INTERNATIONAL COURT ALLOWS BALOCHISTAN AT REKO DIQ SITE.
Tethyan Copper Company Pty Limited (TCC) has lost the case against Balochistan government in the international court, which has allowed Pakistani authorities to carry out mining and smelting project in the Reko Diq area having the world's fifth largest deposit of gold and copper in Chagai district of Balochistan. In its 45-page decision released on December 13, the International Centre for Settlement of Investment Disputes (ICSID) Tribunal has decided in the favour of Balochistan. TCC, a joint venture between Antofagasta of Chile and Canada's Barrick Gold Corp, had sought freeze on work in 99 square kilometers of area including H/4, which is 12 kilometers away from H/14 and H/15 for which the TCC had filed feasibility. The tribunal's decision has enabled the Pakistani authorities to continue the mining activity in 95% of Reko Diq area till the final ruling of the international court in the case.
In 2011, TCC approached the ICSID in Washington DC and claimed damages after the provincial government refused to give the go-ahead to extracting copper and gold from the project site. Pakistan hired foreign legal experts including Arther Marriott and Sherry Blair, the spouse of former British Prime Minister Tony Blair, in the case. The analysts however believe that the litigation and stand-off between a foreign mining company and the Balochistan government sends a bad signal to prospective foreign firms eying to invest in the country.
The dispute between TCC and Balochistan emerged after the former government of president Pervez Musharraf was replaced by the current coalition government in 2008. Under Musharraf administration, TCC was awarded the project with mining rights and it signed a joint venture agreement with Balochistan government.
The TCC, which has 75% interests in the project, spent $220 million on exploration and technical studies since 2006, the year that Barrick bought a stake in the project for a reported $130 million. The TCC - which was willing to invest $3.3 billion - offered the Balochistan government a 25% equity stake in the company in addition to a royalty fee on its revenues. After failing to secure meetings with the Balochistan government, the TCC filed a notice of dispute last year. The company as a last resort took the matter to the international arbitration court in a move to seek compensation for money invested in the project.
TCC alleged that the provincial government had violated Balochistan Mines Rules 2002 and the company's rights under the 1993 Chagai Hills Exploration Joint Venture Agreement (CHEJVA). On the other hand, Balochistan government rejected the TCC's mining lease application because it was incomplete and the company violated the agreement.
Critics say that that TCC could have been negotiated for a better deal addressing the province's genuine reservations about the project, rather closing all doors of communication with the company and even refusing to meet its executives. The provincial government's unrealistic stand on Reko Diq has thrown the project into a prolonged and complicated litigation process in the international court of arbitration. This has further delayed the development of a gold mine, which could not be tapped since 1993. It was irrational to close door for technology transfer into the country and lose the over $5 billion foreign investment, as Reko Diq would have been the biggest foreign financed project in the history of the country.
"The Reko Diq project needs an investment equivalent to 4% of the total size of Pakistan's economy, said a World Bank report on jobs released in November. The capital-intensive mining project will create 2,500 jobs during construction and 200 afterwards. The report said, "such projects may generate dynamism at the local level during the construction phase, but once the mines and fields are in operation, employment goes down dramatically."
Balochistan has been deprived of the economic bonanza associated with the development of world-class copper and gold mine in Chagai district. It was deprived of the much needed multi-billion dollar foreign investment at a time when foreign investors have lost their interest in the insurgency-hit province. The cash-strapped province had no money to bear the cost of legal fight in the international court against the international miners battling to protect their legal rights following the rejection by Balochistan government last year of their mining lease application. The federal government had also refused to pay Balochistan the Rs450 million fee for legal experts to fight the international arbitration case filed by Tethyan Copper Company.
Balochistan government wants to run the project on its own, while China has also offered a counter proposal to secure a mining lease for Reko Diq. The analysts wonder if Balochistan is serious in developing Chagai's copper deposits indigenously then why it has agreed to the 5-year extension in the lease period of Saindak copper and gold project acquired by the state-owned Metallurgical Corporation of China (MCC) in 2002 on lease, which is due to expire in October this year. Why has it not decided to take over the Saindak mine from Chinese, who have been involved in excessive mining that reduced life span of mine and brought no economic spill over but environmental degradation in the area? This raises question whether extension in lease contract with MCC will benefit the country and go in the interest of the least developed province?
Pakistan and China reportedly finalized new terms and conditions for a fresh agreement on the Saindak project during the visit by former Prime Minister Yousaf Raza Gilani to China in May 2011. Under the new deal, the MCC has agreed to give five per cent additional shares to Balochistan government in the project. The proposed extension of Saindak deal with China for another five years would mean to end 19-year life span of the Saindak mine, as MCC has been involved in higher production of blister copper at the project site.
According to one estimate, Balochistan received $12.489 million royalty at the rate of 2% of the sale value out of the total profit earned from Saindak project in the past nine years. The province had earlier planned that all shares of Saindak Metal Limited would be transferred to the provincial government after expiry of the mining contract with MCC.
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|Publication:||Pakistan & Gulf Economist|
|Date:||Jan 13, 2013|
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