jan 08, 2013 02:42pm
Good editorial. The question is why wait for 20 years to ask judgement on a deal that is considered unfair. I am not a shareholder of any company involved in the deal. The Eriterian govt has a 30% stake in a copper gold deposit at one of its mines run by Nevsun Resources. The Eriterian government does provide security unlike in Balochistan. The SC judgment seems to be against foreign companies rather than the inept negotiation or on the abrogation of an agreement after 20 years.
Fuzail Z. Ahmad Jan 08, 2013 06:36am
This is an excellent editorial. The situation long before and right after the discovery is not the same in terms of risks and rewards. Another case in point is that of HUB Power project that the PML N's second government found fit to fiddle with. The question is will Tethyan go to international court of justice? I know that most Pakistanis will love this SC judgement but this is simply unjust in the eyes of people who know a bit about project risk. There is another element to this discussion; that of hundreds of millions of dollars needed to purchase and install the refinery.
Fuzail Z. Ahmad Jan 08, 2013 06:40am
In the case of Underground Coal Gasification and powergen project in Thar, the government perhaps is thinking the right thing. After successfully (as per the press reports) achieving the Gasification, the government has decided (again, according to a news) to invite foreign investor in installing the power generation equipment and that would be relatively a lower risk project because the underground gasfication has been achieved already.
Life Jan 09, 2013 05:49am
I hope the judgment is based on the question of law. If it is so then i am OK because Justice is blind.
cameo Jan 09, 2013 05:10pm
Its a moral question and unfortunately a lot of our people will consider it moral to take over somebody else's property(intellectual property) if it is in the national interest. As a country we have to "Honor" the contracts. If the contract was given wrongly in the first place then why wait 20 years. Making judgement now with the benefit of hindsight is immoral as well. Property rights is the foundation on which all the western civilizations are built. (obviously some people will consider that we have nothing to learn from the west, my reply is not addressed to them) SC's decision just proves one thing. Pakistan is a country of looters Looter Government and Looter People Recommended reading Atlas Shrugged (by Aynn Rand) Do not agree with everything in the book, but a lot of it seems be have been taken from the pages of History of Pakistan.