Tuesday May 24, 2022

The Reko Diq matter

August 03, 2019

Countless studies have proven that countries with an abundance of natural resources tend to have poor economic growth, less democracy and worse development outcomes than countries with fewer natural resources.

The theory of the natural resource curse fits Balochistan well. Endowed with gas, gold, copper, coastline and over three dozen types of mineral wealth, the province has over 82 percent multidimensional poverty, higher infant and maternal mortality, stagnant economic growth, freighting unemployment and worsening governance.

Subsequent to the International Centre for Settlement of Investment Disputes (ICSID) decision on Reko Diq, no one is willing to take responsibility for how and why this cash-starved country has plunged into a black hole of embarrassment and massive financial turmoil.

A federal level commission has been proposed – though natural resource is purely a provincial subject. Like many other commissions there are little hopes and expectations that much detail about the Reko Diq saga will come to light.

What and when things went wrong with Reko Diq is a classic tale of corruption, mismanagement, incompetence and bad dealing and both at the centre and the provincial level.

When it comes to the recent ICSID decision and Himalayan penalty, the Supreme Court of Pakistan´s three-member bench bears zero responsibility. Instead, the Justice Chaudhry Iftikhar headed bench and its decision in 2013 provided an opportunity to the government and relevant institutions to fix the responsibility, undo the damage and correct the wrongdoings that were committed.

To understand better we need to understand a few basic facts about Reko Diq.

Reko Diq is situated at the Magnetic Arc of the greater Tethyan Metalloganic Belt also known as the Tethyan mineral belt which cross-borders many continents. The company BHP entered into a joint venture with the Balochistan Development Authority (BDA), a poorly resourced and technically inexperienced institution in July 1993. The BDA and BHP signed a Chaghai Hill Exploration Joint Venture Agreement (CHEJVA) for the purpose of survey (reconnaissance), not for development or mining. There were slow-motion activities by BHP till 2001. That year, without prior information and NOC, BHP sold its shares to the Tethyan Copper Company (TCC) Limited.

From 2001 to 2005, the TCC spent nearly $1.6 million in exploration activities. Tethyan feasibility analysis at the Tanjeel area indicated greater resources and higher capital costs for developing and exploration of copper-gold resources.

Then Antofagasta PLC, a Chile-based copper mining group along with Barrick Gold Corporation jumped in and purchased TCC shares. This entire sale-purchase of shares happened without the consent of the CHEJVA partner, BDA. Just to keep the BDA happy, Rs.1 billion was paid to the Balochistan government as withholding tax.

As a time-buying tactic, till 2007 small-scale activities including drilling and engineering studies continued, without any major development by the TCC to justify its billions dollar claim.

In October 2008, the government of Balochistan drafted a shareholder/ project agreement but the TCC came up with five observations to buy more time to sign the agreement and start full-fledged exploitation and mining activities. The TCC raised the issue of political stability, royalty, exemption and relaxation in stamp duty and registration fees and amendments to the Balochistan Mineral Rules 2002, and demanded infrastructure development by the poverty-stricken Balochistan government to facilitate TCC mining activities. So, despite a favourable agreement, the TCC delayed signing the agreement.

Reports of misuse of authority and negligence compelled many conscious individuals to take the matter to the court. The Balochistan High Court in 2006 dismissed Maulana Abdul Haq and others’ petition and found CHEJVA, the ‘relaxation’ of BMCR 1970 and other acts of the government of Balochistan and the Balochistan Development Authority to be legal and valid.

Questioning the validity of the grant of license to BHP/TCC on the ground of absence of fairness, non-transparency, violation of laws/rules, and also alleged possible risks to the vital interests of the province of Balochistan and Pakistan in the grant of mining lease to BHP/TCC, subsequently the petitioners moved the Supreme Court under Article 184(3) of the constitution.

In its final judgement in January 2013, the SC termed the Reko Diq mining lease ‘illegal’ and declared that the CHEJVA agreement on Reko Diq signed on July 23, 1993 was void and in conflict with the laws of the country.

The Supreme Court examined CHEJVA and other instruments in detail and concluded that “all relaxation and leases were granted to the TCC in a very hasty manner...”.

The Supreme Court clearly mentioned in its decision that the TCC attempted to take undue advantage of the political instability of the time. Foreign companies, by means of CHEJVA, Addendum No1 and other agreements, preyed upon the huge gaps in understanding on the part of the Balochistan government of large-scale mineral extraction and were in a distinct position to manipulate and dominate.

Article 3.2.7 of the Rome-based International Institute for the Unification of Private Law (Unidroit) Principles of International Commercial Contracts supports the Supreme Court of Pakistan´s decision that “under the title of gross disparity, a contract that has been conceived by a party seeking to take unfair advantage of the other party’s dependence, economic distress or its improvidence, ignorance, inexperience and lack of bargaining skill cannot be enforced”.

The Supreme Court repeatedly lamented the Balochistan government’s ‘inefficiency’ and ‘haste’ in disposing of a multi-billion dollar project without exploring best possible deals in the public interest.

No doubt, while signing and facilitating TCC, the Balochistan government didn’t fully understand the nature of gold and copper mining at Reko Diq and the global business norms for large-scale gold and copper mining and terms of agreement between national governments and foreign corporations.

In view of the Supreme Court’s clear stance and recommendation, any deal without following global business norms – like floating an international bid through a competitive process – is against the roadmap drawn by the Supreme Court in its decision.

In desperation, after exhausting all legal venues, in May 2013 a frustrated TCC announced that it had withdrawn its request for ‘specific performance/ mining licence’ in both international arbitrations (ICC and ICSID) and was now only seeking claims for monetary damages, including lost profits for the mining operations.

However, mishandling and conflicting signals during 2013-2018 led to this embarrassing and challenging situation for Pakistan.

There is no reason to worry; legally Pakistan and Balochistan are in very safe position. We just need a confident and mature group of leaders and experts to sit in the upcoming commission and handle and negotiate the Reko Diq matter domestically and internationally.

Well before taking any national decision on Reko Diq, the political leadership in Pakistan must ensure that the people of Balochistan are fully onboard through their representatives.

The writer is a member of the Balochistan Assembly.



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