Feared verdict in Reko Diq case

December 30, 2012

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Pakistan scored a minor victory in the Reko Diq case this month when the International Centre for Settlement of Investment Disputes rejected the Tethyan Copper Company’s demand for ‘provisional measures’ for ‘protecting’ two of its deposit areas.

However there is not much reason to feel upbeat as the final verdict of the case, reserved on November 6, is yet to be announced.

What is depressing to note is the fear that Pakistan may still lose the case. There had been suggestions, rather advices, to Islamabad to seek an out-of-court settlement to avoid a major financial loss. Last month, the ministry of petroleum and natural resources wrote a letter to the prime minister and urged him to persuade the Balochistan government to settle the Reko Diq issue out of court, as it feared the ICSID may impose a penalty of Rs39 billion in its judgment.

The ICSID had been moved by a consortium of three companies, the Tethyan Copper Company (TCC) of Australia, Barrack Gold of Canada and the Antofagasta Minerals of Chile.

The Canadian government had earlier advised Pakistan’s prime minister to settle the dispute out of the court. “The Canadian High Commission wishes to assist Pakistan in avoiding what we are informed could be the largest arbitration award in history, even though similar awards have recently been made of one billion dollars to two billion dollars and the Reko Diq award could be several times higher,” said a letter addressed to the prime minister by the high commission.

On November 15, the Supreme Court of Pakistan had also warned the federal government that it would be held responsible if the ICSID tribunal issued a verdict against it in the Reko Diq mining lease dispute.

The TCC had sought arbitration against the federal government at the ICSID, and against the government of Balochistan at the International Chamber of Commerce. It sought a penalty of $10 billion on the Balochistan government for its refusal to grant it the Reko Diq mining lease, in accordance with the Balochistan Mining Rules-2002. The Director General of Balochistan’s Mines and Minerals department had refused to entertain TCC’s request for conversion of its exploration license (EL-5) into a mining lease licence under the Balochistan Mining Rules, 2002. The provincial government also rejected the company’s appeal on March 3, 2012.

The TCC claimed that it spent more than $345 million on project acquisition, exploration, and feasibility studies, and that the provincial government’s refusal to grant it the mining lease had led to deprivation that constituted expropriation under Article 7 of the Pakistan-Australia Treaty on Promotion and Protection of Investment, 1998.

Meanwhile, the Supreme Court of Pakistan, which was also simultaneously hearing the Reko Diq case, concluded its hearings and will announce its judgment on January 7, 2013. On the same date, the Balochistan government is expected to resume its mining activities in the H/4 sector deposit area. The decision to the effect was taken by the board of governors of the Balochistan Copper-cum-Gold Project. Dr Samar Mubarakmand, a nuclear scientist, is playing the lead role in the project.

At one stage during the proceedings, Chief Justice Iftikhar Mohammad Chaudhry sought an explanation from the parties involved in the mining dispute about the specific law under which TCC was awarded mining rights in Pakistan. The petitioners had challenged the federal government’s decision to lease out gold and copper mines in Reko Diq to the TCC consortium. The Tethyan copper belt is believed to contain the fifth largest deposits of gold and copper in the world.

Chaudhry also inquired about the reason the company had approached the ICSID, if all the relevant formalities had been completed in a legal and transparent manner. He expressed surprise over the fact that one governor of Balochistan did not allow foreign companies to undertake exploration and mining activities at Reko Diq, while another governor gave the approval. The green signal had been given during a martial law regime, and was reportedly given on a kind of paper that could not be called a letter pad.

The Chief Justice also expressed reservations about the process that led to the original contract being awarded to a company named BHP. The company had signed the CHEJVA (Chagai Hills Exploration Joint Venture Agreement) with the Balochistan government in 1993. It later transferred the agreement to a South African company, Mincore, reportedly for $60 million in 2006. Mincore then reportedly sold the agreement to TCC for $260 million. The Chief Justice noted that BHP was in no position to get the contract at that time, and that it was allowed some flexibility when the contract was awarded.

The ICSID tribunal, which heard the case in London, decided on December 13 to allow the Balochistan government to go ahead with its mining activities in the H/4 deposit area, which is located at a distance of 12 kilometres from TCC’s H/14 and H/15 deposits areas. The TCC had sought an 18-month stay against any mining activities in the 99-square-kilometre area, which includes the H/4 deposit area. It claimed that such activities will cause ‘irreparable’ harm to the work that was already being done in its deposit areas.

After hearing arguments presented by both sides, the ICSID, according to its website, decided that there was insufficient evidence to show that ‘provisional measures’ are necessary to avoid ‘irreparable’ harm to TCCA’s deposit areas. It also noted that the burden of providing proof that the absence of such measures is likely to hurt its activities laid with the claimant (TCC).

The tribunal noted that the H/4 Work Plan is fairly general, but did not refer to any details about the work that was specifically being envisaged by the Balochistan government. However, the provincial government made it clear that its “proposed actions with respect to deposit H/4 presently do not involve granting rights to any third parties during the pendency of these proceedings and beyond”. Thus, claimant’s request for provisional measures “does not help or hinder the tribunal’s ability to resolve this dispute in any way.”

The ICSID then directed TCC to immediately inform the respondent and the tribunal of any change in its intention to either implement the H/4 Work Plan, its decision to expand its mining activities to H/14 and/or H/15 or to any other area within License EL-5, and its decision to award any rights to any third party. It added that the respondent shall inform the tribunal and the claimant, on a regular basis, about its specific plans and activities with respect to the H/4 deposit area.

The tribunal would consider future applications by the claimant if the situation materially deviated from the H/4 Work Plan.