The recent news that the World Bank’s International Centre for Settlement of Investment Disputes (ICSID) has given a stay on its penalty of $5.8 billion on Pakistan for cancelling the Reko Diq mining lease has come as a big relief.
This is even though the stay is reportedly conditional on a bank guarantee of $1 billion. In the current economic situation, it would not be easy to find a guarantor for such a considerable amount.
It is worrisome to ponder over the consequences for Pakistan if ICSID’s final decision upholds the original penalty at the next hearing scheduled for May 2021.
Refusing to pay is not an option in the long term as there are adequate enforcement provisions, including the freezing of country’s assets abroad. After the final decision, the claimant Tethyan Copper Company (TCC) and its host government Australia can get the award enforced in a third state where Pakistan has any assets.
When the penalty was first announced in July 2019, the prime minister formed a commission to “investigate the reasons as to how Pakistan ended up in this predicament; who was responsible for making the country suffer such a loss and what are the lessons learnt, so that mistakes made do not repeat in the future”.
It has been more than a year since then, but when the commission makes its findings public, is not known. Now that the case is reaching its conclusion, it is no longer possible to kick the can down the road. Pakistan has to find a solution very quickly or face economic consequences. At this stage, the options for Pakistan are limited. Jeffrey Sachs, a renowned economist and Director of the Earth Institute at Columbia University, has termed this award outrageous.
Although he has called for reversing the decision and fixing the broken arbitration system of the World Bank, it is not likely that any such thing will happen soon. The government has to proceed based on the situation as it is and not rely on any wishful thinking.
Even if Pakistan had won the case, could it afford to invest over $3 billion in exploration and make it a successful venture? Can we meet the technical and operational challenges to carry out this mining and logistics operation in a remote area like Reko Diq?
Statements by our scientists in the Supreme Court and TV shows claiming the country’s capability to do were hollow claims without any backing. If we have the capacity, why don’t we look at the other contiguous areas, as rich in minerals as the one already explored by TCC?
Despite all the claims that Pakistan is full of mineral wealth, its exports of minerals remain minuscule at $108 million (ITC 2018 data). Therefore, the best way forward seems to be to accept the offer of TCC for a negotiated settlement. If a deal is successful and TCC can resume its mining operations, it would give an immediate boost to the economy of Balochistan.
It will create an estimated 10,000 workforce. It will also create large-scale infrastructure consisting of pipelines, roads and housing. It will reduce poverty and also have peace dividends in the restless province.
Unlike the common perception that the deal was negotiated in a hurry and without thorough analysis, the agreement was negotiated over a long period and after careful consideration of comparable ones around the world.
The agreement was initially made in 1993 and subsequently modified in 2000 and 2006. Several local and international experts assisted both the provincial and federal governments in finalising the agreement.
According to the ICSID website, Pakistan is one of the two countries which faced the highest number of complaints against them in the Asia-Pacific region.
Furthermore, although ICSID is the main forum for settling international trade disputes, it is not the only one. In another case, the London Court of International Arbitration (LCIA) ordered Pakistan’s National Accountability Bureau (NAB) to pay over $22 million, in addition to legal costs.
There is now hype for cancellation of other international contracts, without realising its full implications. These include agreements relating to the import of liquefied natural gas (LNG) and its terminals, K-Electric and independent power producers (IPPs). Any unilateral premature cancellation could bring similar penalties.
To avoid getting into such horrific situations in future, the government should devise a well-thought-out strategy to minimise potential areas of disputes. The government should consider setting up an Alternate Dispute Resolution (ADR) system to solve such conflicts locally before they reach the international arbitration level.
The writer has served as Pakistan’s ambassador to the WTO and as FAO’s representative to the United Nations in Geneva
Published in The Express Tribune, Septe0mber 28th, 2020.
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