The $5.8 billion penalty in the Reko Diq case should make Pakistanis reconsider the military’s overwhelming presence in their lives.
16 July, 2019 10:52 am
Pakistan Prime Minister Imran Khan | Facebook
At a time when Pakistan’s debt-ridden economy cannot afford further bleeding, a World Bank arbitration court has ordered Imran Khan’s government to pay $5.8 billion in damages to a multinational mining giant, which discovered gold and copper deposits in Balochistan only to have its mining lease arbitrarily cancelled.
Pakistan also lost another arbitration case against the asset recovery firm Broadsheet LLC, and has been ordered to pay $33 million in damages and costs. The company had been hired by Pakistan’s National Accountability Bureau (NAB) to search for the hidden assets of former Prime Minister Nawaz Sharif’s family. Broadsheet LLC’s contract was also terminated without regard to international contract law.
Both cases demonstrate how Pakistan’s economy suffers when the hyper-nationalist sentiment of an intrusive and politicised military interferes with economic decision-making. Within Pakistan, the military establishment manages to get its capricious decisions endorsed by a subservient judiciary. But Pakistan has faced a long streak of negative judgments in international arbitration tribunals and courts because of overly simplistic choices made by its generals.
Without the military’s interference, the large gold and copper deposits found at Reko Diq, Balochistan, would have brought in revenues for Pakistan instead of a $5.8 billion penalty. The deposits would have been exploited by Tethyan Copper, a joint venture between Chile’s Antofagasta and Canada’s Barrick Gold, and Pakistan would have shared the profits with the multinational corporation with mining experience.
With the military’s backing, nuclear scientist Samar Mubarakmand demanded ejection of foreign companies from Reko Diq in 2011, and subsequently started mining and smelting operations with his own team.
The Supreme Court, then headed by activist Chief Justice Iftikhar Chaudhry, ordered the cancellation of the Tethyan Copper contract in 2013.
In January 2015, the Pakistan military’s magazine Hilal published an article by Samar Mubarakmand, described as ‘an eminent scientist who led the team of scientists and engineers to conduct Pakistan’s Nuclear Tests at Chagai in May 1998’. The article titled ‘Destined Towards a Rich Pakistan: Reko Diq Mineral Resources’ suggested that Pakistan did not need to pay a foreign company to extract its minerals. It claimed that scientists who succeeded in making nuclear weapons for Pakistan could also make it rich by developing its natural resources.
Mubarakmand’s pitch was received well by the military as well as xenophobic civilians. Balochistan has long been a troubled province and, in the official Pakistani view, easy prey to the usual foreign suspects.
The hyper-nationalists thought the judgment of the country’s highest court was enough to turn a multinational company away without sufficient compensation. Some of the Reko Diq mines were turned over to the Metallurgical Corporation of China (MCC). The Chinese are, in Pakistani folklore, more mindful of Pakistan’s interests and security needs than Westerners and can be trusted to never have any truck with the Indians who allegedly encourage Baloch separatism.
But the Chinese could not extract even an ounce of Reko Diq’s copper or gold, nor could Mubarakmand’s team of patriotic scientists. Although the Chinese are still said to be involved in the mining project as part of the China-Pakistan Economic Corridor.
More recently, the Pakistan army’s Frontier Works Organisation (FWO) – a road and buildings constructor – has been involved in the Reko Diq project, even though it has no experience whatsoever of complex copper mining.
The World Bank’s International Center for Settlement of Investment Disputes (ICSID)’s award in favour of Tethyan Copper should serve as a reminder that military officers and nuclear scientists with a greater claim to patriotism are not the best persons to make decisions about commercial mining or understanding the inviolability of international contracts. But it is unlikely that the lesson will be learnt any time soon.
Pakistan’s generals and officers of the ubiquitous Inter-Services Intelligence (ISI) continue to believe that they are better positioned to define and defend Pakistan’s national interest. This belief persists in the area of economic decision-making even though economics and contract law are not taught at Pakistan Military Academy or the Army Staff College.
Corruption charges against civilian politicians have been used to wriggle out of international contracts. During the late 1990s, contracts of several Independent Power Producers (IPPs) funded by the World Bank were terminated. In 2011, several Rental Power Projects (RPPs) were cancelled amidst allegations that the civilian officials at the time received kickbacks from companies from the United States, Turkey and UAE.
The militarised anti-corruption drive is costing Pakistan more than the recoveries in unlawful assets of corrupt politicians or officials. The Broadsheet case, for example, shows how the generals hired an international firm to help them find hidden overseas assets but then lost the opportunity of recovering these assets by cancelling the asset recovery firm’s contract.
Now, not only won’t Pakistan fail to recover the assets identified by Broadsheet, it would have to pay the firm compensation for its work. Huge arbitration awards are hurting Pakistan’s already thin pocketbook. In 2017, Turkish company Karkey Karadeniz Elektrik Uretim AS won a $780 million award from ICSID over the unlawful termination of its rental power project.
There are other examples of militarised decision-making affecting Pakistan’s economy. Privatisation of large loss-making state enterprises, such as Pakistan Steel, and Pakistan International Airlines (PIA), has often been contemplated but shelved due to ‘national security concerns’. Xenophobic nationalism interferes with travel facilities for foreign businessmen and corporate executives as well as with large investment projects like the Reko Diq copper and gold mines.
Pakistan’s military and intelligence services have often looked upon managing the economy as integral to their remit of ensuring Pakistan’s security. One of the arguments for each of Pakistan’s four direct military coups d’état and for other military interventions in politics was the need to maintain equilibrium in the government’s finances.
The military has often spearheaded anti-corruption drives, although evidence suggests that public sector corruption in Pakistan has increased, not diminished, over the years, including during military regimes. It is not unusual for Pakistan’s national security apparatus to intervene directly or behind-the-scenes for the purpose of denying a local business or foreign investor their legitimate dues from the federal or provincial governments.
The permanent state apparatus wants to be able to sidestep constitutional and legal restrictions, including the opportunity to get out of inconvenient contractual obligations, by any means necessary. But that is not how the real world works. Cancelling contracts and juggling aid packages are not a substitute for land reform and sustained modernisation of agriculture, training of a skilled workforce, and nurturing of innovation or entrepreneurship.
The $5.8 billion penalty in the Reko Diq case should make Pakistanis reconsider the military’s overwhelming presence in their lives. Pakistan’s recurrent economic crises are partly the product of general disdain towards pursuit of economic activity in a culture that extols the virtues of the warrior more than that of the trader.
Husain Haqqani, director for South and Central Asia at the Hudson Institute in Washington D.C., was Pakistan’s ambassador to the United States from 2008-11. His books include ‘Pakistan Between Mosque and Military,’ ‘India v Pakistan: Why Can’t we be Friends’ and ‘Reimagining Pakistan.’ Views are personal.