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Reko Diq fiasco

July 16, 2019

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IT had been known for years that the judgement of the tribunal in the Reko Diq case would go against Pakistan — especially when in March 2017, the presiding tribunal determined that Pakistan had violated several clauses of its bilateral investment treaty with Australia by denying a mining lease to the consortium that had conducted the exploratory work in the area. The company invested five years and a reported $220m before submitting a feasibility study and an expression of interest to commence mining operations back in 2011. The fact that the company was denied a mining lease after it had made the investment to discover the resource and prepared a commercial feasibility study of its extraction, gave rise to the impression that it had put in all the hard work, only to be cut out of the mining operation.

The mining concession had already become controversial when the Balochistan High Court heard a case starting in 2007 involving allegations of wrongdoing in the case. The high court upheld the grant to the Tethyan Copper Company. But then, in 2013, the Supreme Court picked up the matter, and in a quick series of hearings, struck down the lease. By then, the case had already landed in international arbitration, which began in 2012, when the Balochistan government denied the TCC’s application to convert its exploration licence into a mining licence. The TCC claimed this was its right in the agreement under which the exploration work was carried out. Even at this point, an out-of-court settlement would have been possible, and the deal could have been rescued because it lay within the executive’s domain.

In its judgement, the Supreme Court cited examples from other international tribunals which found that “where an investment results from the commission of crimes, eg, fraud or bribery, the tribunal possesses both the ability and the obligation to prevent the investor from benefiting from the rights under the relevant bilateral investment treaty”. That may be so. However, what has happened in the present case is that fraud and bribery have been alleged but not proven. This is not the first such case, of course. Prior to this, the Steel Mills case halted the privatisation programme, leaving the country saddled with SOEs with hundreds of billions of rupees in accumulated losses. The striking down of the 2006 LNG deal led to a decade of gas shortages, during which we saw street rioting and our industry gasping for this vital fuel. The Karkey and Broadsheet cases have imposed grievous penalties of their own. Now the fallout from a $5.9bn judgement has to be managed. Given the massive damage that each one of these cases has done to Pakistan, perhaps it is necessary to consider how far we should allow allegations of misconduct and judicial interference to hamstring the exercise of executive power.

Published in Dawn, July 16th, 2019