AVOIDING the mistakes made earlier, the government will hopefully set its priorities right in the context of the Reko Diq project. Before sealing the deal with Barrick Gold, the world second biggest precious metals company, it seems prudent to first have on board the most credible guarantors, the people of Balochistan, through their representatives in national and provincial assemblies and their designated group of technical and legal experts.

Responding to a Dawn query in this regard, Finance Minister Shaukat Tarin said: “The draft of the framework agreement was shared with all the relevant stakeholders. Moreover, the deal with Barrick Gold will only be sealed after clearance from the Supreme Court of Pakistan and the national and Balochistan assemblies.”

Defending the decision, which some experts found hasty, he said: “We had to sign the framework because Tethyan Copper Company [a joint venture company of Barrick Gold and Antofagasta Minerals] had given us reprieve from courts till March 31.”

Recently, Pakistan reached an out-of-court settlement with two foreign mineral companies to write off their financial claims against the government in exchange for reconstitution of the project for the development of Reko Diq mines on the basis of an equal partnership. The government claimed it was able to dodge a hefty $11 billion penalty through this negotiated settlement.

The out-of-court settlement is good news for the country, but the govt’s hand might have been a bit forced by the March 31 time bar

The federal and Balochistan governments and two companies, Antofagasta PLC and Barrick Gold Corporation, earlier this month agreed on a framework to revive Reko Diq project and a pathway for the exit of one firm. Antofagasta consented to withdraw all claims and move away if Pakistan initiates the payment process of $900 million before the turn of the current month against the court award of $3.7bn.

An informed source in Islamabad active in mining circles told Dawn that Pakistan has pledged to divert the signing bonus of $900m with Barrick Gold for the mining deal to Antofagasta to ease it out.

This piece of information was indirectly confirmed by the finance minister while answering the query on the motivation, haste and timing of the deal in the midst of the ongoing political turmoil.

“We had reasons to do it now, and it was not to appease anyone. By March 31, we were obligated to open a conditional standby letter of credit (SBLC) in favour of Antofagasta for $900m. Funds will now be released once the legalisation process is complete,” Mr Tarin said.

Further details of the deal have yet to surface, but, according to the available information, the federal and Balochistan governments will collectively hold a 50 per cent stake in the project and Barrick Gold will keep the other half. The federal government will pool in $1bn for 50pc stakes, covering also for Balochistan government for the initial $2bn investment in the project. In addition, the government of Balochistan will get 2pc royalty from the sales proceeds.

On the question of the funding requirement of $1bn, the minister said the group of state-owned enterprises participating in the project would furnish the pledged amount.

The National Party, a mainstream political party of the restive province, instantly opposed the deal, terming it “anti-people and anti-Balochistan”.

A senior economist, who wished not to be named, said: “you can’t blame the people of Balochistan for having suspicions. This is what happens when you sell wheat to Balochistan at the international price and buy their gas at a fraction of the price you pay to Qatar.”

Continuing, he said government functionaries in the relevant department in Balochistan and in Islamabad know how the TCC in the 2000s tried to buy its way through when challenged for the breach of the Reko Diq contract.

A former commerce secretary conceded that the burden of turning the case upside down, with Pakistan being penalised in international arbitration court, falls on the recklessness of over-confident government functionaries.

A legal expert, who followed the arbitration process from close quarters and have been critical of the government’s lack of capacity to deal with commercial disputes, said the new mining deal ought to be weaker than the earlier one. “A deal negotiated in desperation can’t possibly be the best,” he argued.

“The devil is in the details. It would be stupid to expect global mining giants to write off big fines because of the goodness of their hearts. They must have extracted big concessions from Pakistan against guaranteed returns manifold more than what they have decided to forego. The government should make the key deal public for proper scrutiny by legal and technical experts,” he stressed.

“It’s an old habit of the rulers to bend backwards to accommodate overseas investors. I am keen to find out tax holidays and other concessions rolled out this time round,” he remarked.

“The deal might not be ideal, but, if finalised, it will open many doors for foreign investment in Pakistan. Global investors did take note of the green signal to Barrick in Pakistan. I expect a rush of mining companies if things move ahead smoothly,” said a mineral mining expert though he regretted the exclusion of private Pakistani mining companies from the Reko Diq deal.

“Had the local mining companies given a chance to be part of the project, they could have ensured greater transparency and swift movement of the project. The state-owned enterprises [Oil and Gas Development Company, Pakistan Petroleum and Government Holdings Pakistan] have no experience in mineral mining and may falter,” he argued.

The effort to develop mineral reserves in Balochistan, initiated in 1992, did not go much beyond some feasibility reports that confirmed underground riches. The cost of this lingering 30-year exercise, mired in controversies, was steep as it stained the country’s image, cost it heavy in penalties and blunted the thrust towards developing the vast mineral sector for the benefit of the most impoverished people in the richest province of the country.

PS: All attempts to reach Barrick Gold executives for a comment did not succeed.

Published in Dawn, The Business and Finance Weekly, March 28th, 2022