Genesis of Reko Diq crisis

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Dr Muhammad Khurram

MOST Pakistanis first heard Reko Diq’s name in 2012 when Supreme Court took up petitions on various issues primarily hinging on the conditions of grant of mining lease. Since then Reko Diq has remained in news for one reason or another. Understanding origins of Reko Diq crisis would help us better understand the imbroglio in which we are currently embroiled. I have hence, divided this article in two parts. First part explains the spawning crisis over the decades. Second part analyses recent award, its implications and lessons learnt.

Reko Diq is located in Chagai district of Pakistan and is part of Tethyan belt extending from Turkey and Iran into Pakistan. The belt is considered to be sitting on huge copper and gold reserves. Way back in 1993, Balochistan Development Authority (BDA) with approval of Balochistan government entered into a joint venture (JV) with an American firm BHP minerals intermediate exploration (BHP) for exploration of minerals in Reko Diq. The agreement was titled “Chagai Hills Exploration Joint Venture Agreement” (CHEVJA). It should be noted here that the agreement was signed in relaxation of Balochistan Mineral Development Rules (1970) which placed restrictions on mining prospects for foreign companies.

The agreement stated that BHP had 75% interest in project while government held remaining 25% share on a joint investment basis. Another article in the agreement stipulated that any dispute would be submitted to International Centre for Settlement of Investment Disputes (ICSID) which is a part of and funded by World Bank Group. The institute is headquartered in Washington DC United States and 153-member States have contracted to enforce and uphold arbitral awards issued by the body. A discussion on ICSID was essential to underscore that the courts and successive governments should have sensed red flags when attempts were underway to backtrack from the agreement. In case ICSID refused to assume jurisdiction, same were to be submitted to International Chamber of Commerce (ICC).

Later in 2000, a novation agreement added Government of Balochistan to the joint venture agreement. An ‘Option Agreement’ was also executed and relying on one of the clauses contained in CHEJVA, namely, Article 14 ‘Assignment’, Mincor option was created in favour of Mincor NL, a company incorporated in Western Australia, enabling it to enter into an Alliance Agreement under clause 3 of the Option Agreement. The Mincor Option gave sole and exclusive right to Mincor or its nominee to enter into alliance with BHP to explore in the region. On 24.10.2000, Tethyan Copper Company (TCC), as nominee of Mincor, exercised the Mincor Option and executed an Alliance Agreement on 19.04.2002. TCC was also incorporated in Western Australia with its place of business situated at Perth.

In 2006, Antofagasta, a Chilean company registered in the United Kingdom through its subsidiary Atacama Copper Pvt. Ltd., made an offer to buy the shares of TCC, which was accepted by the Board of TCC. Resultantly, Antofagasta through Atacama acquired the total shares of TCC for AUD 220 million. TCC also purchased the claw back right of BHP for US$60 million.

In September 2006, Barrick Gold of Canada purchased 50% shares of Atacama from Antofagasta through share-purchase agreement and thus acquired 50% ownership interest of TCC. TCC started its operations in Pakistan through its Branch Office registered with the Board of Investment. It also incorporated a local subsidiary in Pakistan called Tethyan Copper Company limited Pakistan (TCCP). Later on, the branch office merged with TCCP. In 2006, through C.P. number 892 Maulana Abdul Haq and others assailed CHEVJA in Balochistan High Court on grounds of illegality and also challenged relaxation of rules. Balochistan High Court assumed jurisdiction but dismissed the petition declaring CHEVJA and relaxation of rules to be legal.

The petitioners appealed to the Supreme Court. During the pendency of the leave petition, a major development took place. Exploration work including drilling was completed by TCC within the stipulated period. Substantial discoveries of gold and copper etc were made. TCC formally applied to the Government of Balochistan within the visualized period for the grant of the mining lease under 2002 rules which recognized the licensee’s entitlement to apply for a mining lease on success of the licensee in the exploration. This application for grant of mining lease submitted by TCCP was dismissed by the Mines Committee constituted under the Balochistan Mining Rules, 2002. TCCP challenged the said decision by means of an administrative appeal before the Secretary, Department of Mines & Minerals, Government of Balochistan, as envisaged under the mining rules 2002, which too was dismissed. TCCP did not appeal the matter further in Pakistan’s courts.

The Supreme Court disposed off the appeals by declaring CHEVJA as having been executed contrary to provisions of the Mineral Development Act, 1948, the Mining Concession Rules, 1970 framed there under, the Contract Act, 1872 and the transfer of property act. CHEJVA was declared illegal, void and non est factum (special defense in contract law which allows a party to avoid the stipulations in a contract that she may have signed because of certain reasons such as mistake as to the kind or form of contract). Consequently, all subsequent changes to CHEVJA whether in the form of addendum, novation or option agreements was declared illegal and void ab initio. The decision received extensive publicity and acclaim. Little did we realize that apex court’s momentous decision which had been widely cherished at the time had set in motion a chain of events which would very soon come back to haunt the country. I would discuss these repercussions in second (and concluding) article.
—The writer is a civil servant having an LLM from Harvard Law School, MSC from University of Oxford and an LLM from University of Turin/WIPO academy.

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