Islamabad: The World Bank’s arbitration tribunal has granted Pakistan a stay on a $6 billion penalty imposed for cancelling a mining lease to an Australian company. Pakistan’s Attorney General’s office termed the development a “success for Pakistan and its legal team”.
The fine of nearly $6 billion including the damages award and interest is equal to about 2 percent of Pakistan’s GDP, 40 per cent of its total liquid foreign reserves and equivalent to the $6 billion International Monetary Fund (IMF) bailout package.
Asim Saleem Bajwa, who heads the China-Pakistan Economic Corridor (CPEC) authority, said on Twitter that the tribunal’s decision was a “great relief”. He added that Prime Minister Imran Khan has directed to fully support the government of Balochistan for “accelerated development” of mineral sector “in a transparent manner” involving local investors and technology.
Pakistan had appealed the penalty imposed by the World Bank’s International Centre for Settlement of Investment Disputes (ICSID) on several grounds. The tribunal is still considering Pakistan’s appeal against the penalty over its decision to cancel the Reko Diq mining lease for the Tethyan Copper Company (TCC) and a final hearing will take place in May 2021.
Where is Reko Diq?
Reko Diq, a desert town in Chagai district of Balochistan, is famous for its mineral wealth, including gold and copper reserves and believed to be the world’s fifth largest goldmine. It is located in Tethyan belt (known for reservoir for rare metals) that stretches all the way from Europe to Pakistan.
Reko Diq dispute
The whopping $6 billion penalty is centred around Pakistan’s annulling of the Reko Diq mining lease for Australia’s Tethyan Copper Company – a joint venture of Barrick Gold Corp. of Australia and Chile’s Antofagasta PLC – to build and operate a $3.3 billion copper-gold open-pit mine.
The dispute began when Pakistan’s Supreme Court in 2013 declared void the Chagai Hills Exploration Joint Venture Agreement (CHEJVA) signed between the Balochistan government and Australian mining company BHP in 1993, stating that it was in conflict with the country’s laws.
Tethyan replaced BHP in 2016 taking on the project that gave the foreign mining company 75 per cent share in discoveries made in the next 56 years. The 75/25 deal and a 2 percent royalty raised questions and exposed non-transparency, violation of laws and disregard for national interest in the agreement. Tethyan claims to have invested $220 million in Reko Diq by 2011 when Pakistan cancelled its mining lease. The company then sought help from the tribunal, which ruled against Pakistan in 2017.
In July 2019, the tribunal slapped a massive $5.97 billion award against Pakistan for denying the mining lease. Islamabad challenged the ruling seeking its annulment and appealed that the penalty would negate the $6 billion IMF loan and cause serious economic hardship. Pakistan also informed the tribunal that the company could not seek damages as the project was based on agreements that were invalid under Pakistani law.
Reports suggest that the dispute is now headed towards a negotiated settlement.