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January 8, 2011

Taseer & the continuing saga of Reko Diq mystery


January 8, 2011

DUBAI: The assassinated Governor of Punjab, Salmaan Taseer was a habitual Tweeter and his second last Tweet, hours before he was shot, was against me and the Jang Group about Reko Diq and its full-page advertisement in major newspapers on Jan 4. But he did not live to hear the other side of the story which may have changed his views. What he missed was that the largest foreign investment in mining in Pakistan was actually turning out to be the largest treasure loot of the country’s history.
In a strange twist of events, the Canadian-Chilean company trying to get the mining rights of Pakistan’s richest discovery of gold and copper at Reko Diq has cut down the share of Balochistan from 25 to 22 percent and offered to give the corruption-ridden government in Islamabad, a 31 percent share in the billions of dollars that will be made in the coming years.
The revised offer was sent in letters written to Balochistan Chief Minister Aslam Raisani and the chief secretary on October 5 and 4, 2010. The copies of these letters have already been submitted in the Supreme Court of Pakistan. The companies hope that a new agreement will soon be signed but several impediments have come in their way. Balochistan leaders say this will not happen.
The existence of these letters adds a new dimension to the Reko Diq case as the Balochistan government has adopted a complete wall of silence on the issue and not a single word is being said about the reported statement of the mining secretary that 10 exploration licences have been cancelled in the province. At least 20 calls in recent days to get the list of these licences failed to evoke a single response.
But the Chief of Army Staff, General Ashfaq Parvez Kayani added his voice to the on-going legal and corporate battle by coming out clearly for Pakistan. He said in Sui on Monday: “Balochistan was rich in various resources that needed to be utilised for the development of the province. People of Balochistan have first

right on these resources,” he said, adding that if these resources were utilised properly, Balochistan would become the richest province in the country.
These letters show that on October 4, 2010, Tethyan Copper Company (TCC) wrote to Chief Secretary Ahmad Bakhsh Lehri that his province will only get 22 percent of the operating profits while the Government of Pakistan will get 31 percent, and the rest 47 percent will go to the TCC.
Compared to this latest offer which tilts towards Islamabad more than Quetta, Canadian company chief Aaron Regent had told Prime Minister Gilani in July 2010 in Islamabad that Reko Diq will generate a revenue of $3.5 billion for the Government of Pakistan and $4.5 billion for Balochistan over 40 years.
But don’t believe all this as these letters show there is a lot more to the offer than is visible on the surface. The details are so complicated and couched in such vague and confusing corporate lingo that it is difficult to decipher the real deal behind the offer. The offer was made by these companies to the Balochistan government after secret talks and negotiations in Islamabad.
There are so many contradictions, so many loopholes, so many vague figures and numbers that if read separately most do not add up to what these companies are claiming in big media advertisements, days before the Supreme Court of Pakistan hears the renowned scientist and head of the Reko Diq project, Dr Samar Mubarakmand on January 12 in the biggest mining case of Pakistan’s history.
Some of these contradictions can be noted as under:
- The new offer estimates the total worth of Reko Diq (only EL-5) at below $25 billion to be exploited in 56 years, although the TCC will take over 70 percent in less than 30 years. This figure is compiled from the cash flow chart, simulated for illustrative purposes for 56 years, given as Appendix D in the letter to the chief secretary. Of this amount, the TCC takes $12 billion, the Government of Pakistan takes $7.7 billion and Balochistan gets $5 billion.
- But Appendix A reveals that Balochistan will get a Royalty in 56 years totalling Rs90 billion or slightly over one billion dollars. Given that royalty is only 2 percent, the total amount has to be Rs4.5 trillion, of which Quetta will get Rs90 billion. Does this not mean that out of Rs4.5 trillion ($53 billion) the TCC will take away $40 billion, $28 billion as expenses plus $12 billion as profit.
- In the letters Islamabad has been offered a larger share than Quetta, which probably may be in shape of duties and taxes, as the TCC claims. Yet the revised offer also demands Export Processing Zone status for the TCC where no duties and taxes are applicable. And the Government of Pakistan is also not a shareholder, so how will it get 31 percent of the total is not explained.
- The TCC has claimed that an “Operating Committee” with equal participation from the Balochistan government and TCC oversees project activities. But there is no mention of this committee at all in the revised offer, which says the Balochistan government and the TCC will create an incorporated joint venture, thus becoming shareholders of a Pakistani company (the Project Company) to which the parties will contribute their ownership rights (75:25) in the relevant area of EL-5.
- Under the title of ‘Management’, the offer says: “The controlling shareholder of the Project Company, or any affiliate of the Controlling shareholder (TCC) will be appointed as the Manager of the Project; the Manager will not charge any management fee; Non controlling shareholder (GoB) may recommend to the Manager duly qualified candidates (who are not government officials) for two management positions reporting to the Project Company’s CEO.” So the Pakistanis will have nothing to do with the operations and only report to the CEO. Who will then check how much is being spent, what is being exported and whether all operations are transparent?
- The letters refer only to EL-5 and the deposits covered under that block. There is no mention of many bigger deposits which may have been located in other blocks like EL-6 and EL-8 in which the TCC owns 100 percent shares and Pakistan gets nothing. What lies under these two blocks and why has TCC applied for two more licences (EL-26 and 27) is not explained in the offer.
- Who gave the TCC a Reconnaissance Licence (RL-7) and what did they find there is also a mystery. Whether the TCC has found bulk of gold and copper in EL-6 and EL-8 and wants to appease Pakistan by offering higher shares in a smaller EL-5 is also yet an unknown factor.
- This is reinforced by the fact that on its website and official statements the TCC claims that it has drilled more than 300,000 metres in Reko Diq which is roughly 186 miles of drilling. If this size of drilling has been done in only EL-5, it is insane but it indicates that most of the drilling has been done in the entire region including EL-6 and EL-8 where the TCC holds 100 percent shares. Both these blocks are outside the joint venture agreement. So it appears that the TCC is putting all its expenses for its 100 percent owned blocks on EL-5.
- Why has the TCC not revealed any data about the other blocks is a mystery but drilling 186 miles underground in four years must have been a huge secret operation? When the TCC acquired EL-5 only 30,000 meters or 18.6 miles had been drilled. So what have they found in the extra 170 miles of drilling has to be made public before the final deal can be signed.
- Conflicting figures are given for the expenses. The Advocate General for Pakistan, representing the secretary Petroleum and Natural told the Supreme Court that $500 million resources had been spent so far. TCC lawyer Justice Fakhruddin G Ibrahim said $435 million had been spent. TCC spokesperson Samia Khan and the TCC ad claim only $220 million has been invested in drilling campaigns and technical studies “to make this ore-body technically feasible and financially viable”. How can drilling make any mine viable is not explained because it will only find what lies below the surface.
- The real picture will emerge only when the TCC is forced to give the break-up of the expenses and release the maps of all lands where the additional 270,000 meters have been drilled. This will show where the money was spent, on EL-5, EL-6 or EL-8 or all of these blocks and in what amounts.
- The expenses on initial mine development are also confusing, to say the least. The letters to the Balochistan government and in their ad the TCC claims $3.3 billion will be needed. The share of Balochistan in this, which legally is 25%, should be $825 million but the TCC is asking for only $600 million. This amount has also been offered to Quetta as a loan and is projected as a very generous gesture but it will be cut from the profits and 50% will go into paying back the loan from the day profits are paid.
- How this loan was added to the Chagai Joint Venture Agreement (JVA) in 2000 is a different story as there was no mention of Balochistan investing 25% share in mine development before that year. ‘Helpful’ officials, who are now enjoying millions in Dubai, helped re-write the JVA and added this clause.
- The Chagai JVA is dated July 29, 1993. Its a 68-page agreement between the Government of Balochistan through the Balochistan Development Authority (BDA) and BHP Minerals International Exploration Inc. (a junior mining company). This agreement was made under Mining Concession Rules of 1970 that were prevalent in 1993 which did not allow equity ratio of 25/75. But this JVA agreed to a 25/75 ratio. The JVA agreed to form a joint venture which was never formed with the SECP to establish any company. It was maintained as just an agreement. Then BDA, governor of Balochistan signed an Addendum on March 4, 2000, without any benefit to the provincial government. Why would the Balochistan government sign an Addendum without getting anything in return?
- The ‘helpful’ Balochistan officials gave these companies lots of additional powers like transferring their 75% shares to other entities. New investment burdens were added on the Balochistan government like the mine development share. This addendum still remains a puzzle which the Supreme Court may solve if it summons the officials who wrote whatever they were told and are now away from the country. These ‘smart’ officials later ratified everything in 2006.
- How is the TCC offering Islamabad a 31% share when the only shareholders are the TCC and Government of Balochistan with 75 and 25 percent respectively? But practically the cake is being divided in a different way, it appears.
- The cash-flow estimate for the next 56 years shows Balochistan will get Rs355 billion as profit on equity and Rs90 billion as royalty. A closer look at the details shows in the first 10 years after production starts in 2015, Balochistan will receive a total of only $6.19 million (Rs526 million or $619,000 per year).
- Likewise the Government of Pakistan will receive in 10 years a total of Rs717 million or Rs71.7 million per year and TCC will take away Rs3.37 billion or Rs337 million per year. So in next 15 years what Pakistan gets will hardly matter, peanuts every year when the wealth is taken away.
- The TCC letter discloses that the company would spend more than $6.2 billion to develop the Reko Diq mines — $3.3 billion initially, $600 million as loan to Balochistan and another $2 billion later. But surprisingly the total return it expects in 56 years is only $12 billion which would of course be divided between the two partners Barrick Gold of Canada and Antofagasta of Chile. So the catch is in the nearly $30 billion to be taken away as expenses.
Further confusion has been created by many details about their corporate structure given in the attachments of the letter to the chief secretary of Balochistan. For instance the TCCP is a different entity, the TCC is different, the TCCA is different, on top of the TCC is another company never heard of, named Atacama, in which Barrick Gold and Antofagasta hold 50 percent shares each.
If anyone can understand what it means, the TCC holds 75 percent shares of EL-5 which is Reko Diq with the rest 25 with the Balochistan government. But the papers say that only the TCC is a party to the Chagai JVA and Barrick Gold and Antofagasta are not a party. While EL-5 is covered by Chagai JVA, the letter shows EL-6 and EL-8 and other licences are not covered.
Then the letter discloses a new name, Paktui Exploration Ltd, which it says is a wholly owned subsidiary of the TCC and an application is pending before Department of Mines and Minerals of Balochistan for the approval of transfer of EL-8 to Paktui. “A fresh application was also made by the Paktui Exploration for the grant of EL-26, application that is also pending before the Department of Mines and Minerals, GoB,” the letter says.
Another company is then introduced. The letter says: “Chagai Mineral Company Ltd is a wholly owned subsidiary of TCC. An application is pending before Department of Mines & Minerals GoB for the approval of transfer of EL-6 to Chagai Mineral Company from TCCP. A fresh application was also made by Chagai Mineral Company for the grant of EL-27 which is pending before the Department of Mines & Minerals, GoB.”
While this maze of companies and subsidiaries is hard to solve, para 10 of the letter says more under the title “Project agreement and the formation of a new company.” This para states: “Article 11 of the CHJVA provides that at the completion period of 180 days from the Election Date both the partners of CHJVA shall form a Mining Venture. The Article 12.7 of CHJVA provides that the Mining Venture will be conducted under a new agreement called the ‘Project Agreement’. This Project Agreement is to be separately negotiated between participating parties...”
The important admission made in the letter is that the TCC has declared categorically that they are not in the smelting/Refining business. But the company has offered its free advice and a one million dollar amount to co-finance any feasibility study.
In the letter to Chief Minister Raisani, the TCCA Board Chairman, William Hayes, admits that it has been negotiating with Pakistani partners and said: “Following our recent interaction, where you desired an improved offer that corresponded better to the aspirations of your Government and the people of Balochistan, we have been working hard to explore all possibilities.”
The letter says: “TCCA and its parent companies, always and everywhere in the world, have adhered to a policy of good partnership with host Governments and communities — going the extra mile to forge a mutuality of interests, a ‘win-win’ situation for both.”
Former federal finance minister Shaukat Tareen while talking to The News again reiterated that in Reko Diq contract national interest was not considered as a priority.
Tareen said: “Our national interests are being compromised by ourselves. If the concentrate of ore is first smeltered by setting up a smelter indigenously and refined by setting up a refinery at our own lands we can sell the refined copper and gold at much higher prices.
“If we will not compromise our national interest we can get $500 billion instead of peanuts,” he added.
Tareen said Reko Diq is not just a mining project it is a big strategic asset. He said mining could be carried out by any company but there should be no compromise on the point that Pakistan should export the finished product of copper and gold and not raw ore concentrate.
While Tareen can shed more light if called by the Supreme Court to testify, a brief item released by the Chinese news agency Xinhua revealed how that country deals with officials who do not look after the national interest. A former Chinese official who was in charge of Communist Party discipline was executed for accepting bribes of more than $4.7 million for doling out mining contracts. The court found that he was unable to account for about $1.4 million of his assets. His appeal was turned down in 2009.
And the TCC has conceded in its letter to the chief secretary of Balochistan that it will use two million dollars as “goodwill contributions” in the first 10 years. To whom this money will go is not stated but many mouths will be full of water after reading and seeing about the TCC offer.
Ahmad Noorani filed portions of this story from Islamabad.

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