Turning a page in the Reko Diq saga
Last week’s Supreme Court judgement in the presidential reference by the larger five person bench headed by Chief Justice Umar Ata Bandial and comprising Justice Ijaz ul Ahsan, Justice Munib Akhtar, Justice Yahra Afridi and Justice Jamal Khan Mandokhail announced its 13-page opinion last week after more than a dozen hearings.
Moreover, the passage of the Foreign Investment Bill 2022 also symbolises a positive step forward just when the country perhaps may be in need of one. The Reko Diq project promises nearly $10 billion worth of investment in the province of Balochistan and will also focus on social uplift initiatives in particular such as roads, schools, hospitals and creation of technical training institutes for mining. The investment is estimated to also create 8,000 new jobs.
The bill was passed despite reservations from Balochistan’s political parties – especially JUI-F and BNP Mengal, which are part of the federal government – over the Reko Diq agreement. However, Balochistan government counsel had told the court that the province stood to earn $32 billion revenue in next 47 years from this project.
As per the court order, the Balochistan Development Authority (BDA) entered into the Chagai Hills Exploration Joint Venture Agreement (CHEJVA) with a foreign investor having 75 per cent shareholding and BDA having 25 per cent shareholding plus two per cent royalty on July 7, 1993.
Subsequently, in the year 2006, the foreign investor was succeeded by Tethyan Copper Company Pty Ltd., Australia (TCCA). TCCA in turn was acquired by Barrick Gold Corporation (BGC) and Antofagasta in equal shares. Under CHEJVA, BGC and its partner had the exclusive right to prospect and explore for copper and gold in the Reko Diq area. Between 2006 and 2011, TCCA invested in mineral exploration and developed detailed plans for mining at Reko Diq.
According to the presidential reference filed in the court, between 2006 and 2011, TCCA invested more than $240 million in exploration activities and developing detailed plans for mining at Reko Diq.
TCCA collected and tested hundreds of thousands of meters of core samples, making it possible to confidently map the deposits and developa plan to extract and process them. The results of TCCA's thorough study, engineering, and analysis were summarised in a feasibility study, which outlined in detail TCCA's planned mine development.
The feasibility study comprised 21 volumes with 235 appendices and ran to nearly 18,000 pages, covering topics as wide-ranging as pit design, metallurgical processing, tailings disposal, emission control, water management, human resources, port facilities, procurement and power supply. During this time, TCCA made a discovery of commercial grade copper and gold.
On February 15, 2011, TCCP submitted a mining lease application to the Director General of the Licensing Authority, the Mines and Mineral Development Department of Balochistan, to convert its then existing exploration license into a mining lease in connection with the development of a mining project in the vicinity of the Reko Diq Project.
The application was supported by the feasibility study and other documents required under Rule 47 of the 2002 Balochistan Mineral Rules (BMR).
On September 21, 2011, the licensing authority rejected the mining lease application and he on November 15, 2011 denied the Mining Lease Application.
Upon this , TCCA initiated two international arbitration claims. First, against the government of Pakistan (GoP) for violating its obligations under the agreement between Australia and the Islamic Republic of Pakistan on the Promotion and Protection of Investments (the "Pak-Aus BIT"), which was subsequently registered and administered by the International Centre for Settlement of Investment Disputes and second, against the Government of Balochistan, for claims arising under the CHEJVA, which were subsequently registered and administered by the International Court of Arbitration of the International Chamber of Commerce (ICC).
In the ICSID arbitration, TCCA initially sought an order from the ICSID tribunal that the GoP take all steps necessary to approve the mining lease application and grant all related permits, approvals, and authorisations required for TCCA to develop the mineral deposits subject to the mining lease application as well as an order for interim relief.
The application for interim relief was decided by the ICSID Tribunal vide its order on December 13, 2012. Subsequently, TCCA gave up its claim for specific relief and instead restricted its claim to damages.
The presidential reference
As pre conditions, the federal government filed presidential reference seeking Supreme Court opinion on two questions. Whether the earlier judgment of Supreme Court reported as [Maulana] Abdul Haque Baloch v. [Government of Balochistan], PLD 2013 SC 641 or the laws, public policy or Constitution of Pakistan prevent the government of Balochistan and the GoP from entering into the implementation agreement and the definitive agreements or affect their validity? Secondly, if enacted, would the proposed Foreign Investment Bill, 2022 for its protection and promotion be valid and constitutional?
On December 9th, the Supreme Court noted that the agreements on Reko Diq project are in fact legal. The supreme court stated, "The parameters set out in Abdul Haque Baloch’s case (PLD 2013 SC 641) and the reasons for the same, have been duly addressed by the Federal and Provincial Governments. The process for the reconstitution of the Reko Diq project has been undertaken transparently and with due diligence. The agreements are being signed by authorities duly authorised and competent to do so under the law. To ensure transparency and fairness, expert advice on the financial, technical and legal issues involved has been sought from both local as well as independent international expertsor consultants on the terms settled in the agreements.
“The agreements have been put in place after due deliberation and have not been found by us to be unconstitutional or illegal on the parameters and grounds spelt out in Abdul Haque Baloch’s case ibid. Likewise, the rationale, basis, legality and vires of the FI Bill 2022 as well as the amendments to its schedules and annexures and the amendments incorporated through SROs, provided the resolutions are passed by the Sindh and Balochistan Provincial Assemblies and the Bill is passed by the Parliament after following due process, shall be duly enacted as required under the Constitution. And such laws and regulatory measures do not in any manner violate the Constitution or the Law", says the short order authored by Justice Ijaz ul Ahsan.
The order said that the Foreign Investment Bill 2022 was not limited exclusively to the Reko Diq project. Instead, it provides a framework for grant of investment incentives which will, subject to the provisions of the Bill, be available to all investments of US$ 500 million or more. The fact that the Reko Diq project is the first to be identified as a ‘qualified investment’ under the FI Bill 2022 does not render the statute as ‘person-specific’.
The court had noted that proposed Foreign Investment Bill 2022 will not only pave the way for implementation of the Reko Diq project in its present form but will also facilitate and encourage direct foreign investment in similar mining projects and other high capital intensive industries in which direct foreign investment is required to be encouraged through guarantees assured by laws and regulatory measures.
Following SC opinion, Balochistan Assembly passed resolution in favour of the settlement on Reko Diq project. The Sindh Assembly had already passed such resolution. Parliament also passed Foreign Investment Bill 2022.
AGP office statement
The negotiations team was also led by Additional Attorney-General, Ahmad Irfan Aslam and Brigadier Atif Rafique. In the aftermath of the court’s notice, the AGP office issued statement confirming the federal government’s announcement of the reconstitution of the Reko Diq project and the settlement of an $11 billion dispute.
“The final deal was signed today in London between representatives of the Governments of Pakistan, and Balochistan and Barrick Gold and Antofagasta PLC,” read the statement. “One of the largest undeveloped copper-gold projects in the world, Reko Diq will be owned 50% by Barrick, 25 per cent by three state-owned enterprises – OGCDL, PPL and GHPL, 15% by the Province of Balochistan on a fully funded basis and 10 per cent by the province of Balochistan on a free carried basis.”
“The development of Reko Diq into a world-class mine is among the largest FDI ever into Pakistan. The project will bring growth and opportunity for the province of Balochistan and the nation as a whole for generations,” asserts the AGP in this statement. “In addition to the economic benefits it will deliver, the mine will also create jobs, promote the growth of a regional economy and invest in development programs in Balochistan. The province’s interest in the mine will be fully funded, meaning that Balochistan will reap the dividends, royalties and other benefits of its shareholding without having to contribute financially.”
According to the statement, aside from the creation of new jobs, once in production, it will create around 4,000 long-term jobs. The employment of local communities has been prioritised in the project.
“Reko Diq’s ownership structure reflects a partnership between Pakistan, the province and a major international mining company benefitting all stakeholders,” it continues. “The negotiations commenced in 2015 with increasing commitment from 2019 onwards.”
Supreme Court intervention
In 2011, the apex court led by the now forment chief justice of Pakistan Iftikhar Muhammad Chaudhry had taken up petition filed by Molana Abdul Haq Baloch against Reko Diq agreement.
On January 2013, a three judge bench of the apex court led by ex CJP Iftikhar Muhammad Chaudhry and comprising Justice Sheikh Azmat Saeed and Justice Gulzar Ahmed declared that agreement was illegal, null and void.
Though the bench was informed that the matter was pending before the ICSID but former chief justice Iftikhar Chaudhry-led bench did not stop and give the judgment wherein the whole deal was declared as void in January 2013. Even the bench was requested that when the TCCA plea regarding grant of mining license is rejected then there was no need to declare the whole agreement as null and void.
Interestingly, the bench had asked the parties to convey to the ICSID to stay its proceeding as the matter was being heard by the apex court in Pakistan.
The ICSID refused to stay its proceeding because the tribunal had already been constituted to take up the TCC’s complaint against the rejection of the mining lease by the Balochistan government.
Senior counsel Khalid Anwar, who was representing the TCC at that time had told the bench regarding the dire consequences if the Reko Diq deal was declared as void. His contentions are mentioned in the SC 2013 judgment.
Anwar had requested the court not to give such a finding and suggested that the proper course for the court would be to wait for the outcome of the proceedings being carried out under the Pakistani laws – the Arbitration (International Investment Disputes) Act, 2011, the Recognition and Enforcement (Arbitration Agreements and Foreign Arbitral Awards) Act, 2011, and the Fourth Schedule to the Constitution of Pakistan under which the International Arbitration Treaties were binding upon the government of Pakistan.
According to the counsel, that would be the best, clearest, fairest and most transparent approach, which would restore the confidence of foreign investors in Pakistan as a safe environment for their investments and there would be no conceivable allegations that the agreement was struck down after the discovery had been made.
He had urged that Pakistan should stand up for its commitments under the bilateral treaty read with ICSID clause, which the State of Pakistan has accepted voluntarily and freely, and that this Court should not put its prestige on the line.
Despite all his requests, the Supreme Court did not stop and held that Reko Diq agreement is null and void.
International litigation
Following the SC judgment, international litigation was started at different international forums (ICSID & ICC). Millions of dollars were spent on the litigation cost.
According to the presidential reference, in the arbitration between TCCA and the government of Pakistan the parties each submitted more than 1,000 pages of written legal submissions, accompanied by a total of more than 3,000 factual and technical exhibits.
The ICSID Tribunal received testimony from more than 30 fact witnesses and nearly 30 expert witnesses and presided over a total of 32 live hearing days.
The arbitral process also included three different discovery periods, during which TCCA produced approximately 85,000 pages of internal company documents, which Pakistan was permitted to scrutinize and employ in its defense. Pakistan's technical experts travelled to Reko Diq to collect core and water samples, which they subsequently had tested at an independent laboratory in the United States.
On October 21, 2014, the ICC Tribunal issued a 100-page ruling on preliminary issues in which it dismissed each of the Balochistan government's preliminary jurisdictional objections.
The ICC Tribunal concluded that, as a matter of international law, it was not bound by the SC Judgment voiding the CHEJVA and that it could proceed to hear the merits of TCCA's claims.
On September 2, 2015, the government filed an application before the ICSID tribunal seeking to have TCCA's claim dismissed on the grounds that the investment by TCCA had been procured through corruption.
On November 10, 2017, after a separate two-year process in which the ICSID Tribunal heard multiple witnesses of fact and law, the ICSID Tribunal issued a 425-page decision rejecting the federal government’s application seeking the dismissal of TCCA's claim on grounds of corruption. However, Pakistani authorities failed to prove charges of corruption against TCCA.
On the same day, the ICSID Tribunal rendered a 387-page “Decision on Jurisdiction and Liability" in which it held that notwithstanding the SC judgment, it had jurisdiction to proceed because the federal government obligations under the Pak-Aus BIT were independent of domestic law and correspondingly unaffected by the SC Judgment and the GoB's denial of the Mining Lease Application had breached the GoP's obligations under the Pak-Aus BIT because the denial had not been bona fide but was instead the consequence of a deliberate decision taken by the Government of Balochistan to develop the Reko Diq Project by itself.
On July 8, 2019, the tribunal in the ICC Arbitration rendered a partial award in which it foundthat "upon incorporation in an Award, expressly or by implication," the findings made by the ICSID Tribunal, including with regard to the quality of exploration and feasibility work conducted by TCCA and TCCP and the entitlement of TCCP to a mining lease under the BMR, "shall have preclusive effect in this arbitration."
On 12.7.2019, the ICSID Tribunal rendered a 622-page award against the GoP in favour of TCCA (the "ICSID Award") in which it ordered the GoP to pay $4.087 billion in damages and US$1.753 billion in pre-award interest, and to reimburse TCCA for $61.98 million in costs incurred.
The Tribunal also ordered post-award interest at a rate of US Prime + 1.0 per cent, which amounted to approximately $740,000 a day when the ICSID Award was issued. As of the date of this reference, the current total liability of Pakistan in terms of the ICSID Award is approximately $6.5 billion.
Enforcement proceeding
Following the announcement of award , TCCA on August 9,2019 filed a petition to enforce the ICSID Award before the United States District Court for the District of Columbia. TCCA subsequently filed similar actions in Australia, the British Virgin Islands, and other jurisdictions.
BVI High Court’s Justice Gerhard Wallbank, while passing the order on December 10, 2020, had attached the assets belonging to the PIA Investment Limited, including the company’s interests in the two hotels.
Pakistan resisted enforcement attempts by TCCA by contesting proceedings in every jurisdiction where such proceedings were initiated.
In May, 2021, the High Court of Justice in the British Virgin Islands (BVI) decided the Pakistan International Airlines would retain its two assets — Roosevelt Hotel in New York and Scribe Hotel in Central Paris — retracting its earlier order to attach these properties with the enforcement of Reko Diq penalty on the request of the Tethyan Copper Company (TCC).
On March 12, 2021, the GoP filed an application before ICSID seeking revision of the ICSID Award.
Negotiating history
The federal government in it's presidential reference told the court that attempts to settle the dispute began while the ICSID proceeding was ongoing and before the ICSID Award was issued.
Talks took place in March 2015 on the sidelines of the First ICSID hearing. Another meeting was held in Dubai in April 2016 involving the TCCA board and a senior government delegation led by the Attorney General of Pakistan and the Chief Secretary of Balochistan.
A third round occurred in July 2016 in Paris during the ICSID hearing regarding Pakistan's application to present evidence of TCCA's alleged corruption. None of these rounds of discussions resulted in any proposals that the parties wished to pursue and no further engagement took place until after the ICSID Award was issued in July 2019.
After the issuance of the ICSID Award, the Prime Minister established various committees with overlapping membership but different chairmen to steer three different aspects of the matter. These committees includes a steering committee at the political level for out-of-court settlement and development of the Reko Diq Project under the chairmanship of the Federal Finance Minister established on 22nd September, 2019, a committee to negotiate a settlement with TCCA vide PM Office communication established on 9th October, 2019 and a committee to investigate the causes of the ICSID Award vide Cabinet Secretariat OM established on 31st July, 2019.
Since the creation of the Apex Committee, all decisions relating to litigation, settlement of the disputeand development of the Reko Diq Project have been deliberated in and taken by the Apex Committee.
On October 15, 2019, initial discussions between the members of the Apex Committee and TCCA representatives occurred in London, United Kingdom. Over the ensuing period, communications between the parties continued but progress was hampered by the Covid-19 pandemic.
By October 2020, discussions had progressed to a stage where the parties had agreed to explore a concept whereby the Reko Diq Project would be reconstituted, BGC would return as operator with increased Pakistani participation, following the reconstitution of the Reko Diq Project Antofagasta would depart the project in exchange for a payment and the dispute would be finally resolved.
At a meeting of the Apex Committee held on 2nd April, 2021, it was decided that since further discussions with BGC and Antofagasta would involve an analysis and understanding of in-depth financial modeling and commercial expertise, it was necessary for the governments of Pakistan and Balochistan to engage a reputable international transaction advisor to assist in ongoing negotiations.
By early 2022, the settlement concept which the parties were prepared to pursue provided for the Reko Diq Project to be reconstituted pursuant to a joint venture agreement with Barrick being the operator and TCCA holding 50 per cent of the equity with the remaining 50 percent of the equity being held by local entities.
A statement issued by the AGP office, also sought to reassure stakeholders of the fact that Reko Diq will be owned 50 per cent by BGC, 25 perc ent by three state-owned enterprises – OGCDL, PPL and GHPL, 15 per cent by the province of Balochistan on a fully funded basis and 10 perc ent by the province of Balochistan on a free carried basis.
As per agreement, Antofagasta is being paid an amount of $ 900 million which has since been deposited in an Escrow Account by the GoP. Upon fulfillment of the conditions precedent on or before December 15, 2022, Antofagasta will be entitled to the amount in the Escrow Account.
On receipt of the said amount any and all rights of Antofagasta under the ICSID award, the ICC proceedings and any and all claims of Antofagasta against the federal or provincial government directly or indirectly arising out of or having any nexus or connection with the Reko Diq project shall stand finally and conclusively extinguished with no further claims either against BGC or or the two governments.