Skip to main content

Pakistan Struggles to Make Good on a Golden Opportunity in Balochistan

Aug 8, 2019 | 09:00 GMT


Until Pakistan and the Tethyan Copper Co. settle their dispute, development of the country's Reko Diq gold and copper mine will languish, leaving a potentially abundant revenue stream dry.

Growing foreign investment in the sector will heighten the need for an effective dispute resolution mechanism.

Unless Pakistan implements the necessary reforms to attract foreign investment, the country's mining sector will not grow beyond its current 3 percent contribution to Pakistan's gross domestic product.

In a remote and arid corner of southwestern Pakistan, Islamabad has found itself embroiled in a difficult battle: a multibillion-dollar dispute with a global mining company over one of the world's richest untapped deposits of copper and gold. In July, the World Bank's International Centre for Settlement of Investment Disputes (ICSID) ordered Pakistan to pay $5.9 billion in damages to the Tethyan Copper Co., a joint venture between Canada's Barrick Gold Corp. and Chile's Antofagasta PLC. The ruling stems from a 2012 case that Tethyan lodged at the ICSID against Islamabad for failing to issue a license to mine gold and copper at the Reko Diq site.

The case draws attention to the rich resources of Balochistan, Pakistan's rugged southwestern frontier in which Reko Diq is located, as well as the tug of war between domestic Pakistani law and international arbitration in resolving investor disputes. But above all, the Reko Diq affair shines a light on Pakistan's numerous underground resources and its broader failure to exploit them — something that will continue to haunt the country if it is to fulfill Prime Minister Imran Khan's goal of rapidly ramping up foreign investment.

The Big Picture

Pakistan's Balochistan province plays a vital role in the China-Pakistan Economic Corridor because of its location on the Arabian Sea. It's also known for its resource riches that include an abundance of gold and copper deposits. But a longstanding dispute between the government and a mining company point to the need for reforms, without which mining's contribution to Pakistan's economy won't exceed 3 percent.

A Strategically Significant Frontier

Pakistan possesses large deposits of gold, copper, chromite, bauxite, iron ore, rubies, emeralds, topaz, mineral salt and coal, many of which are — like Reko Diq — located in Balochistan, Pakistan's largest province. Accounting for nearly 40 percent of the country's landmass, Balochistan's 347,000-square-kilometer area (134,000 square miles) makes it equal in size to Germany. Its strategically located coastline faces vital shipping lanes in the Arabian Sea, including traffic destined for the Strait of Hormuz. As a result, Balochistan is the site of a variety of projects as part of the multibillion-dollar China-Pakistan Economic Corridor, which aims to create a direct overland route linking western China and the Arabian Sea through Balochistan's port of Gwadar. At the same time, however, Balochistan is also home to an insurgent movement that seeks independence from Pakistan on cultural and economic grounds; indeed, Chinese investment in Balochistan has exacerbated long-standing separatist grievances of foreign exploitation in the province. 

The mine itself is located in Chagai, Pakistan's largest and westernmost district. According to Tethyan, Reko Diq contains 2.2 billion metric tons of mineable ore that could yield 200,000 metric tons of copper and 250,000 troy ounces of gold annually for over half a century. To extract the precious metals, the company must shovel, crush and grind the ore into a fine powder before converting it into a slurry concentrate for transport through a 682-kilometer underground pipeline to Gwadar. At the port, the company plans to dry the concentrate before loading it onto ships for smelting abroad.

Pakistan Misses a Golden Opportunity 

But for all of its lucrative potential — $353 million annually at current gold and copper rates — the development of Reko Diq has stagnated because of the long-running legal battle that culminated in last month's $5.9 billion fine. A key element of the dispute centers on the validity of a decades-old pact called the Chagai Hills Exploration Joint Venture Agreement (CHEJVA). Signed in 1993 between the Balochistan Development Authority and BHP, the Australian firm that initially offered its capital and technical expertise to explore Reko Diq, CHEJVA later became the subject of a case at the Balochistan High Court. There, the petitioner argued that the agreement granted unfair advantages to BHP in the form of bigger blocks with more time for exploration than permitted under the law governing mining in the province. The Balochistan High Court ruled against the plea in 2006, declaring that the CHEJVA was valid.

In the meantime, Balochistan's provincial government begged to differ with the local high court. First, the government terminated the exploration agreement in 2009 and then, two years later, it refused to grant a mining license to BHP's successor, Tethyan. But because the company had already invested $220 million for exploration, it lodged cases at the ICSID and the International Chamber of Commerce in 2012, invoking international arbitration by circumventing the Supreme Court of Pakistan, which claimed that it — and not the ICSID — had jurisdiction over the case. Ultimately, the Supreme Court of Pakistan overturned the Balochistan High Court's verdict on appeal in 2013, ruling that the CHEJVA had been void from the beginning because of its violations of Pakistani law. Accordingly, the Supreme Court also ruled that Tethyan had no investor rights, including that of international arbitration, under the bilateral investment treaty between Pakistan and Australia (where Tethyan is incorporated). The ICSID, however, claimed jurisdiction in the case, ruling in favor of Tethyan in March 2017 before finally announcing last month the total fine, which includes a $4 billion penalty and $1.9 billion in interest charges.

Turning Promise Into Reality

The future of the mine will depend on how Tethyan and Pakistan choose to proceed. The mining company has offered to discuss a negotiated settlement with Islamabad — a gesture the government has welcomed — but it remains unclear whether the company will subsequently maintain its involvement in Reko Diq. Other mining companies from China and Saudi Arabia have expressed interest in the project, while the country's politically powerful military has noted it could help manage the project through its construction firm, the Frontier Works Organization.

The case of Reko Diq points to the fundamental problem in Pakistan's mining sector: the potential offered by the country's abundance of resources and the reality of its inability to efficiently exploit these minerals.

More broadly, the case of Reko Diq points to the fundamental problem in Pakistan's mining sector: the potential offered by the country's abundance of resources and the reality of its inability to efficiently exploit these minerals. If Pakistan wants to successfully exploit its mineral resources, it must attract overseas firms. But as the case of Reko Diq demonstrates, foreign investment requires effective investor dispute mechanisms — to say nothing of roads and other infrastructure to transport the resources from their often remote locations.

Khan, whose top domestic challenge is tackling the structural constraints that are hindering the economy, has ordered the formation of a committee to investigate the Reko Diq debacle and learn lessons for the future. What's more, the Planning Ministry has listed seven reform areas for mining pertaining to regulation, resource mapping, infrastructure, upgrading technology, access to finance and skills development. Pakistan's best-laid plans notwithstanding, the disagreement with Tethyan proves that developments taking place above ground will always affect the riches that lie in the earth below. And unless Islamabad can find a way to finally remove the obstacles to business, the Reko Diq affair appears to be one that it is likely to repeat.

Copyright ©2019 Stratfor Enterprises, LLC. All rights reserved.


Popular posts from this blog

SSG Commando Muddassir Iqbal of Pakistan Army

“ Commando Muddassir Iqbal was part of the team who conducted Army Public School operation on 16 December 2014. In this video he reveals that he along with other commandos was ordered to kill the innocent children inside school, when asked why should they kill children after killing all the terrorist he was told that it would be a chance to defame Taliban and get nation on the side. He and all other commandos killed children and later Taliban was blamed. Muddassir Iqbal has deserted the military and now he is  with mujahedeen somewhere in AF PAK border area” For authenticity of  this tape journalists can easy reach to his home town to interview his family members or   ISPR as he reveals his army service number” Asalam o Alaikum: My name is Muddassir Iqbal. My father’s name is Naimat Ali. I belong to Sialkot divison (Punjab province), my village is Shamsher Poor and district, tehsil and post office  Narowal. Unfortunately I was working in Pakistan army. I feel embarrassed to tell yo

CPEC Jobs in Pakistan, salary details

JOBS...نوکریاں چائنہ کمپنی میں Please help the deserving persons... Salary: Salary package in China–Pakistan Economic Corridor (CPEC) in these 300,000 jobs shall be on daily wages. The details of the daily wages are as follows; Welder: Rs. 1,700 daily Heavy Duty Driver: Rs. 1,700 daily Mason: Rs. 1,500 daily Helper: Rs. 850 daily Electrician: Rs. 1,700 daily Surveyor: Rs. 2,500 daily Security Guard: Rs. 1,600 daily Bulldozer operator: Rs. 2,200 daily Concrete mixer machine operator: Rs. 2,000 daily Roller operator: Rs. 2,000 daily Steel fixer: Rs. 2,200 daily Iron Shuttering fixer: Rs. 1,800 daily Account clerk: Rs. 2,200 daily Carpenter: Rs. 1,700 daily Light duty driver: Rs. 1,700 daily Labour: Rs. 900 daily Para Engine mechanic: Rs. 1,700 daily Pipe fitter: Rs. 1,700 daily Storekeeper: Rs. 1,700 daily Office boy: Rs. 1,200 daily Excavator operator: Rs. 2,200 daily Shovel operator: Rs. 2,200 daily Computer operator: Rs. 2,200 daily Security Supervisor: Rs.

A ‘European Silk Road’

publication_icon Philipp Heimberger ,  Mario Holzner and Artem Kochnev wiiw Research Report No. 430, August 2018  43 pages including 10 Tables and 17 Figures FREE DOWNLOAD The German version can be found  here . In this study we argue for a ‘Big Push’ in infrastructure investments in greater Europe. We propose the building of a European Silk Road, which connects the industrial centres in the west with the populous, but less developed regions in the east of the continent and thereby is meant to generate more growth and employment in the short term as well as in the medium and long term. After its completion, the European Silk Road would extend overland around 11,000 kilometres on a northern route from Lisbon to Uralsk on the Russian-Kazakh border and on a southern route from Milan to Volgograd and Baku. Central parts are the route from Lyon to Moscow in the north and from Milan to Constanţa in the south. The southern route would link Central Europe with the Black Sea area and