The Reko Diq Saga
22 January 2013
By Syed Fazl-e-Haider
The Supreme Court recently declared void and illegal a mining deal for the Reko Diq copper project signed 20 years ago between the Balochistan government and international mining companies.
The apex court in its ruling said that the agreement reached on July 23, 1993 was in conflict with the laws of the country.
In 2011, Tethyan Copper Company (TCC), a joint venture between Antofagasta of Chile and Canada’s Barrick Gold Corporation, approached the International Centre for Settlement of Investment Disputes’ Tribunal in Washington D.C. and claimed damages after the Balochistan government refused to give the go-ahead for extracting copper and gold from the project site. The TCC alleged that the provincial government had violated the company’s rights under the 1993 Chagai Hills Exploration Joint Venture Agreement (CHEJVA).
The court’s decision has weakened the TCC’s case in the international tribunal as CHEJVA has been declared void, which means that TCC has no rights to claim under the 1993 agreement in the international court.
The Balochistan government had first signed the contract for the exploration area with international mining company BHP Billiton in 1993 and established a joint venture with the respective interests of the province at 25 per cent and BHP at 75 per cent by virtue of a deed of waiver and consent signed in June 2000. The Australian Mincor Resources bought out BHP stakes in 2000.
The TCC, a subsidiary of Mincor Resources, has an alliance with BHP Billiton. In April 2006, it assumed all rights and obligations of BHP under the CHEJVA by means of a novation agreement. Hence Reko Diq was now jointly owned by Antofagasta with 37.5 per cent, Barrick Gold with 37.5 per cent, and Balochistan with 25 per cent stake.
The two foreign firms purchased these interests from the Australian TCC which holds 75 per cent interest in the exploration licence encompassing the Reko Diq region.
The latter is said to hold the world’s fifth largest deposits of gold and copper.
Initially, the deal was done with BHP, but the problem started when BHP sold its interests to TCC and the latter sold it to Barrick Gold and Antofagasta.
It must be asked why the Pakistani authorities did not refuse the transfer of the Reko Diq project from the internationally reputed BHP Billiton to TCC. It was due to the incompetence and inefficiency of the then government in 2000 that it could not exploit the opportunity to seek fresh offers for exploitation of Reko Diq’s reserves after BHP had failed to make significant progress on the project.
Balochistan’s mishandling has thrown the project into a prolonged and complicated litigation process in the international tribunal. This has further delayed the development of the gold mine.
The TCC spent $400 million on exploration and technical studies since 2006, the year that Barrick bought a stake in the project for a reported $130m. TCC — which was willing to invest $3.3 billion — offered the Balochistan government a 25 per cent equity stake in the company in addition to a royalty fee on its revenues. In 2011, the Balochistan government rejected TCC’s mining lease application because it was said to be incomplete and the company violated the agreement.
After failing to secure meetings with the Balochistan government, the company took the matter to the international tribunal to seek compensation for the money invested in the project.
Balochistan has to pay a heavy price for mishandling the Reko Diq project. The cash-strapped province has been deprived of the economic bonanza associated with the development of a world-class copper and gold mine in Chagai district. The province was deprived of the much-needed multi-billion-dollar foreign investment at a time when foreign investors have lost interest in the insurgency-hit province.
The province was even unable to bear the cost of the legal battle in the international tribunal against the foreign mining firms. The federal government refused to pay Balochistan the Rs450m fee for legal experts to plead the international case filed by the TCC. It was the government’s inefficiency that made it a disputed project in which no third party will be able to invest till the tribunal completes its proceedings.
The Balochistan government could have negotiated with TCC for a better deal addressing the province’s genuine reservations about the project rather than closing all doors of communication with the company and even refusing to meet its executives. The stand-off between a foreign mining company and provincial government sends a negative signal to prospective foreign firms eying to invest in the country.
Can the next Balochistan government run the project on its own? Can it afford the financial and operating costs of mine development? Reko Diq can be indigenously developed without discouraging foreign investors by dividing the 400-square-kilometre area into various zones, leasing out land to foreign firms and also keeping major portions for indigenous development. The funds from leasing out land to foreign firms would enable the country to bear the investment, financial and operating costs for developing the project indigenously.
Also, it must be asked that if Balochistan is serious about developing Chagai’s copper deposits indigenously, why has it agreed to the five-year extension in the lease period of Saindak copper and gold project acquired by the state-owned Metallurgical Corporation of China in 2002 on lease, which expired in October last year?
Why has it not decided to take over the Saindak mine from the Chinese, who have reportedly been involved in excessive mining that has reduced the lifespan of the mine and brought no economic benefit to the area?
The writer is a development analyst and the author of Economic Development of Balochistan.