Mining contracts: Pakistan must study global models to court investors

Published: July 14, 2014
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TCC had also been planning to invest $5 billion in Reko Diq over a period of five years with creation of jobs for 3,000 people and another 4,000 for daily-wage workers. PHOTO: FILE

TCC had also been planning to invest $5 billion in Reko Diq over a period of five years with creation of jobs for 3,000 people and another 4,000 for daily-wage workers. PHOTO: FILE

ISLAMABAD: 

After facing a legal battle with Tethyan Copper Company (TCC) Pakistan – a joint venture between Canadian and Chilean giants – in the international court, Pakistan must make endeavours to study mining deals around the world in a bid to frame a model agreement for awarding gold and copper mining contracts.

Pakistan has already lost a major opportunity to search for gold and copper reserves in Balochistan because of a poor framework that sparked controversy with TCC over the grant of contract and dented investor confidence.

Balochistan, the largest province in terms of area but the most under-developed, not only boasts of a large number of mines containing deposits of precious and other metals, it has also huge reserves of oil and gas. The northern areas too hold big deposits of gold and copper that await exploration and could give a boost to the country’s faltering economy.

Around the world, business tycoons are involved in tricky games to win contracts, but they spoil things when they lose. Moreover, the countries rich in natural resources have been facing poor law and order situation as is happening in many Middle Eastern states.

Balochistan, blessed with huge reserves of mineral and other natural resources, has also been grappling with insecurity and violence since long due to alleged involvement of external forces.

However, according to experts, the poor law and order conditions appear to be a blessing in disguise for international investors, who are promised a lucrative package of incentives in an attempt to win their support.

The province has a 16km long belt of gold and copper reserves that passes through Iran and Turkey and then enters Afghanistan. Only a Chinese company is working on the Saindak gold and copper project in the province.

Though TCC tried to break the monopoly by undertaking exploration of metals, different lobbies came in the company’s way and it was forced to pack up after spending over $400 million. It also approached the International Court of Arbitration to seek compensation.

The rift between the government and TCC started in 2009 when Pakistan’s ambassador in Chile wrote a letter, suggesting that a Chinese company should be awarded another area for exploration rather than Reko Diq. As a result, the government turned down the demand of the Chinese firm to grant rights for Reko Diq.

Policy revision

The present government of Pakistan Muslim League-Nawaz has blamed the previous administration of Pakistan Peoples Party for corruption and kickbacks. Now is the time for the new government to demonstrate transparency and good governance and try to reach a settlement with TCC. This will set a precedent and encourage investors to pour money into Balochistan.

The government should revamp the Mineral Policy of 2013, framed by the PPP-led coalition government, to remove bottlenecks, if any, and provide a level-playing field for all investors.

The policy should not favour investors from only one country that discourages other potential investors. Incentives should also be put in place for those willing to set up gold and copper refining units. This will stop export of unprocessed metal and lead to shipment of finished goods, fetching better prices.

The inflow of investment will also create significant job opportunities for the locals in the insurgency-plagued region.

TCC had also been planning to invest $5 billion in Reko Diq over a period of five years with creation of jobs for 3,000 people and another 4,000 for daily-wage workers, who would assist in infrastructure work at construction sites.

Apart from these, the government should make efforts to appoint independent experts on key posts in an attempt to instill confidence in investors. Any hiring on political grounds could spark controversy and disrupt a smooth flow of investment.

In a recent case, the Balochistan government appointed a son of former chief justice of Pakistan as vice chairman of the provincial Board of Investment, which triggered a row and calls for his resignation. Eventually, he stepped down from the post.

Published in The Express Tribune, July 14th, 2014.

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Reader Comments (12)

  • QADRI THE GREAT
    Jul 14, 2014 - 9:38AM

    Nation for sale. Foreigns sell the gold, minerals, in return of what? Job market? How much they’ll pay us? 500 rupees a day? Why doesn’t Pakistan itself do the mining. Why do we “beg” to sell our nation?

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  • Raj - USA
    Jul 14, 2014 - 10:01AM

    Pakistan would benefit if mining contracts are awarded to companies that have the required expertise. A company with expertise can recover more minerals from the same mines which could make a huge difference, even a boom or bust situation. However, many companies with expertise may not be willing to invest in a region that is facing terrorism and extremism. What Pakistan is doing now is “Fire Sale”, which is no good for the country. Pakistan may be able to fetch twice or even more value if it can bring peace to the region first and then offer the mining contracts. Unfortunately the governments are looking at what they can pocket today than what may bring benefits to the country. Pakistan should study the various mining contracts that Indian governments had awarded that later turned out to be huge scams, benefiting only select politicians and business conglomerates.

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  • Baba Ji
    Jul 14, 2014 - 11:04AM

    Why look for foreign mining companies ? Can’t we dig our own land ? Can’t we explore our own soil ? Are we so incompetent ?Recommend

  • Shafqat
    Jul 14, 2014 - 2:02PM

    Copper Ore contains many elements and a smelter refining plant is required to extract Copper, Gold, Silver, Zinc & Other Elements. Only the smelter refining plant can ensure that every body get a fair share of the profits from the Copper Ore.
    As we understand it Tethyan Copper Company wants to export the Copper Ore to third country to process it which is strange and unfair, they should undertake to set-up a smelter refining units at the location in Baluchistan so that every body know how much share of profit they will get from this project. Pakistan should not allow export of copper ore because it sure will loss revenue if there is no control on the processing of copper Ore.

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  • huma
    Jul 14, 2014 - 2:23PM

    You must remember that under our constitution, the subject of minerals is solely a provincial matter and only the provinces can grant licences or frame rules. Unlike India or other federations where it is a joint subject between the federal and provincial governments.

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  • Critical thinker....!!!
    Jul 14, 2014 - 3:32PM

    @QADRI THE GREAT:

    this shows you have zero Engineering idea….!!!

    Recommend

  • sharabi
    Jul 14, 2014 - 4:34PM

    @QADRI THE GREAT
    1. Huge capital Investment
    2. Atleast An MNC with expertise in proper field
    3. Heavy Mechinary
    4. Infrastrucure
    5. Processing units or Transportation systems
    6. Experienced Engineers for various Industrial sectors
    7. At-least 1 Mining University
    8. Will power+Experience+Risk Assessment
    ALL THESE THINGS ARE NOT AVAILABLE IN YOUR COUNTRY AT PRESENT

    Recommend

  • observer
    Jul 14, 2014 - 5:23PM

    If we were capable, we would have proved it by now. 66years is enough time to prove what we are: incompetent, incapable, unable. Does any reader who is knowledgeable about mining think that Pakistan can deliver. Pakistan does not have the capacity to even hire foreign companies, it does not have the capacity to write contracts, to monitor, Pakistan does not know the a b c of mining. So the first thing is to realize and accept that and work from scratch. That is if Pakistan is really interested, which everyone knows it is not.

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  • unbelievable
    Jul 14, 2014 - 6:45PM

    Article implies that the original Reko Diq was an unusual or bad agreement and that’s just rubbish. You tried to steal Reko Diq from TCC after they had spent over $400 million which enhanced the value of an unproven project by Billions. Now your going to end up paying Billions in damages and no credible investor will touch the project until you satisfy the judgement of the international arbitrator.
    .
    Perhaps the worst thing about the Reko Diq debacle is the duplicitous involvement of your former CJ – that sends a loud message to the international community that your judicial system is broken and can’t be relied on to farily resolve business disputes. Akin to putting a big sign saying “INVESTORS BEWARE”. You can bet future major projects involving foreign investors are going to include provisions requiring arbitration/litigation held outside of Pakistan.

    Recommend

  • Shuaib
    Jul 14, 2014 - 7:12PM

    We should offer a 50-50 basis and technology transfer for its development. Then we should make another law later on demanding ALL ores must be smelted before being exported, we will set up another 50-50 basis smelting company which also has to transfer technology. Our exports will shoot through the roof and we can then just go into joint ventures for searching for more of these deposits in fact we already have another in Waziristan. Then we can develop that ourselves and set up a smelting company and get $$$.

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  • sharabi
    Jul 15, 2014 - 10:42AM

    @observer
    @Shuaib
    I am not the person which can be easily influenced by emotions & sentiments.
    As an Industrial Automation & Robotic Material Handling system engineer my self, i can tell you Pakistan can not start large scale mining even in next 15 years.
    Last year i have read many articles about proposal of Huge multi Billion $$ investment in coal mining by Arcelormittal (World No. 1 Steel producer). He was keen to invest in infrastructure thus that would generate approx. 17000 Direct & Indirect jobs.
    He have planned Coal mining & export of coal to his Indian & European plants but Government of Pakistan refused his proposal & basis of rejection was that owner of Arcelormittal is Laxminivas mittal An Indian. Even though Pakistan have huge potential but this step prevented the other proposals of Relience & Tata in different sectors of Pakistani Economy.Sad but true
    Dear Business, Infrastructure, Finance, Development must be isolated from cheap sentiments. By the grace of God our PM is known for such quality.
    Best of luck for Future

    Recommend

  • hoor khan
    Jul 18, 2014 - 1:33AM

    Strongly agreed with OBSERVER and SHAHRABIRecommend

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