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Saindak Project: A Case of Robbing Balochistan


By Mahfooz Ali Khan - 

February 8, 2017

In 1961, Geological Survey of Pakistan (GSP) discovered Copper Deposit in Saindak, District Chagai. During 1972, GSP and United States Geological Survey, jointly confirmed the existence of Copper by Core Drilling of 5 holes at Saindak. In 1974, the Ministry of Petroleum and Natural Resources established Resource Development Corporation to evaluate and develop Saindak Copper Gold Deposits. The total resources of Copper Gold at Saindak area (in three Bodies) has been calculated as 412 Million tons at an average metal contents 0.37% copper and 0.441 gram/ton gold and 1.5 gram/ ton silver.

History

An agreement was signed in 1990 between MCC (a Chinese Company, which still operates in Saindak) and RDL for trial operation of South Ore Body. From 1991 to 1994 pre-stepping of mine construction, installation of concentrator, smelter, power house and water supply line was completed. In 1995, trial operations started and produced 1500 metric tons of blister copper and gold. From 1996 to 2003, due to non-availability of technical skill and lack of working capital and depressed copper market value, the project was stopped and Government was reportedly to bear burden of salaries and maintenance cost to the tune of Rs. 300 Million without production.

FEDERAL GOVERNMENT AGREED TO TRANSFER SAINDAK PROJECT TO BALOCHISTAN ON PAYMENT OF ITS ORIGINAL INVESTMENT OF RS. 27.00 BILLION. THIS IS STRANGE AS TO WHY GOVERNMENT OF BALOCHISTAN DID NOT CONTEST THIS CLAIM AS EXCEPT OIL AND GAS ALL MINERALS FELL UNDER PROVINCIAL DOMAIN

In 1999, the Government of Pakistan decided to constitute a project operational committee to recommend possible available options. The committee recommended leasing option to restart the project. The cabinet at its meeting on 02-02-2000 approved recommendation of cabinet committee and constituted a leasing committee. A Leasing contract was signed with MCC (China) on 13th November 2001 on the recommendation of leasing committee.

Terms and Conditions of Leasing:

Annual Production: As per original design

Duration of Lease: 10 years with effect from 02-10-2002

Annual Rent: US $ 0.5million to be paid to Saindak Metals Limited (SML)

Profit Sharing: SML to share 50% of cash surplus

Royalty: Payable to Government of Pakistan at the existing rate of 2% of sales proceeds, which was later raised to 5% in 2009 when this issues was raised in a Progress Review Meeting in China.

Analysis

Under Aghaz-e- Huquq-e-Balochistan Package (AHBP), the Federal Government agreed to pay 30% of profit to Balochistan and even had shown willingness to transfer the project to Balochistan on payment of its original investment of Rs. 27.00 billion. This is strange as to why government of Balochistan did not contest this claim on two counts, one, except oil and gas all minerals fell under Provincial domain. How Federal government on its own initiated this project without determining any equity of Balochistan, except paltry 2% royalty? Federal government continuously got 50% profit besides $.5 million as rent of this facility. By 2012 profit plus rent must have exceeded the total investment. Despite clear decision of 35% profit payment, reportedly only 30% was being paid for few years and then a row started between Federal Board of Revenue (FBR) and SML and FBR impounded all bank accounts of SML and now Provincial government is not getting anything except royalty.

After adjusting 30% instead of 35% as decided in AHBP the remaining 20% has been retained by the Federal Government to recover the working capital. The following terms were agreed for the period of extension beyond October, 2012. MCC, in addition to the royalty at 5% of the gross sale proceeds, shall pay through an official Account of the Miners Welfare Board GOB, and amount equal to 5% of the net profit [defined as “Surplus” in the Lease contract] for areas. Thereafter the balance surplus would be shared between MCC and Government of Balochistan (GOB) through SML in the ratio of 50:50; Saindak Project would continue to enjoy satus of Export Processing Zone during the extended period of the Lease contract, for which necessary approval form the relevant authorizes of the Government of Pakistan shall be secured by SML.

FEDERAL GOVERNMENT IS CONTINUOUSLY GETTING VARIOUS FEDERAL TAXES INCLUDING EXPORT PROCESSING ZONE CHARGES OF 2%, BUT STILL THEY WANT REPAYMENT OF RS.27 MILLION BEFORE GOVERNMENT OF BALOCHISTAN BECOMES ENTITLED FOR 50% SHARE IN PROFIT IN SAINDAK PROJECT

It is interesting that Federal government continuously getting various federal taxes including Export Processing Zone charges of 2%, but still they want repayment of Rs.27 million before government of Balochistan becomes entitled for 50% share in profit. MCC shall arrange adequate funds for the replacement of outlived machinery and equipment at Saindak Project which shall be recovered along with interest from the sale proceeds of the Project. All terms of the existing Lease Contract shall continue to apply during the extended period expect those effected by the aforesaid terms.

MCC shall exploit East Ore Body in the Saindak Area as a component of existing project operations, if it is determined to be feasible. MCC, at its own cost shall carry out pre-feasibility study for setting up a copper refinery of an optimal size and at an appropriate site within Balochistan and submit the same to GOB as early as possible. If the refinery option is economically feasible and the GOB decides to go ahead with this venture, MCC shall provide technical and financial support to GOB for its execution. The GOB will convey their concurrence to the GOP about the extension of the Lease Contract between MCC and SML for 5- years beyond October, 2012 or till the economic reserves are exhausted, whichever occurs later.

SML CONTINUOUSLY EARNED HEFTY MARK UPS AS HIGH AS RS.500.0 MILLION FROM ITS DEPOSITS ONLY. HAD THEY BEEN USING ONLY PART OF MARK UP FOR PROVISION OF BASIC FACILITIES TO LOCAL COMMUNITY, THEIR BASIC HEALTH, EDUCATION AND SANITATION PROBLEMS COULD HAVE BEEN SOLVED

Moreover, SML and GOB shall make all efforts that all necessary approvals from the concerned authorities are timely obtained so that the agreement for Extension of Lease Contract is signed sealed by end of March, 2011. It is to be mentioned that SML continuously deposited its part of profit in various Bank Accounts and it had been earning hefty mark up as high as Rs.500.0 million in certain years. Had they been using only part of mark up for provision of basic facilities to local community, their basic health, education and sanitation problems could be solved. It is dismaying that those officials of government of Balochistan who were at the Board of SML never asked basic questions.

Bottom Line

There is no logic whatsoever why provincial government to pay Rs 27.0 billion of initial investment. Ab initio that agreement was void as under Mineral laws metallic and nonmetallic minerals were not their domain. After initial contract of 10 years, it should have come back to Balochistan, as it was unconstitutional on the part of the Federal government as per 18th Amendment it is provincial domain. In revised or new contract annual lease amount should have been increased and that should have gone to provincial government. It is also to be mentioned that 30% profit amount outstanding against SML is around 04.5 Billion.

TILL 2015 THE MCC PAID $280 MILLION AS PROFIT, BESIDES TAXES TO FEDERAL GOVERNMENT. NOW DEMAND OF FEDERAL GOVERNMENT FOR PAYMENT OR ADJUSTMENT OF RS.27 BILLION FROM BALOCHISTAN TO TAKE 50% STAKE IN SAINDAK PROJECT IS TOTALLY UNJUSTIFIED

Writer is a retired Bureaucrat and Former Secretary Finance of Government of Balochistan.

Mahfooz Ali Khan is a retired officer of Pakistan Audit and Accounts Services (PAAS). He served on the positions of Secretary Finance Government of Balochistan, Accountant General and Director General of NIM amongst others. He was instrumental in fighting the case of Balochistan during 7th NFC negotiations.

http://balochistanvoices.com/2017/02/saindak-project-case-robbing-balochistan/

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