Tuesday, November 29, 2022
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Reko Diq project and its economic complications

The $9 billion Reko Diq Deal is the biggest-ever investment in Pakistan’s history and country is going to get 50% profit from project

Reko Diq gold mine in Balochistan province of Pakistan. — Twitter
Reko Diq gold mine in Balochistan province of Pakistan. — Twitter

The $9 billion Reko Diq Deal is the biggest-ever investment in Pakistan’s history. The country is going to get 50% profit from the total project by investing accordingly. Out of Pakistan’s 50% share, there are further classifications. 

The Government of Pakistan is not a direct investor, as the state-owned enterprises including OGDCL, Pakistan Petroleum Company, and Government Private Holding Company Limited are investing in the project. Balochistan will receive half of the profit of Pakistan’s share.

Apart from the foreign direct investment (FDI), the investor company will also generate 7,000 employment opportunities as well as spend 0.4% of the project’s outcome on the social development of the province, stated Barrick Gold Company’s counsel Makhdoom Ali Khan while arguing before the apex court hearing the Presidential Reference. 

The company will also develop the local infrastructure in the province. The additional attorney general told the Supreme Court (SC), “Non fulfillment of Reko Diq Agreement requirements will lead Pakistan’s Economy to default as $10 billion fine is due to be paid while country’s foreign exchange reserves are far less than this. The International Investor Company Barrick Gold agreed to enter into the Reko Diq Agreement on certain conditions. Condition involves the validation of agreement from court plus the proper legislation in National as well as the provincial assemblies regarding foreign investment and the protection of exemptions provided to foreign investor". 

Presidential Reference

The Supreme Court is hearing the Presidential Reference on the Reko Diq Project in which the President of Pakistan sought the opinion under article 186 of the constitution of Pakistan. The President asked two legal questions in reference sent on October 15, 2022 to SC — (1) whether the Government of Balochistan or Government of Pakistan can enter into an international agreement as per Supreme Court’s Judgment, in Molvi Abdul Haq vs Federation of Pakistan 2013 Case, and (2) if the proposed Foreign Investment (Protection and Promotion) Act 2022 would accord to the constitution?

Reko Diq is Pakistan’s Biggest Gold and Copper reserve:

In the early 90’s, Pakistan’s biggest gold and copper reserve was discovered at Reko Diq in the Chaghai District of Balochistan. Two international world-class mining companies — Barrick Gold Company and Antofagasta — entered into a joint venture agreement with the governments of Balochistan and Pakistan in July, 1993. The international companies spent $240 million on mineral exploration and feasibility studies till 2011. Feasibility studies found commercial-level gold and copper reserves in Reko Diq.

What is Molvi Abdul Haq vs Federation of Pakistan Verdict of Apex Court?

Today’s Reko Diq Project Agreement was earlier called Chaghai Hill Exploration Joint Venture Agreement CHEJVA. Barrick Gold and Antofagasta Company sought a mining lease extension from the Mines and Mineral Development Department of Balochistan for their exploration in 2011. 

The department rejected their request following which the two companies entered into litigation against the governments of Pakistan and Balochistan at two separate International Forums, on the basis of $240 million spent by them on exploration. The government of Pakistan faced a suit for specific performance in the extension of lease in the International Center for Settlement of Investment Disputes (ICSID) while the Balochistan government had to face a case in the International Court of Arbitration (ICC). The ICSID decided the matter against Pakistan, fulfilling all demands of the investor's companies.

The Supreme Court on January 7, 2013, declared the CHEJVA as illegal, null and void. The court held that there were severe violations of basic legal requirements and a lack of due diligence in the Reko Diq Project. The investor companies again filed a lawsuit against Pakistan with the ICSID whose tribunal, in 2019, announced $6.927 billion award against Pakistan for violation of the agreement. ICC also ruled against Pakistan but the award is yet to be announced. Legal Experts are of the view that the ICC award against Pakistan will be around $3 billion.

New Reko Diq Deal and liability in Pakistan

Pakistan successfully negotiated the new deal with Barrick Gold Company in March 2022 on Reko Diq Project but the final agreement will be signed after the due diligence. Pakistan got stay till December 15. On signing the Reko Diq Deal, $10 billion liability will be waived off. The foreign company, Antofagasta, earlier involved in the deal, left after settling $900 million that Pakistan has to pay. Under the new deal, Pakistan will be having 50% share by investing $4.5bn of a total $9bn Project. On non-fulfilment of the said deal on December 15, Pakistan will be liable to pay $10bn.

Foreign Investment (Protection and Promotion) Act 2022

The federal government is yet to pass legislation namely Foreign Investment (Protection and Promotion) Act 2022, that will be a one-window operation for all foreign investment in the country, as per the government’s counsel stated in the SC. The said act will be passed after the Supreme Court gives its opinion regarding its constitutionality.

Additional Attorney General Aamir Rehman told the court that this act will be applicable to the investment of $500 million and above after prior approval by the federal government.

The SC has had 16 hearings of the presidential reference as of November 28. A five-member larger bench headed by Chief Justice Pakistan Justice Umar Ata Bandial is hearing the matter. 

“We want to conclude the hearing of reference till December 1, and will be able to announce the short opinion in second week of December,” said the CJP in 15th hearing of the reference. In the light of SC Opinion, the national and the provincial assemblies will legislate the Foreign Investment Act and the Reko Diq Deal will be signed on due date.

The writer is a reporter covering Supreme Court for Geo News.

Originally published in The News