The Painful Lessons of Reko Diq


Ikram Sehgal

Balochistan is Pakistan’s province of superlatives: the largest province, it is the most neglected province in terms of infrastructure development, education etc., but also the richest province in terms of natural resources including the world largest copper and gold reserves. These reserves will play an important role in Balochistan’s and Pakistan’s development if and when explored. Given the details of the Reko Diq drama it may also be the most mismanaged province of Pakistan and may be the most corrupt, at least in the past? This last assumption is probably going too far; there are others more corrupt but for more skilful in hiding it. The decision of an arbitration tribunal of the World Bank’s International Centre for Settlement of Investment Disputes (ICSID) that recently brought a verdict awarding about US$ 6bn in damages to TCC in arbitration claims filed against Pakistan in 2010. In 2013 a three-member bench of the Supreme Court headed by the then Chief Justice of Pakistan Iftikhar Muhammad Chaudhry declared the “Chagai Hills Exploration Joint Venture Agreement” null and void in a short order.
This verdict of ICSID is a real shock for the financially stressed Pakistan and one wonders from where the money will come to pay this. And pay we will have to! There are no real options for appeal are there, our legal experts should think if that was an option in such a situation because it would cost more money with another uncertain result. Looking at the history of the Reko Diq deal one has to admit that according to international contract laws the verdict is probably right. The Balochistan government in 2010 refused to give mining licenses to TCCP though the contract they have signed was stipulating this. The real and underlying problem is that the contract that the TCC is insisting on is not only disadvantageous and unprofitable for Balochistan and Pakistan but it is also contrary to existing Pakistani laws. This contract including all the later additions and modifications that made it worse for Pakistan should never have been signed by those who did sign it. And when we are now hearing cries to fix responsibilities for the damage done it is surely not the then Balochistan government who refused the licenses or the SC and Iftikhar Chaudhry who in 2013 declared the contract null and void according to Pakistani laws. Both entities tried to pull the ripcord in an all-out wrong and unfavourable contract that entitled a foreign company not only to explore the original deposits in a ten square kilometre territory but gave them hold over thousands of square kilometres for exploration purpose with even judicial rights in the area. In addition, the profit sharing is fixed at 75% for TTCP and 25% for Balochistan with Balochistan having to make most of the infrastructural and other investments in a basically undeveloped desert area.
The fact is that is the contract was immoral but then there is no morality in business of this size, especially in the looting of resources of an under-developed country. While a company investing money is certainly entitled to a certain profit margin but such an one-sided contract as the one TCC obtained surreptitiously from a corrupt and /or unprofessional bureaucracy and go-in-betweens of questionable character is certainly a major fraud. That is our major problem, courts tend to go according to the wording of the laws and contracts, thereof, they ignore the spirit that should be foremost in delivering justice. The details of the genesis of this scandal has been meticulously explored and described by Maqbool Ahmad in an in-depth article in The Herald titled “Magic Mountains: The Reko Diq gold and copper mining project”. It is available on internet. Based on that narrative if responsibility has to be fixed one should rather search among the people who constituted the so-called Balochistan Development Authority (BDA) that in 1993 signed the Chagai Hills Exploration Joint Venture Agreement (Chejva) with BHP Minerals, incorporated in Delaware, United States! On name that has been mentioned by Maqbool Ahmad in the article is that of one Ata Muhammad Jafar, the BDA chairman at that time who arrived at the provincial secretariat in Quetta on 13 July 1993 and wanted the Chief Secretary to sign the file immediately. The file contained the draft agreement for the creation of the joint venture. How did the agreement get signed on 29 July, only 16 days later despite the fact that the Additional Chief secretary did not let the file bypass official procedures and observed that the draft required, among other things, to be vetted by the Provincial Finance, Law and Planning departments? At that time BHP Minerals was not even registered in Pakistan which would have been a basic requirement for the deal.
Who gave the waiver to BHP Billiton to palm off its 75% share in TCC, and at what profit even before a ton of ore was mined? Why were the Chileans and Canadians risking life and limb, as well as their investment, in such a dangerous area? And most mysterious of all, why were they not making the smelting plants in Pakistan, instead of shipping the concentrate abroad?
There are many more frauds after 1993 that made the situation worse for Balochistan that have been recorded by Maqbool Ahmad. But the question ‘who’d done it’ though it has to be asked for accountability reasons will neither help to bring the money required to pay the fine nor show a way for how to proceed from here.
To quote from my article “Another Reko Diq Scandal?” of July 10, 2014, “Controversially appointed Vice Chairman Balochistan Investment Board (BIB), one of Arsalan’s (former Chief Justice Iftikhar Muhammad Chaudhry’s son) first (and probably only) acts was announcing the multi-billion dollar Reko Diq gold mines would be awarded to the highest bidder through an open global tender to be floated. Jan Buledi, official spokesperson of the Balochistan government, tactically admitted, “the Balochistan Govt, acting on advice from the Federal Govt, was trying to reach an out-of-court settlement with the TCC as they would not be able to bear the financial losses in case a financial penalty is inflicted by the International Court of Arbitration”. Revealingly, Jan Buledi added, “I think it will be unfair to prevent TCC from participating in the bidding for a licence”. Credible sources recently reported that the former CJ planned to establish a “consultancy office”. Sheer coincidence that the legal lacunae was created in the first place on Jan 7, 2013 when a 3-member SC bench headed by Arsalan’s father declared the agreement of July 20, 1993 between the Balochistan Govt and TCC void and in conflict with Pakistan laws. Attracting widespread criticism across the broad spectrum, Arsalan was asked to resign within twelve days into this controversy. Democracy was seen at its best when National Party’s Hasil Khan Bizenjo and the upright and honest Balochistan Chief Minister Abdul Malik candidly admitted that the appointment made at the request of Arsalan’s father (in absolute contradiction to Arsalan’s assertion that his father knew nothing about it) was a gross mistake. Defending Arsalan’s appointment despite his having no conceivable expertise or experience in attracting foreign investment, PML(N) stalwart Mushahidullah spilled the beans touting this as a “reward” for Iftikhar Chaudhry’s “many services to the nation”. To the nation or PML (N)? Arsalan is not new to controversy reflecting negatively on his father. The former CJ was accused of getting him into medical school despite insufficient grades, and then rapid promotion in his first government assignment. Arsalan ultimately abandoned medicine and started his own telecommunication business, reportedly doing extremely well in “the operation management and maintenance of the network of the telecom side.” Coincidence and/or prima-facie evidence notwithstanding, Arsalan’s Federally-inspired appointment was very “Reko Diq-specific.” Why?“
What are the lessons to be learned and applied to future conduct? The first thing to nail down is that the contract as it stands is not worth executing especially after the recent verdict. That means that all offers of TCC to be ‘open to negotiations’ have to be taken with a pinch of salt. The only real option from Pakistan’s point of view is a fundamental revision of the contract. But that is not in the interest of TCC. If they wanted that it could have been done long ago in an out-of-court settlement. So for all practical purposes TCC would be probably out – safe only some much unexpected turning on their side. That means Pakistan has to look for alternative investors who could do the deal on more equitable conditions and with whom the payment of the fine could somehow be adjusted. One hopes that the GOP has already started this process and if not its high time to do it. There are very knowledgeable contenders in the mining field and while all will want to make money – and rightly so- there should be a balance in earnings for both sides. China with its already stated interest in Balochistan development could be one option; Russia could be another. There may be still other options around but Reko Diq is not like any other business deal; it should imply a recorded well-intended interest in Pakistani development by the contender.