Reko Diq case penalty

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ONE after another Pakistan has lost international arbitration cases and that too in quick succession, bringing not only embarrassment to the country but also financial cost in the form of penalty. The International Centre for Settlement of Investment Disputes (ICSID) has now slapped the country with the history’s biggest penalty of about $ 6 billion in Reko Diq case.
The decision really has come as a shock for the entire nation, which is currently faced with immense economic challenges such as a hefty current account deficit. The Government expressing disappointment over the decision has decided to form a Commission to investigate into the reasons as to how Pakistan ended up in this predicament; who was responsible for making the country suffer such a loss and what are the lessons learnt, so that mistakes made are not repeated in future. The very judgment of the ICSID in fact once again brings to the fore the casual attitude of successive governments in finalizing business deals with international companies in a rush to achieve narrow objectives at the cost of national and public interests. Therefore, the Prime Minister has taken a very right decision to form the Commission in order to fix the responsibility as well as to chalk out the way forward in order to avoid such predicament in future. In our view, one of the main reasons why Pakistan faces international arbitration cases is its inability to evolve a uniform law for the standardizing of contracts and the choice of arbitrary frameworks.
In most cases, the Government agrees to the demands of external investors in long-term deals and cherry-picking in dealing with jurisdictions of the local legal system to bypass contractual enforcement. Reko Diq and Karkey Rental Power cases are classic examples of adopting such a route. The country’s apex court intervened in business disputes in both cases to get rid of apparently unfavourable business deals and yet found to its embarrassment that contracts involving international arbitration end up attracting expensive compensation in case of the violation of provisions of contracts. Then it is also lamentable that despite a recent rise in the number of international arbitration cases, the country has been unable to develop its own specialized pool of experts in arbitration and contract writing. There are also genuine concerns that the selection of arbitration counsels and law firms at home and abroad is made on the basis of relationship, friendship and pick and choose at high cost, rather than on the basis of a transparent process. We expect that the commission being formed will look into all these aspects in order to reverse the course of our failures at the international arbitration.
As regards Reko Diq case is concerned, Pakistan still reserves the right to pursue legal remedies available under the ICSID regime, international law and all other relevant laws to safeguard its interests. Doing so will help the country buy some time but review should be made after thorough examination and consideration, and also considering its implications if any. There is still room for out-of-court settlement as the Chairman of the Board of Directors of Tethyan Copper Company’s (TCC) has expressed willingness to work towards a negotiated settlement. Pakistan has also welcomed this approach to work towards a mutually beneficial solution that works for both sides. Indeed to exploit the gold and copper reserves at Reko Diq, we have to award contract to any foreign company as the country does not have the large-scale state-of-the-art mining and processing unit to do this. We may consider awarding the exploration contract again to the TCC but any new arrangement should not be made from the position of weakness but it should be a win-win deal. The penalty of $ 6 billion dollars appears to be a hefty one for Pakistan because of its economic problems but at the same time, we should not forget that Reko Diq is widely believed to have the world’s fifth largest gold deposit with reported value of up to $ 500 billion. This is the reason that the TCC management has shown interest in entering into an agreement with Pakistan. Thus, we can strike a settlement with the Company that protects the country’s interests. Early exploration of Reko Diq is also important to reap the economic dividends of the precious gold and copper reserves. Nonetheless, in our view, any final decision either of review or the award of contract to TCC should be made after looking into all the technicalities and taking on board all the political parties, Parliament and especially the Government of Balochistan.

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