Body formed for Reko Diq deal

Pakistan has constituted a negotiation committee to finalise the price and draft a commercial agreement for the sale of its 15% stakes in the Reko Diq copper and gold mines project to Saudi Arabia.

The negotiation committee has been authorised to undertake a review of the price discovery mechanism being developed by the international advisors and to assess the Saudi offer. It will also engage with the Public Investment Fund of Saudi Arabia to discuss the cash offer for 15% acquisition of the stakes, reimbursement of the portion of cash calls paid by Pakistan Minerals Private Limited, and the $150 million Saudi grant offer.

Last week, the Cabinet Committee on the International Governmental Commercial Transaction approved establishing a negotiation committee under an Act of the Parliament. The development came weeks after Islamabad found the Saudi offer for 15% shares on the lower side. It now expects the price to increase significantly after the completion of a new feasibility study on the quantum of gold and copper reserves.

Defence Minister Khawaja Mohammad Asif, who chaired the cabinet committee meeting, authorised the negotiation body to undertake multiple tasks to finalise the deal. However, in a terse response to a question about the new committee's constitution, Asif offered "no comments".

Saudi Arabia's PIF, through Manara Minerals, has proposed acquiring the 15% stake in two tranches; the first tranche of 10% has been offered to be paid at the time of signing the deal and the second tranche of 5% is proposed to be paid at the final investment decision.

The Reko Diq project is jointly owned, with 50% held by Canadian Barrick Gold, while the remaining 50% is equally divided between Pakistan's federal government and the Balochistan government.

The negotiation committee comprises of representatives of the Petroleum Division, Finance Division, Law Division, the Special Investment Facilitation Council (SIFC), and Pakistan Mineral Private Limited (PMPL) —the entity that holds the federal government's stakes.

Pakistan has engaged international advisors to carry out a valuation of the project before negotiating the price with Saudi Arabia. Officials estimate that the international advisors will complete the valuation of the 15% stakes within two months. This will be based on the new feasibility study. After that, Pakistan will commence negotiations with the PIF.

In addition to the cash offer, Saudi Arabia had also indicated giving a $150 million grant for the construction of two roads in the mining area. However, the Ministry of Economic Affairs has not yet reported progress on this front.

The new committee will also negotiate the terms, draft a commercial agreement and submit a report to the Cabinet Committee on the Inter-Governmental Commercial Transactions for approval of the final negotiated price mechanism and negotiated commercial agreement.

The SIFC apex committee has already approved the transaction structure for the sale and recommended that the federal government fulfil legal requirements defined under the 2022 Act of the Parliament.

The SIFC has not yet been able to conclude any noteworthy foreign investment transaction, and the success of the Saudi deal is critical for its meaningful existence. Saudi Arabia has also expressed concerns over the treatment of Saudi investment in the K-Electric power distribution and generation company.

Any Saudi investment in the Reko Diq project will be undertaken in light of a 2019 Memorandum of Understanding (MoU) signed between Saudi Arabia and Pakistan in the field of the mineral resources sector.

The Ministry of Law will now provide guidance to the new committee for executing and adopting the Reko Diq transaction. The three government entities that hold 25% stakes on behalf of the federal government will now also seek formal approvals from their respective boards to sell 15% of their stakes to Saudi Arabia, subject to the conclusion of the deal.

Meanwhile, Barrick Gold and PMPL are also working to secure the foreign funding for the project. The United States had sought a preferred creditor status for its Export-Import Bank (Exim), which wants to lend to the Reko Diq gold and copper mining project.

However, Islamabad remains hesitant to grant such special status to a sovereign financial institution. The project's total cost is estimated to be around $5.8 billion, with approximately $3 billion required for debt financing.

In addition to the US Exim Bank, other major foreign lenders have also expressed interest in financing the Reko Diq project. The World Bank's International Finance Corporation is considering a $650 million loan, while the Asian Development Bank is interested in providing $400 million, and the Islamic Development Bank is looking to provide about $100 million.

Additionally, other countries have also expressed interest in the project with Canada and Japan offering to provide $500 million respectively, Germany looking to give $300 million, South Korea considering $400 million, and Australia looking at about $200 million. But no formal offers have been made so far as foreign lenders too await the results of the feasibility study, expected to be ready by January 2025.

The initial results of the study show a very high internal rate of return on the investment, said the sources.