MONDAY NOVEMBER 14: Saindak lease extension: Prime Minister fails to get Cabinet approval

ISLAMABAD: Prime Minister Yousaf Raza Gilani has reportedly failed to get Cabinet's nod for a five-year extension in the lease of the multimillion dollars Saindak copper gold project to the Chinese company Metallurgical Corporation of China (MCC) as Finance Minister Abdul Hafeez Shaikh raised a number of queries, sources told Business Recorder.
The MCC is operating Saindak project in Balochistan through its fully owned Pakistani registered subsidiary under lease contract with Saindak Metals Limited (MCL), fully owned by the Government of Pakistan (GoP).
"The issue was recently placed before the Federal Cabinet, but differences between the Prime Minister and Finance Minister over the deal, subsequent to the eighteenth amendment, blocked the proposal," sources said.
Official documents available with Business Recorder show that the Cabinet was informed that the Saindak copper gold project of SML, Balochistan, was leased out to MCC for a period of ten years from October 2, 2002. Being part of the Aghaz-e-Haqooq-e- Balochistan package, the project will be exclusively owned by the government of Balochistan (GoB) on expiry of the current terms of the lease.
It was stated that MCC of China has submitted a formal proposal, seeking extension in lease period and, to reach an agreement, MCC(lessee), SML(lessor) and GoB negotiated the contents and have agreed to an extension in the lease period beyond October 2012, with some modifications. Addendum to the lease agreement, signed during the visit of Prime Ministe Yousaf Raza Gilani to China on May 17-20, 2011 as agreed by GoB, SML and MCC, has also been vetted by the Law, Justice and Parliamentary Affairs Division.
The Prime Minister, while approving the earlier summary for signing the addendum during his visit to China, also requested that the addendum may subsequently be placed before the Cabinet for approval.
Approval of the Cabinet, therefore was solicited to the addendum to the lease contract agreement extension in the lease period of Saindak copper gold project for five years.
As per terms of the contract, MCC has proposed that the term of the contract may be extended for five years beyond October 2012 or till the economic reserves are exhausted, whichever occurs later.
As per 'Aghaze-Haqooq-e-Balochistan' package, agreed between the GoP and GoB, the ownership of the project would be transferred to GoB after the expiry of existing term of the lease contract ie October 2012. The proposal of MCC for extension beyond October 2012 was agreed by SML and Ministry of Petroleum and Natural Resources and referred to GoB for its concurrence. GoB had requested a meeting to negotiate with MCC for extension in the terms of the lease contract beyond 2012.
A meeting was accordingly held at Karachi on January 2011 between representatives of GoB, MRDL and SML. Discussions were held on all issues raised by GoB in a very cordial atmosphere and the following terms were agreed to for the period of extension beyond October 2012.
1- MMC, in addition to the royalty @ 5 percent of the gross sale proceeds, shall pay through an official account of the Ministers Welfare Board GoB, an amount equal to 5 percent of the net profit (defined as "surplus" in lease contract) for lending financial support to the social uplift activities of GoB in the mining areas. Thereafter, the balance surplus would be shared between MCC and GoB through SML in the ratio of 50:50.
2- Saindak project would continue to enjoy status of Export Processing Zone during the extended period of the lease contract for which necessary approvals from the relevant authorities of the GoP shall be secured by SML.
3- MCC shall arrange adequate funds for the replacement of outlived machinery and equipment at Saindak project which shall be recovered along with interest from the sale proceeds of the project.
4- All terms of the existing lease contract shall continue to apply during the extended period, except those effected by the aforesaid terms.
5- MCC shall exploit East Ore Body in the Saindak area as a component of existing project operations, if it is determined to be feasible.
6- MCC, at its own cost shall carry out a pre-feasibility study for setting up a copper refinery of an optimal size and at an appropriate site within Balochistan and submit the case to GoB as early as possible.
If the refinery option is economically feasible and the GoB decides to go ahead with this venture, MCC shall provide technical and financial support to GoB for its execution.
7- The GoB will convey itd concurrence to the GoP about the extension of the lease contract between MCC and SML for five years beyond October 2012 or till the economic reserves are exhausted whichever occurs later.
During the term of lease contract, lessee shall make the contribution to the local population and the costs and expenses incurred shall be part of production cost. According to the document, lessee shall arrange financing for the maintenance, repair, rehabilitation and production of the project and shall to this end invest $8-10 million in accordance with the investment plan. Sources said when the Cabinet did not clear the proposal, the Prime Minister directed the Minister for Finance and Minister for Petroleum and Natural Resources to discuss the matter further before it is reconsidered by the Cabinet.