An out-of-court settlement of the Reko Diq project in the Chagai district of Balochistan has been finalised and an official announcement in this regard will likely be made in the evening, sources familiar with the development said on Sunday.
Prime Minister Imran Khan on Sunday said that $10 billion is being invested in Balochistan for the Reko Diq project, which will create 8,000 jobs.
The premier took to his official Twitter handle to congratulate the nation and the people of Balochistan on a “successful agreement” with Barrick Gold – a mining company – for the development of the Reko Diq mine.
According to PM Imran, the agreement came after 10 years of legal battles and negotiations.
“[A] penalty of $11 billion is offset”, he said.
Imran said Reko Diq will be the largest gold and copper mine in the world, adding that it would liberate us from ‘crippling debt’.
Pakistan’s government has actively engaged with Australia’s Tethyan Copper Company (TCC) to reach a settlement as the country was threatened with facing a penalty of $6 billion due to its decision to deny a mining lease to TCC.
The Attorney General for Pakistan (AGP) office, especially International Disputes Unit Head Additional Attorney-General (AAG) Ahmed Irfan Aslam, mainly negotiated the Reko Diq deal. AAG Ahmed Irfan had earlier successfully negotiated the deal in the Karkey case, in which Pakistan faced a billion-dollar fine.
According to sources, a new agreement was signed by representatives of the federal government and Balochistan with a delegation of Barrick Gold led by Chief Executive Dr Mark Bristow. As per the terms of the new agreement, the Reko Diq project shall be revived and developed by Barrick Gold in partnership with Pakistani entities.
50 per cent of the new project’s shares will be owned by Barrick Gold, while the remaining shares shall be owned by Pakistan, divided equally between the federal government and the provincial government of Balochistan.
The federal government’s shares of 25% shall be divided equally amongst three state-owned entities (SOE), namely Oil & Gas Development Corporation Limited (OGDCL), Pakistan Petroleum Limited (PPL), and Government Holdings Pakistan Limited (GHPL).
Balochistan’s shares shall be held by a company wholly-owned and controlled by the Government of Balochistan.
Earlier, the lawmakers of Balochistan expressed their satisfaction with the terms of the proposed deal after senior federal government officials addressed concerns on the out-of-court settlement for the Reko Diq project.
A senior official in the AGP’s office, along with additional secretaries of petroleum and finance, provided an eight-hour briefing to the members of the Balochistan Assembly in December 2021.
Balochistan’s lawmakers were informed that the most daunting challenge was to clear the liability of the $6 billion fine awarded by the International Centre for Settlement of Investment Dispute (ICSID) on account of scrapping the lease mining agreement with TCC.
In order to clear the liability, a deal was negotiated wherein there was an opportunity that TCC’s shareholding company, Barrick Gold, might resume the project under different terms. Likewise, Balochistan’s profit share would be 25%, which was equal to the share owned by the federal government.
Balochistan’s lawmakers were further informed that the federal government would bear the burden of the province’s share of the cost of the project.
Prime Minister Imran Khan had already announced that in line with his government’s vision for the uplift of smaller provinces, he had decided that the federal government would bear the financial burden for Reko Diq and its development on behalf of the Balochistan government.
“This will help usher in an era of prosperity for the people and the province of Balochistan,” the premier had added.
The officials also informed the lawmakers that mining companies would ensure a 5 per cent royalty in accordance with the provincial law. The company would also spend on education, health and water in the province in order to fulfil the corporate social responsibilities.
Sources revealed that the project’s development would result in an investment of approximately $10 billion in Balochistan, including $1 billion which would be invested in social uplift projects such as roads, schools, hospitals, and the creation of technical training institute for mining. The investment is also said to result in the creation of over 8,000 jobs.
“This project shall make Balochistan the largest recipient of foreign direct investment in Pakistan and the Reko Diq project shall be one of the largest copper and gold mining projects in the world”, sources added.
In order to ensure optimal utilisation of the nation’s mineral wealth, the government is considering setting up a smelter.
The agreement was reached after several rounds of negotiations over the last three years.
In August 2019, the premier had set up a committee to steer the negotiations, with an aim for early development of the mines. In this effort, the federal and provincial governments were assisted by international advisors including the law firm White and Case and investment bank, Lazard.
To ensure the deal’s compliance with the law, the government is to submit the matter before parliament and the Supreme Court.
The Balochistan cabinet on March 19, approved the proposed agreement and settlement regarding the Reko Diq project. The approval was given during a special cabinet meeting chaired by Balochistan Chief Minister Abdul Quddus Bizenjo.
In July 2019, an international arbitration tribunal of the ICSID struck a penalty of $6 billion on Pakistan for its 2011 decision to deny the mining lease to the TCC — a 50-50 joint venture of Barrick Gold Corporation of Australia and Antofagasta PLC of Chile.
The tribunal, chaired by Germany’s Klaus Sachs and Bulgarian arbitrator Stanimir Alexandrov and UK’s Lord Hoffmann, had ordered Pakistan to pay over $4 billion in damages to TCC in addition to $1.7 billion in pre-award interest.
The tribunal had found that Pakistan had unlawfully denied the TCC a lease to mine copper and gold deposits at the Reko Diq mine. It had held that the state had committed an unlawful expropriation under the Australia-Pakistan bilateral investment treaty.
Later, the TCC had approached courts in five different countries for the enforcement of the penalty imposed on Pakistan.
On July 29, 1993, BHP Minerals (BHP) and the Balochistan Development Authority (BDA) had signed the Chagai Hills Exploration Joint Venture Agreement (CHEJVA).
Subsequently, on Nov 23, 2006, the TCC had bought BHP’s interests in CHEJVA for US$ 240 million and became a party to the CHEJVA pursuant to a Novation Agreement with BHP and the Government of Balochistan.
On August 26, 2011, the TCC had submitted its feasibility report and an application for mining lease which was rejected by the Licensing Authority on November 15, 2011.
On November 6, 2011, a petition was filed before the Supreme Court asking the top court to order the Balochistan government to refrain from issuing a mining license in an arbitrary and unlawful manner. On January 6, 2013, the Supreme Court held CHEJVA to be void ab initio.
On December 12, 2011, the TCC had instituted proceedings before the ICSID for alleged violations by Pakistan of Australia-Pakistan BIT, 1997; and, before ICC for alleged breach by the Balochistan government of contractual obligations under CHEJVA. The ICC Tribunal had stayed its proceedings in deference to the ICSID proceedings.
On February 12, 2016, the Tribunal had issued a draft decision on jurisdiction and liability and held that (i) it has jurisdiction over TCC’s claims; (ii) TCC had made an investment in Pakistan; and, (iii) Pakistan has expropriated TCC’s investment in Pakistan and breached its BIT obligations.
On July 12, 2019, the ICSID Tribunal had given an award of 5.894 billion plus interest of USD 700,000 per day in damages against Pakistan to the TCC. As of 1 March 2022, the award stands at $6.5billion.
Shortly thereafter, the TCC initiated proceedings for the enforcement of the award in several jurisdictions, including, Australia, the US, and UK (British Virgin Islands).
The ICC also resumed proceedings and was expected to give an additional award against the government of Balochistan. Contemporaneously, Pakistan challenged the ICSID Award by initiating proceedings before ICSID for the annulment of the award. All of the legal proceedings shall now be withdrawn permanently by both TCC and Pakistan.
