ISLAMABAD: After the Supreme Court endorsed a settlement deal worth over $6.5 billion last week, the government on Sunday approved a payment of more than $900 million to the Chilean firm Antofagasta over six years to exit the Reko Diq project.

The committee also green-lighted about $1.91bn shareholder financing by state-owned enterprises (SOEs) to take the gold and copper mining project forward.

The decisions were taken at a special meeting of the Economic Coordination Committee (ECC) of the cabinet presided over by Finance Minister Ishaq Dar through video link from Lahore to meet deadlines for an out-of-court settlement with the Tethyan Copper Company to avoid a looming $10bn international arbitration award. The ‘definitive agreements’ are ready to be signed by Dec 15 under the settlement deal.

Under the agreement, the government and its entities — the OGDCL, Pakistan Petroleum Limited and Govt Holdings Pvt Limited (GHPL) — have already deposited $900m in an escrow account for payment along with interest in six years to Antofagasta Minerals of Chile to exit the project.

ECC takes decision to avoid looming $10bn arbitration award

These entities are also required to arrange about $4.3bn equivalent funds as an equity investment in the restructured project, now named Barrick Reko Diq Holdings Limited (BRDHL), to be operated by Canada’s Barrick Gold Corporation mining company.

“The ECC considered and approved two important agenda items related to the Reko Diq project, thus paving the way for early start of the Reko Diq Project,” an announcement said after the meeting, adding that it allowed the concerned divisions of the government and the SOEs to act in such a manner to ensure that the deposited amount along with interest deposited by the SOEs in the escrow account to form part of the consideration for share purchase of the Reko Diq Mining Company Limited.

Informed sources said the finance ministry told the ECC that as per ‘definitive agreements’ ready to be signed by Dec 15 under the settlement deal, the share of special purpose vehicle (SPV) of state-owned enterprises, namely Pakistan Minerals Ltd (SOE SPV) and the government of Balochistan (GoB SPV) towards the funding obligation in the restructured project is $1.194bn and $717m million, respectively, out of the $4.297bn to be adjusted for inflation.

This funding is required over six years, beginning with about $11m this year and gradually going up to $730m in the 2026-27 fiscal year.

In the case of project financing of up to 50pc, the above equity contribution could come down to $597m for SOEs SPV and $359m for the provincial one, whose financing arrangement is also the responsibility of the federal government.

The ECC thus authorised the finance ministry to initiate the process of issuing a guarantee from a mutually agreed financial institution or multilateral development lender for raising debt financing.

The Petroleum Division also submitted a summary for approval of accrued interest on the amount held in an escrow account ($900m) in connection with the Reko Diq project dispute settlement.

It told the Economic Coordination Committee that the federal and Balochistan governments had entered into an out-of-court dispute settlement with the Tethyan Copper Company Pvt Limited — a consortium of Barrick Gold and Antofagasta — over their longstanding dispute over the Reko Diq copper and gold mining project in the Chagai district.

As per settlement terms, the federal government has to clear liabilities to Antofagasta.

In light of the terms of the agreed settlement, the ECC allowed the finance division to direct the GHPL (for its own as well as the Balochistan government’s share), OGDCL and PPL to deposit the aggregate amount of interest to the sum of $22.72m in the escrow account from March 31 to Dec 15 this year.

The ECC further allowed the finance division to arrange the interest payable for the Balochistan government’s share amounting to $8.52m from the loan of Rs65bn already raised from the National Bank of Pakistan by the GHPL with the Pakistan government’s guarantee.

Under the restructured project, the Reko Diq project would now be led by Barrick Gold Corporation with 50pc shareholding along with operatorship.

Of the remaining 50pc shareholding, Balochistan will hold a 25pc stake, including a 10pc direct free share and 15pc through Balochistan Mineral Resources Limited, to be paid by the federal government along with capital and operational expenses.

The rest of the 25pc shareholding would be held with equal participation by the OGDCL, PPL and GHPL.

On Friday, the Supreme Court consented to a presidential reference on the subject and cleared for implementation the fresh Reko Diq settlement deal signed by the government of Pakistan with international mining firms to avoid arbitration penalties.

Pakistan had already been given an adverse arbitral award by the International Centre for Settlement of Investment Disputes and was anticipating a similar award from the International Chamber of Commerce.

Published in Dawn, December 12th, 2022