If Reko Diq indeed stands on the remains of a volcano, then it is perhaps apt that the controversial mining project in the area continues to erupt every now and then, reminding Pakistanis that they have to pay a fortune just to keep their treasure hidden. (For a background on the Reko Diq Copper and Gold Mines Project, read: “What next for Reko Diq,” published March 30, 2017). However, beyond the emotions of resource nationalism lie the stone cold economic truths. So let’s get to them.
So what has happened this time was entirely expected. After seven years of trial, the World Bank’s investment tribunal has awarded damages to the aggrieved party, Tethyan Copper Company (TCC). Pakistan, which had in 2017 failed to establish its case on why TCC was denied the mining lease in 2011, has a $6 billion penalty to pay. This sum is lower than the TCC demand, but it should be happy.
What happens next is probably not as alarming as some people fear. Firstly, Pakistan, which is already struggling to patch up financing for its external needs this year, is not expected to pay up immediately. Although there is limited room on which Pakistan can challenge this ruling, Pakistan can still choose to litigate the amount awarded. That will give the country at least one year before the award attains finality.
Secondly, and perhaps most critically, the two parties may end up striking a deal and move on. What that compromise will look like is premature to say, but the fact that the TCC bosses have come out publicly in favor of reaching a bargain suggests that some progress has already been made on this matter behind the scenes. For its part, the federal government has welcomed the company’s openness to negotiate.
Reports in the recent past have suggested that Pakistan may involve another country – Saudi Arabia or China – to develop the Reko Diq mines. Perhaps if a stake is offered to the TCC in place of its awarded billions, all parties can call it a win-win and go about developing the mines happily.
That still leaves some uncomfortable questions. Though the latest ICSID ruling is not a catastrophic event, its magnitude should spark some introspection at home in the interest of attracting FDI to this country.
For instance, why did the apex court at the time nullify the contract between TCC and Balochistan government without regards to international consequences? Perhaps go back a bit earlier into the nineties and examine why bureaucrats having no area expertise settled for pittance? Dig a little deeper and ask why the federal government didn’t much care when the project’s foreign interest changed twice, leading to different jurisdictions for future disputes?
Lessons must be learnt, and in that context, one hopes that the premier’s commission on the matter will help in identifying flaws in Pakistan’s policy and institutional landscape for mineral development. Pakistan possesses several metallic minerals’ reserves, mining of which can feed export markets and reduce the import bill. (For more on this issue, read: “Mining metallic minerals,” published March 31, 2017).
Overseas, mining giants will rejoice this ruling, knowing well that such steep penalties can bankrupt a low-income country and send millions more into poverty. As for platforms like ICSID that adjudicated this matter, letting a global mining giant go scot-free on a shady deal it willingly struck and perpetuated puts an unfair and enormous burden on honest taxpayers that had no role or say in such matters.
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