The government has worked out a $1.9 billion funding plan for executing the Reko Diq copper and gold project in the Chagai area of Balochistan.
Sources told The Express Tribune that the government had estimated the total project funding at $4.297 billion. Of this, the share of state-owned enterprises’ (SOEs) special purpose vehicle (SPV) will be $1.194 billion and that of Balochistan government’s SPV will be $717 million, according to the definitive agreements. The share of Balochistan will be funded by the government of Pakistan.
According to the plan, if debt is raised, the federal government will provide a back-to-back guarantee for Balochistan SPV shareholder’s pro rata share prior to the finalisation of financing documents and with approval of the ECC.
In a recent meeting, the Ministry of Finance informed the Economic Coordination Committee (ECC) of the cabinet that with approval of the federal and provincial cabinets, the federal government and the government of Balochistan had entered into an out-of-court dispute settlement with Tethyan Copper Company, Australia in respect of the Reko Diq project.
They struck the deal after an arbitrary award by the International Centre for Settlement of Investment Disputes (ICSID). A similar award was expected from the International Chamber of Commerce (ICC) against Pakistan’s government and Balochistan.
The new arrangements include the development of mineral resources under the reconstituted Reko Diq project by a joint venture comprising Barrick Gold Corporation, the government of Balochistan and SOEs namely Pakistan Petroleum Limited (PPL), Oil and Gas Development Company Limited (OGDCL) and Government Holdings (Private) Limited (GHPL).
Under the framework agreement along with the definitive agreements, the parties agreed that for various reasons 90% of contributory equity investment in the project will be made by the newly formed Barrick Reko Diq Holdings Limited, SOEs’ SPV namely Pakistan Minerals Limited and the Balochistan government’s SPV namely Balochistan Mineral Resources Limited. They will hold Class-A shares through the offshore holding companies, Reko Diq Holdings Limited and Reko Diq Investments Limited.
The remaining 10% equity interest in the project will be held by the government of Balochistan as Class-B shares, which will be non-contributory. Therefore, the contributory share of Balochistan government’s SPV will be 16.66% as set out in the definitive agreements.
Barrick Gold of Canada, which was a partner in Tethyan Copper Company with Antofagasta of Chile, will hold 50% shareholding but its contributory shareholding will be 55.5%. SOEs will have 25% shareholding but their contributory share will be 27.7%.
The Ministry of Finance told the meeting that in case of project financing up to 50%, the share of equity contribution may come down to $597 million for SOEs’ SPV and $359 million for Balochistan government’s SPV.
The agreed implementation plan will require a funding arrangement by the federal government for the Balochistan government SPV and the issuance of completion guarantee
to the satisfaction of Barrick in respect of the SPV’s contributory share in the Reko Diq project.
It was mutually agreed that for raising debt financing (in case it was raised independently through the government of Pakistan or sovereign guarantee or project debt financing through the SPV as the case may be), specific approval of the ECC would be solicited in due course.
In case the debt financing is raised, Pakistan government will provide a back-to-back guarantee for the government of Balochistan SPV shareholder’s pro rata share under the project finance facilities prior
to the execution of financing documents with approval of the ECC.
The ECC considered a summary titled “Reko Diq Project – Approvals for Funding Plan of Government of Pakistan for Share of Government of Balochistan” and approved the proposal.
Published in The Express Tribune, December 17th, 2022.
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