How Pakistan Lost $5.9 Billion on a Gold Mine?

A UK court is attempting to execute an arbitration panel ruling that penalized Pakistan US$5.9 billion for canceling a 28-year-old gold exploration contract with foreign mining corporations, putting Pakistan’s real estate holdings in the US and France at danger of seizure.

As part of the process of attaching the real estate owned by Pakistan International Airlines Investment Ltd (PIAIL), a state-run corporation formally registered in the British Virgin Islands, a British Virgin Islands court ordered this month to determine the value of the Roosevelt Hotel in New York and the Scribe Hotel in Paris.

A $5.9 billion fine was levied against Pakistan in July 2019 by the International Center for Settlement of Investment Disputes (ICSID), a World Bank-run arbitration tribunal, for revoking a gold-and-mineral exploration license held by the Tethyan Copper Company (TCC), a joint venture between the Australian Barrick Gold Corporation and Chile’s Antofagasta PLC, in 2011.

TCC had demanded $8.5 billion in damages for the early termination of the Chagai Hills Exploration Joint Venture Agreement, a contract that had been initially signed in 1993 for the rights to the Reko Diq mine between Pakistan’s Balochistan provincial government and Australian mining company Broken Hill Property (BHP).

Later, BHP sold its interest to TCC, who ran the gold and mineral mines from 2008 until a lawsuit was filed to challenge the contract’s termination.

The Reko Diq mine, famous for its enormous gold and copper deposits, is said to have the fifth-largest gold deposit in the world. The mine is near to the Iranian and Afghan borders and is located in the tiny desert region of Chagai in northwest Balochistan.

The estimated yearly output includes 250,000 ounces of gold from 600,000 tons of concentrate and 200,000 tons of copper. According to the TCC’s assessment, the mines make an annual profit of $3.64 billion, or $1.14 billion for copper and $2.5 billion for gold.

The TCC’s estimate of the mine’s overall earnings throughout its 55-year lifespan, which is $200 billion, is far lower than estimates from other sources, which range as high as $500 billion.

Pakistani authorities acted quickly to get a stay on the enormous fine, which at the time constituted about 2% of Pakistan’s gross domestic product (GDP), when TCC sought Pakistan’s High Court in November 2019 to implement the tribunal’s ruling.

In a statement released by the attorney general’s office, it was said that “the government will prosecute the procedures filed by the corporation in any jurisdiction and the government confirms its commitment to defending national assets wherever they may be situated.”

During hearings on the issue between Pakistan and TCC, the tribunal rendered a decision in favor of the Australian business and fined Pakistan $4.08 billion in addition to $1.87 billion in interest. The tribunal has not yet disclosed all of the case’s specifics.

According to the TCC website, the world-class copper and gold open-pit mine in Pakistan’s troubled Balochistan region was to be built and run at a cost of roughly $3.3 billion.

The business was required to mine the gold and mineral resources at Reko Diq for the whole 55-year reserve life under the terms of the 1998 agreement with Pakistan.

The Balochistan mining authority canceled TCC’s mining rights in November 2011 due to allegations that the business obtained the contract in a “non-transparent” way, putting a stop to the project.

The TCC’s feasibility study, according to the government, was unsatisfactory since it lacked information on how mined precious metals would be processed.

TCC said that the government was required to oversee and subsidize the processing refinery for the metals that were mined, even though the firm had not planned for it. The business had already spent around $220 million on Reko Diq’s mine at that point.

In 2012, the Australian mining corporation filed its first arbitration request against the ruling of the mining authorities. The lawsuit against Pakistan was determined by the World Bank arbitration panel in 2017, and a subsequent multibillion-dollar sentence was issued in 2019.

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Local Pakistani courts have a varied stance on the matter. In January 2013, the Chagai Hills Exploration Joint Venture Agreement was declared null and invalid by the Supreme Court of Pakistan because it was determined to violate local regulations.

The agreement was revoked by a three-judge panel of the Supreme Court, which was led at the time by Chief Justice Iftikhar Muhammad Chaudhry.

After Justice Iftikhar’s decision, his son Dr. Arsalan Iftikhar was appointed vice chairman of the Balochistan Board of Investment (BIB). Arsalan, a doctor, was given the job of securing funding for the Reko Diq project.

The Public Accounts Committee (PAC) member and senior member of the Pakistan Peoples’ Party, Syed Naveed Qamar, said, “We think there is nothing wrong with the contracts or their implementation, but the difficulty arose when the court stepped in and the Supreme Court deemed the agreements invalid.”

Ironically, the government’s accountability and investigative agencies, who seize any chance to take action against political rivals, decided not to look into what some considered one of the murkiest business dealings in Pakistani history. The gold rate in Pakistan would have been much less if Pakistan did not lose these $6 billion.

According to analysts and observers, “vested interests” in the political and military echelons have been able to conceal who was genuinely to blame for the enormous national loss brought on by the tribunal ruling.

According to Qamar, the parliament began to worry that Pakistan might be struck with a sizable punishment in the Reko Diq mining issue owing to the carelessness of many Balochistan provincial administrations as early as January 2018.

He said that despite the initial Chagai Hills Joint Venture Exploration Agreement lacking such a clause, the PAC had questioned the right of provincial governments to permit changes to the Australian company’s ownership.

He said that the Balochistan Secretary of Mines had told the PAC in 2018 at a briefing that the ICSID proceedings were in a “quantum stage” and that a determination of the damages was about to be made.

“The government could not come up with a credible explanation and sought to escape the information when we asked the appropriate ministries for details of the Riko Diq and other similar instances, where arbitration courts imposed judgments against Pakistan,” he said.

According to Qamar, the PAC tried to identify the people and organizations in charge of the losses brought on by subpar or compromised decision-making. For the time being, the Pakistani state will bear the significant expense, maybe by seizing assets overseas.