On July 13, Balochistan was in the news again. This time it was for the damages awarded to the Tethyan Copper Company (TCC) in the Reko Diq gold mine case. After seven years of litigation, the International Court of Settlement of Investment Disputes (ICSID) announced that the Balochistan government must pay $5.9 billion to TCC in damages for violation of its agreements. This was a shocking development because the amount of damages is nearly equal to the bailout given to the federal by the IMF, and is twice the size of Balochistan’s current budget.
Balochistan’s broke government is in no position to pay this fine. However, there is no way to avoid this fine either. The provincial governments of Balochistan and the federal government of Pakistan cannot appeal against this decision. They can file a review against the amount of damages, which can only buy them some time but the payment is inevitable.
The story of gross mismanagement in Reko Diq begins in July 1993. Back then, the government of Balochistan signed the Chagai Hill Exploration Joint Venture Agreement (CHEJVA) with the Broken Hill Properties Minerals (BHPM), forerunner of the TCC. This agreement provided BHPM the rights to explore Reko Diq gold mines and determine the value of the reserves.
Later, the BHMP sold the rights of Reko Diq gold mine to TCC. In February 2011, TCC submitted an application with the government of Balochistan seeking a mining license after it carried out a feasibility study under an exploration license. During that period a media campaign was launched against TCC. Without any substantial evidence, it was claimed that the Reko Diq gold reserves valued over $260 billion and could be worth $1 trillion by the time they were extracted. In this backdrop, the government of Balochistan rejected the application of TCC. Then, TCC filed an appeal against the Balochistan government’s decision in both ICSID and the Supreme Court of Pakistan. The latter rejected the appeal of TCC in 2013 with Iftikhar Chaudhry in the chair. The ICSID ultimately decided the case in favour of TCC in 2017 and announced the fine this month.
There are multiple factors behind a natural resource turning into a source of disaster for Balochistan. First, the caretaker government of Balochistan in 1993, which signed the parent agreement. A caretaker government should not have signed such an agreement in the first place because it is not in its mandate to so. The signing of the agreement marked the beginning of this disaster. For the next 18 years after signing that agreement, successive governments in Balochistan completely ignored the case until it got media attention. The incompetence of Balochistan’s governments in the last three decades is another reason behind the current debacle.
The blame also lies on the officials of the government who negotiated the agreement with the forerunners of TCC. From the very beginning the agreement was detrimental to the interests of Balochistan. For instance, this agreement required the Balochistan government to share the cost of exploration with the forerunners of TCC. Nowhere in the world do host countries or regions share these costs. However, one official made the province do this in return for allegedly a hefty kickback. Again, it was the contents of the agreement signed in 1993, which made it almost impossible for the Balochistan government to win the case, despite spending over $100 million in legal fees.
The Reko Diq disaster has become a prime example of how natural resources can be a curse if governments handling them are incompetent and corrupt. Reko Diq was supposed to change the fortunes of Balochistan. However, the decision of the ICSID proves that Reko Diq is going to make the Balochistan government bankrupt. Until this matter is settled, no foreign company will invest natural resources of the province. This means that the Reko Diq disaster will not only result in financial constraints for Balochistan but it will become a major obstacle for any future investment in natural resources.
In order to fix responsibility for the Reko Diq disaster, Prime Minister Imran Khan has a set up a commission. It will prove to be nothing but a futile exercise which will be used to kill time when the issue is still hot. Commissions in Pakistan do not have a good history when it comes to revealing facts or pinning responsibility.
There are two possible ways for Balochistan to deal this fiasco. First, it could start direct negotiations with TCC which has signalled its willingness to renegotiate the matter. The provincial government should take advantage of this opportunity. It might have to give some concessions to TCC in order to avoid payment of the $5.9 billion fine but despite these, the government can still ask for a sizable share in revenues of the Reko Diq gold mine. TCC can possibly agree to this arrangement because they will still be making huge profits from this venture.
The second solution involves handing over the Reko Diq project either to China or Saudi Arabia. Pakistan can ask either of these countries to pay the damages to TCC and in return, the country will get the mining license for Reko Diq for a fixed number of years. This seems to be a straightforward solution but it will result in depriving Balochistan of ownership and control of the mines for the next few decades. By the time Balochistan gets control of Reko Diq, there might not be much gold left to mine.
The government must ensure transparency in all matters relating to the Reko Diq case. All developments relating to this case should be shared in the provincial assembly and no decision should be taken without taking the assembly into confidence. This transparency will ensure that no government official can cause damage of billions of dollars to the government of Balochistan in return for an undue personal gain. In fact, the Reko Diq disaster can be used as a perfect case by the government of Balochistan to begin the process of introspection into its flawed system.
The author is a journalist and researcher based in Quetta. He can be reached on Twitter @iAdnanAamir