Reko Diq damages claim ‘exaggerated’

Express Tribune | 14 May 2018

Reko Diq damages claim ‘exaggerated’

By Shahbaz Rana

ISLAMABAD: There are glaring flaws in the Tethyan Copper Company’s (TCC) damages claim of $11.43 billion in the Reko Diq mining case that may reduce it by as much as 61 per cent, officials maintained.

The company, they said, exaggerated its future profits by underrating tax and royalty obligations by as much as 61 per cent. The damages claim was filed in the International Court for Settlement of Investment Disputes (ICSID) of the World Bank.

The hearing for quantifying damages will start on Monday (today) in London, lasting till May 24.

Reko Diq is part of the Tethyan Magmatic Arc, a mineralised belt that originates in Eastern Europe and runs through Iran and Pakistan before ending in Afghanistan.

Pakistan’s legal and tax experts have submitted another report in the court, hoping that it will have ‘substantial impact’ on the damages claims, sources told The Express Tribune.

Pakistani authorities did not quantify the impact in dollar terms, but their internal correspondence suggested that the TCC had understated its royalty and tax obligations towards the state of Pakistan up to 61 per cent.

In 2012, the TCC filed claims in the ICSID after the Balochistan government turned down the company’s lease request.

Sources said that the TCC had built its case around damages on its investment in Pakistan and future profits from mineral extraction over a period of 56 years.

They said that the claims were based on wrong application of tax provisions by TCC in addition to understating royalty.

The royalty had to be paid at the time of materialization of five per cent on gross receipt basis but TCC calculated it on the basis of two per cent net, they said.

According to Rule 102(4) of Balochistan Mineral Rules of 2002: “The fair market value, in respect of any mineral or group of minerals which has been disposed of, shall be determined by reference to the first point at which it was disposed of, without allowing for any deductions from the gross amount so determined.” But the TCC worked out the figure on the basis of net smelting.

Balochistan government had increased royalty rates from two per cent to five per cent in 2009, sources said.

The Chinese firm, operating the Saindek gold-copper project in Balochistan, has been paying royalties at the enhanced rate of five per cent, sources said.

Over a 56-year lease period, the difference in payment of royalty alone would have been in billions of dollars. This single point could again lower the TCC’s claim by at least 40 per cent, sources said.

The TCC has also not included the impact of indirect taxes, including the federal excise duty, in its deductions, the sources said.

Pakistan government had not given any exemptions on federal excise duty and other taxes, sources asserted. This would cause a dent in TCC’s claim, reducing it by another 21 per cent, sources claimed.

Pakistan has hired a legal firm GST, out of Washington DC, that advised the federal government to take a tax expert on board.

The authorities engaged Dr Ikramul Haq as tax expert, a Supreme Court lawyer and an expert in international tax laws.

The Office of the Attorney-General is vigorously defending TCC’s ‘outlandish claim’ through its International Arbitration Unit, according to a briefing to a parliamentary body.

Pakistani authorities expressed the hope that arguments about tax and royalty payments would be crucial for minimizing TCC’s damages claim. Although at this stage Pakistan believes that the damages claim was unjustified.

The Supreme Court and the federal and provincial authorities mishandled the TCC case, according to the proceedings of the Public Accounts Committee.

During the ICSID proceedings, the jurisdiction and liability were decided against Pakistan: The tribunal found that the country had breached the Bilateral Investment Treaty of 1998 between Pakistan and Australia.

The PAC also questioned the manner in which successive provincial governments allowed changes in ownership, delegating it from one Australian company to two others between 1998 and 2006 despite the fact that there was no such clause in the original Chagai Hills Joint Venture Exploration Agreement.

In 2013, the SC declared that the agreement and all its successor agreements were void ab initio and that the TCC had no legal rights to explore and mine in Reko Diq.

source: Express Tribune