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The Reko Diq saga


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THE Supreme Court recently declared void and illegal a mining deal for the Reko Diq copper project signed 20 years ago between the Balochistan government and international mining companies.

The apex court in its ruling said that the agreement reached on July 23, 1993 was in conflict with the laws of the country.

In 2011, Tethyan Copper Company (TCC), a joint venture between Antofagasta of Chile and Canada’s Barrick Gold Corporation, approached the International Centre for Settlement of Investment Disputes’ Tribunal in Washington D.C. and claimed damages after the Balochistan government refused to give the go-ahead for extracting copper and gold from the project site. The TCC alleged that the provincial government had violated the company’s rights under the 1993 Chagai Hills Exploration Joint Venture Agreement (CHEJVA).

The court’s decision has weakened the TCC’s case in the international tribunal as CHEJVA has been declared void, which means that TCC has no rights to claim under the 1993 agreement in the international court.

The Balochistan government had first signed the contract for the exploration area with international mining company BHP Billiton in 1993 and established a joint venture with the respective interests of the province at 25 per cent and BHP at 75 per cent by virtue of a deed of waiver and consent signed in June 2000. The Australian Mincor Resources bought out BHP stakes in 2000.

The TCC, a subsidiary of Mincor Resources, has an alliance with BHP Billiton. In April 2006, it assumed all rights and obligations of BHP under the CHEJVA by means of a novation agreement. Hence Reko Diq was now jointly owned by Antofagasta with 37.5 per cent, Barrick Gold with 37.5 per cent, and Balochistan with 25 per cent stake.

The two foreign firms purchased these interests from the Australian TCC which holds 75 per cent interest in the exploration licence encompassing the Reko Diq region. The latter is said to hold the world’s fifth largest deposits of gold and copper.

Initially, the deal was done with BHP, but the problem started when BHP sold its interests to TCC and the latter sold it to Barrick Gold and Antofagasta.

It must be asked why the Pakistani authorities did not refuse the transfer of the Reko Diq project from the internationally reputed BHP Billiton to TCC. It was due to the incompetence and inefficiency of the then government in 2000 that it could not exploit the opportunity to seek fresh offers for exploitation of Reko Diq’s reserves after BHP had failed to make significant progress on the project.

Balochistan’s mishandling has thrown the project into a prolonged and complicated litigation process in the international tribunal. This has further delayed the development of the gold mine.

The TCC spent $400 million on exploration and technical studies since 2006, the year that Barrick bought a stake in the project for a reported $130m. TCC — which was willing to invest $3.3 billion — offered the Balochistan government a 25 per cent equity stake in the company in addition to a royalty fee on its revenues. In 2011, the Balochistan government rejected TCC’s mining lease application because it was said to be incomplete and the company violated the agreement.

After failing to secure meetings with the Balochistan government, the company took the matter to the international tribunal to seek compensation for the money invested in the project.

Balochistan has to pay a heavy price for mishandling the Reko Diq project. The cash-strapped province has been deprived of the economic bonanza associated with the development of a world-class copper and gold mine in Chagai district. The province was deprived of the much-needed multi-billion-dollar foreign investment at a time when foreign investors have lost interest in the insurgency-hit province.

The province was even unable to bear the cost of the legal battle in the international tribunal against the foreign mining firms. The federal government refused to pay Balochistan the Rs450m fee for legal experts to plead the international case filed by the TCC. It was the government’s inefficiency that made it a disputed project in which no third party will be able to invest till the tribunal completes its proceedings.

The Balochistan government could have negotiated with TCC for a better deal addressing the province’s genuine reservations about the project rather than closing all doors of communication with the company and even refusing to meet its executives. The stand-off between a foreign mining company and provincial government sends a negative signal to prospective foreign firms eying to invest in the country.

Can the next Balochistan government run the project on its own? Can it afford the financial and operating costs of mine development? Reko Diq can be indigenously developed without discouraging foreign investors by dividing the 400-square-kilometre area into various zones, leasing out land to foreign firms and also keeping major portions for indigenous development. The funds from leasing out land to foreign firms would enable the country to bear the investment, financial and operating costs for developing the project indigenously.

Also, it must be asked that if Balochistan is serious about developing Chagai’s copper deposits indigenously, why has it agreed to the five-year extension in the lease period of Saindak copper and gold project acquired by the state-owned Metallurgical Corporation of China in 2002 on lease, which expired in October last year?

Why has it not decided to take over the Saindak mine from the Chinese, who have reportedly been involved in excessive mining that has reduced the lifespan of the mine and brought no economic benefit to the area?

The writer is a development analyst and the author of Economic Development of Balochistan.

The views expressed by this writer and commenters below do not necessarily reflect the views and policies of the Dawn Media Group.

Comments (11) Closed

raika45 Jan 22, 2013 01:44pm
This Chinese all weather friends of yours never give anything unless they get something in return.You have huge wealth in the form of gold,copper,oil and gas in Baluchistan. Enough to bring prosperity to your country.The only thing lacking is a sense of ability and knowledge to exploit it.Baluchistan going it's way your central government going it's own.You people on your own cannot exploit this "gems" nor are you allowing others to help you.Reminds one of the dog in the manger story.In the meantime your government goes with a begging bowl to the IMF and so for money.Kamal hai tum Pakistan
rich Jan 22, 2013 07:04am
chinese whever they go they do not benefit the locals, so thats no surprise, the deal with them would be more due to politics then economics till balouchistn law and order situation is not solved mining there on a major scale is not feasable
Akram Jan 22, 2013 04:41pm
a well thought out article, as a mining investor myself. Reko Diq is an example of how not to exploit your mineral wealth. a better example is what Sindh has done with the Thar Coalfield, as suggested by the author the resource is large enough to be shared by more than one major company. Pakistan needs companies like BHP, Antofagasta, Barrick Gold and Rio Tinto to mine and bring investment to the country. As well as the knowledge and technology to exploit this resource and others to the benefit of the country. Time is of the essence with this resource as the Copper boom is not going to last forever. Pakistan must exploit the resource quickly and this is only possible with assistance from a foreign major mining company. Dreams of a nationalized company I fear are naive, and will lead to the resource being wasted by not using proper methods or management. Nationalisation is not important, what is important is that Pakistan benefits from this resource, mostly Baluchistan should benefit.
Parvez Jan 22, 2013 06:15pm
Balochistan and its people have always paid a heavy price for the mis-governance of the rulers who sadly have been Baloch's themselves ( a handful of shamefully rich ones ).
arju Jan 22, 2013 06:31pm
Unfortunately it is not only chinese, it is any foreign MNC. First they find out the corrupt or inefficient politicians or officials, then they bribe them peanuts and extract lucrative contracts. In the end they rob the country of any wealth whatsoever they can, and leave with environmental . And if the courts or countries try to stand erect against their wills, they should loudly in international tribunals and WTO. If some company is convicted- their executives flee to powerful contries who just don't extradict these thieves to face justice. Think about it, if these companies try to create a mess in european countries or in USA, the courts are quick to fine them into millions. Here is a reverse justice. If the provincial Government did not uphold a contract with a foreign company, So what?
S. Nasir Mehdi Jan 22, 2013 09:56pm
We have some billionaire Pakistanis as well Canadian national doctor. If they want to take part in elections they should be asked to invest in Reko project as well as install coal fired power stations. Any one who does that may take part in elections.
Azhar Jan 23, 2013 02:02am
It would have been nice if the author had named people responsible in the signing of the the time, where they are now and their affiliation then and present.
khan Jan 23, 2013 03:04am
I have heard that out of 5 parts, 4 parts has been extracted by Chinese, china is a good friend of pakistan, but still its all about benefits which they can see and grab and we cant, sorry but it feels like we are being exploited, if they are using us why cant we use them and fact is we aren't getting much benefit as compared to what they are getting. I think in future , History book will mention that " Once east india company came to this region and then came the Chinese and took everything"
Cyrus Howell Jan 23, 2013 02:09pm
Copper has been a sought after world commodity since the Greeks fought the Persians. The Chinese have made deals to mine copper wherever the can find them. China intends to maintain itself as a world power and bring prosperity to it's one billion people. Pakistan wants to bring prosperity only to certain pockets. What industrial uses and processes for copper does Pakistan have that would bring added value to exports?
Cyrus Howell Jan 23, 2013 02:11pm
"These Chinese all weather friends of yours never give anything unless they get something in return." That is not only an international law, it is a law of God.
Cyrus Howell Jan 23, 2013 02:22pm
Why should the people of Balochistan want to allow Islamabad and Lahore to rob them of their natural resources and give nothing back to them. What is the difference? They can make a better deal for themselves with China than they can with Islamabad. The Frontier Corps is killing these people in order for Pakistan to invalidate contacts and exploit these natural resources for itself. All that is left for the elite to steal is in Balochistan. Even the Taliban is agitating and closing in on that land hoping for an independent Balochistan they can exploit.