Activist Judge Torpedoes Tax Collection Project in Pakistan
In yet another egregious example of increasing judicial activism, Islamabad High Court's Justice Shaukat Aziz Siddiqui, the judge who also ordered Musharraf's arrest, has suspended Pakistan's top tax collector Arshad Hakeem. Hakeem was working on an ambitious technology-based project to go after powerful tax dodgers in the country.
In a country where the rich and the powerful pay little or no tax, Ali Arshad Hakeem became "a hated man" in just seven months after his appointment as FBR chairman, according to a report in the UK's Telegraph newspaper. Coming from IT and business management background Hakeem put in place a database designed to monitor the spending habits of millions of people, and calculate how much tax they owed.
At the click of a mouse, he could look up details of the elite's holiday habits, electricity bills and bank accounts, complete with photos, addresses and vehicle details, said the newspaper.
By linking government databases on cars, imports, exports and sales tax among others, he built a powerful tool for the Federal Board of Revenue (FBR) that could identify individuals and companies which were not paying their fair share. For income tax, his team fed 1,700 factors into a model which calculated how much was owed.
Pakistan tax-gdp is among the lowest and its tax policies are among the most regressive in the world. Direct taxes make up less than 3.5 percent of GDP, with wide ranging exemptions to powerful segments of society coupled with governance issues at Federal Board of Revenue, according to former finance minister Shaukat Tarin. The bulk of the tax receipts are collected in the form of sales tax, placing the heaviest burden on the lower-income people who spend almost all of their income on their basic needs.
Hakeem's efforts to change the situation and collect from the rich and powerful came to a grinding halt last month when Justice Siddiqui suspended Mr Hakeem for alleged violations of appointment rules.
Other damaging examples of economic judicial activism include cancellation of Pakistan Steel Mills privatization, annulling of Reko Diq mining contract and voiding of rental power deals with foreign investors.
Since the cancellation of Pakistan Steel Mills privatization deal in 2006, PSMC has suffered huge losses that cost the taxpayers tens of billions of rupees--Rs 26.5 billion in 2009, Rs 11.5 billion in 2010, Rs 11.4 billion in 2011 and Rs 21 billion in 2012. Had Prime Minister Shaukat Aziz's government been allowed to proceed with privatization in 2006, the PSMC would have been a significant contributor to the national exchequer rather than a huge drain on the public treasury. The money saved could have been used to fund education, healthcare, energy and infrastructure projects in the country.
Similarly, the Supreme Court has intervened and scared away foreign investors by its decisions in Reko Diq and Karkey rental power company. Had Reko Diq been allowed to continue, it would have represented a huge $3.3 billion foreign investment in Pakistan's Balochistan region.
Umar Cheema, a journalist and author of the report that showed how few politicians pay tax, told Telegraph's Rob Crilly that anyone attempting reform risked being brought down. "He made people realize the FBR was doing something under his watch, even though he was not there for very long" he said.
Related Links:
Haq's Musings
Tax Evasion in Pakistan
Pakistan's Best Tax Collector Fired by PPP Govt
Vindictive Judges Pursue Musharraf
Saving Education in Pakistan
Political Patronage Trumps Public Policy
Twin Energy Shortages in Pakistan
Prime Minister Shaukat Aziz's Legacy
By linking government databases on cars, imports, exports and sales tax among others, he built a powerful tool for the Federal Board of Revenue (FBR) that could identify individuals and companies which were not paying their fair share. For income tax, his team fed 1,700 factors into a model which calculated how much was owed.
Pakistan tax-gdp is among the lowest and its tax policies are among the most regressive in the world. Direct taxes make up less than 3.5 percent of GDP, with wide ranging exemptions to powerful segments of society coupled with governance issues at Federal Board of Revenue, according to former finance minister Shaukat Tarin. The bulk of the tax receipts are collected in the form of sales tax, placing the heaviest burden on the lower-income people who spend almost all of their income on their basic needs.
Hakeem's efforts to change the situation and collect from the rich and powerful came to a grinding halt last month when Justice Siddiqui suspended Mr Hakeem for alleged violations of appointment rules.
Other damaging examples of economic judicial activism include cancellation of Pakistan Steel Mills privatization, annulling of Reko Diq mining contract and voiding of rental power deals with foreign investors.
Since the cancellation of Pakistan Steel Mills privatization deal in 2006, PSMC has suffered huge losses that cost the taxpayers tens of billions of rupees--Rs 26.5 billion in 2009, Rs 11.5 billion in 2010, Rs 11.4 billion in 2011 and Rs 21 billion in 2012. Had Prime Minister Shaukat Aziz's government been allowed to proceed with privatization in 2006, the PSMC would have been a significant contributor to the national exchequer rather than a huge drain on the public treasury. The money saved could have been used to fund education, healthcare, energy and infrastructure projects in the country.
Similarly, the Supreme Court has intervened and scared away foreign investors by its decisions in Reko Diq and Karkey rental power company. Had Reko Diq been allowed to continue, it would have represented a huge $3.3 billion foreign investment in Pakistan's Balochistan region.
Umar Cheema, a journalist and author of the report that showed how few politicians pay tax, told Telegraph's Rob Crilly that anyone attempting reform risked being brought down. "He made people realize the FBR was doing something under his watch, even though he was not there for very long" he said.
Related Links:
Haq's Musings
Tax Evasion in Pakistan
Pakistan's Best Tax Collector Fired by PPP Govt
Vindictive Judges Pursue Musharraf
Saving Education in Pakistan
Political Patronage Trumps Public Policy
Twin Energy Shortages in Pakistan
Prime Minister Shaukat Aziz's Legacy
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Nawaz Sharif, Pakistan’s new prime minister, will appoint private sector managers to run state companies in efforts to revive an economy starved of investment, say leaders of his party.
Mr Sharif, who has been prime minister twice before, launched a similar policy in 1997 when he appointed commercial bankers to run three large public sector banks. All three became profitable and two, Habib Bank and United Bank, were privatised.
The plan faces a backlash from trade unions. Mr Sharif’s aides compared the process to the privatisations in the UK by Margaret Thatcher after she became prime minister in 1979.
Sartaj Aziz, former finance and foreign minister and a leader of Mr Sharif’s Pakistan Muslim League-Nawaz, told the Financial Times: “The formula is simple. You appoint good people, you allow them to appoint their people and you empower them. The government helps wherever it can.”
Officials said Ishaq Dar, a confidant of Mr Sharif, would take up his former post of finance minister in the new government.
Final results have yet to be declared but business leaders have welcomed a vote that will probably allow Mr Sharif, a wealthy Punjabi steel magnate, to have an absolute majority in parliament without the need for coalition partners.
Investors in Pakistan said they were tired of grappling with power cuts of up to 20 hours a day, widespread corruption in public life and an inefficient public sector. Mr Sharif has identified rescuing the economy as his number one priority.
A central bank official said public sector companies in power, rail transport and aviation run up huge losses each year amounting to more than 2.5 per cent of gross domestic product. “These are clearly white elephants,” he said.
Mian Muhammad Mansha, the Lahore-based owner of a Pakistani conglomerate who is reputed to be the country’s richest man, approvingly quoted a reference to Thatcher as a “modern Joan of Arc” and said Pakistan needed structural reforms similar to hers.
“First you need to get all these public sector companies out of government control,” he said. “This will release so much money that they are losing and it will make politics clean.”
The 1997 bank plan saw Mr Sharif’s government dismiss some 20,000 employees who were all given large redundancy payments. The current reform plan may meet resistance not only from unions but from politicians who are used to arranging contracts for their businesses from public sector companies.
“Mr Sharif will have to keep his own politicians under control if he wants his plan to succeed. In the past, many have thrived on patronage,” said Suhail Jehangir Malik, an economist. “Public sector companies are a huge drain on our national economy. Reforming them must be a primary objective for the new government.”
The plan is likely to win support from international donors, including the International Monetary Fund, which is expecting to begin negotiations shortly on a new $9bn loan to stave off a balance of payments crisis. Pakistan’s foreign reserves are equivalent to the value of two months of imports.
“The problem with Pakistan is both macroeconomic weakness and long-term structural issues,” said one person involved in preliminary talks with the interim government in power over the election period. “Given the severity of the economic problems, we do need to have a government that is going to undertake quite serious economic reforms.”
Under a so-called extended fund facility of up to four years, Pakistan would be expected to cut its budget deficit by increasing tax revenues, directing subsidies more accurately towards the poor and introducing policies to encourage foreign direct investment.
http://www.ft.com/intl/cms/s/0/374bc1a6-bbe8-11e2-a4b4-00144feab7de.html
The possibility of Pakistan seeking assistance from China is emerging after the government was slapped with a $5.95 billion fine in a legal dispute over rights for a copper and gold mine in the country.
Tethyan Copper had filed a case against Pakistan with the International Court for Settlement of Investment Disputes in 2012 for violating an agreement that the company signed with Pakistan for exploration and mining of the Reko Diq mine.
The court issued its decision in 2017 in favor of Tethyan Copper, a joint venture between Barrick Gold of Canada and Antofagasta Minerals of Chile, with hearings continuing to determine the amount of damages to be paid by Pakistan. On Saturday, the court announced that the government of Prime Minister Imran Khan must pay a total fine of $5.9 billion -- a $4.08 billion penalty and $1.87 billion in interest.
Legal experts say Pakistan cannot appeal the court's decision and that it can only apply for technical review, whereby the government can ask the court to review the amount of damages. That process could take up to three years, which would offer Pakistan more time before the fine is due.
The amount of damages Pakistan has been ordered to pay is nearly equal to the recently approved bailout package from the International Monetary Fund.
The damages also are twice the amount of Balochistan's annual budgeted expenditures, which means Pakistan in all likelihood will have to look quickly for payment options. One of the strongest options, according to analysts, is its northern neighbor: China.
Reko Diq sits in Pakistan's southwest Balochistan province, at the triangular border with Iran and Afghanistan. The mine has gold reserves with an estimated value of more than $100 billion.
Work at Reko Diq has been suspended since 2011, when Pakistan rejected the application of Tethyan Copper to mine the area. Before that, Pakistan and Tethyan Copper agreed that the company would conduct a feasibility study under an exploration license and that it would apply for a mining license to carry out the mining.
The board chairman of Tethyan Copper, William Hayes, has said that his company is ready to enter a settlement for a mutually beneficial solution with Pakistan. That could pave the way for a third party like China to help settle the case.
"Given the ever-growing domestic consumption of gold in China and Beijing's interest in investing in gold and copper mining industries abroad, I won't be surprised if China makes a bid to take over the Reko Diq gold mine project and offers to pay the penalty in return for long-term lease and exclusive ownership rights," said Mohan Malik, a professor at the Asia-Pacific Center for Security Studies in Hawaii.
https://www.barrick.com/English/news/news-details/2022/reko-diq-alliance-between-pakistan-and-barrick-set-to-create-long-term-value/default.aspx
Subject to the updated feasibility study, Reko Diq is envisaged as a conventional open pit and milling operation, producing a high-quality copper-gold concentrate. It will be constructed in two phases, starting with a plant that will be able to process approximately 40 million tonnes of ore per annum which could be doubled in five years. With its unique combination of large scale, low strip and good grade, Reko Diq will be a multi-generational mine with a life of at least 40 years. During peak construction the project is expected to employ 7,500 people and once in production it will create 4,000 long-term jobs. Barrick’s policy of prioritizing local employment and suppliers will have a positive impact on the downstream economy.
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ISLAMABAD, PAKISTAN – Finance Minister Miftah Ismail and Barrick president and chief executive Mark Bristow said after their meeting here today that they shared a clear vision of the national strategic importance of the Reko Diq copper-gold project and were committed to developing it as a world-class mine that would create value for the country and its people through multiple generations.
Reko Diq is one of the world’s largest undeveloped copper-gold deposits. An agreement in principle reached between the government of Pakistan, the provincial government of Balochistan and Barrick earlier this year provides for the reconstitution and restart of the project, which has been on hold since 2011. It will be operated by Barrick and owned 50% by Barrick, 25% by the Balochistan Provincial Government and 25% by Pakistani state-owned enterprises.
The definitive agreements underlying the framework agreement are currently being finalized by teams from Barrick and Pakistan. Once this has been completed and the necessary legalization steps have been taken, Barrick will update the original feasibility study, a process expected to take two years. Construction of the first phase will follow that with first production of copper and gold expected in 2027/2028.
“During the negotiations the federal government and Barrick confirmed that Balochistan and its people should receive their fair share of the benefits as part of the Pakistan ownership group,” Bristow said.
“At Barrick we know that our long-term success depends on sharing the benefits we create equitably with our host governments and communities. At Reko Diq, Balochistan’s shareholding will be fully funded by the project and the Federal Government, allowing the province to reap the dividends, royalties and other benefits of its 25% ownership without having to contribute financially to the project’s construction or operation. It’s equally important that Balochistan and its people should see these benefits from day one. Even before construction starts, when the legalization process has been completed we will implement a range of social development programs, supported by an upfront commitment to the improvement of healthcare, education, food security and the provision of potable water in a region where the groundwater has a high saline content.”
Finance Minister Ismail said the development of Reko Diq represented the largest direct foreign investment in Balochistan and one of the largest in Pakistan.
“Like Barrick, we believe that the future of mining lies in mutually beneficial partnerships between host countries and world-class mining companies. The Reko Diq agreement exemplifies this philosophy and also signals to the international community that Pakistan is open for business,” he said.
https://www.reuters.com/markets/asia/pakistans-court-endorses-settlement-with-barrick-gold-over-mining-project-2022-12-09/
Pakistan's Supreme Court endorsed on Friday a settlement for Barrick Gold (ABX.TO) to resume mining at the Reko Diq project, one of the world's largest underdeveloped sites of copper and gold deposits, it said in an order.
The endorsement was a condition of the settlement for Barrick to resume work on the project in the southwestern province of Balochistan, bordering Afghanistan and Iran, in which it will invest $10 billion.
Chief Justice Umar Ata Bandial, the head of a five-judge panel, read out the operative part of the brief order in court.
"The agreements ... have not been found by us to be unconstitutional or illegal on the parameters and grounds spelt out," read the order seen by Reuters.
President Arif Alvi had asked the court to review the deal.
In an out of court agreement this year, Barrick Gold ended a long-running dispute with Pakistan, and agreed to restart development.
Under the deal, the company withdrew its case in an international arbitration court, which had slapped a penalty of $11 billion on Pakistan for suspending the contracts of the company and its partners in 2011.
The company's licence to mine the untapped deposits was cancelled after the Supreme Court ruled illegal the award granted to it and its partner, Chile's Antofagasta (ANTO.L).
Antofagasta had agreed to exit the project, saying its growth strategy was focused on production of copper and by-products in the Americas.
Pakistan's mineral-rich province of Balochistan is home to both Islamist militants and separatist Baloch insurgents, who have engaged in insurgency against the government for decades, demanding a greater share of the region's resources.
https://english.almayadeen.net/articles/analysis/pakistan-is-sitting-on-a-gold-mine
The Reko Diq mine, renowned for its massive gold and copper deposits, is thought to contain the fifth-largest gold deposit in the world.
Reko Diq is a small desert village in the Balochistan district of Chagai, 70 kilometers northwest of Naukundi and close to Pakistan's border with Iran and Afghanistan. This region is situated within the Tethyan belt, which extends from Turkey and Iran to Pakistan. Reko Diq, which in Balochi means "sandy mountain," is also the name of an extinct volcano.
The Reko Diq mine, renowned for its massive gold and copper deposits, is thought to contain the fifth-largest gold deposit in the world. The mine is in a small desert area in the northeast of Balochistan, near the border with Iran and Afghanistan.
600,000 tons of concentrate produce an estimated 200,000 tons of copper and 250,000 ounces of gold on a yearly basis. The annual profit from the mines is estimated by the TCC to be approximately $1.14 billion for copper and $2.50 billion for gold, totaling $3.64 billion annually. Independent estimates suggest the number is as high as $500 billion, which is significantly higher than the TCC's estimation of $200 billion.
“Reko Diq is one of the bigger copper-gold undeveloped projects in the world,” said Mark Bristow, chief executive of Barrick, which aims to start mining in 2028 subject to an ongoing feasibility study. “It’s a very big deal. Any copper mine right now is a big deal.”
The project highlights how the copper shortfall is pushing miners into ever trickier markets in search of supply. Pakistan’s repeated political and economic crises have scared away all but the most determined foreign investors, and local authorities had blocked an earlier attempt involving Barrick to mine Reko Diq.
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Bristow argues that the project, in which Barrick has a 50 per cent stake alongside the Pakistan and Balochistan governments, will bring much-needed development to the region.
“Mining, when it goes into emerging markets, is obsessed with getting its money back,” he said. “We’ve learned that you start paying benefits and dividends early on.”
As countries transition to clean energy sources, copper — whose conductive properties make it crucial to transporting electricity — is only expected to become more important to the global economy.
But with supply from incumbent mines in countries such as Chile and Peru stalling, an estimated $118bn of investment by 2030 is needed to plug a supply gap that will by next decade be equivalent to 35 Reko Diq-sized projects, according to analysts at CRU Group.
Th a record of operating in riskier markets such as Mali and the Democratic Republic of Congo.
While Reko Diq adds “a lot of uncertainty” for Barrick investors, “Barrick is no stranger to frontier jurisdictions”, said Canaccord Genuity analyst Carey MacRury.
Another factor that could help steer the Reko Diq project is the presence of a new investor. Saudi Arabia’s Public Investment Fund and state mining company Ma’aden have expressed interest in a stake. Analysts said the involvement of one of Pakistan’s most important allies would help shield the project from future political U-turns.
If successful, the mine could turn the company into one of the world’s largest copper producers. Diversifying its portfolio into copper is particularly important for gold miners such as Barrick to stay relevant with investors focused on environmental, social and governance issues, since the company’s core product plays no role in the energy transition.
Reko Diq sits along the largely untapped south Asian leg of a rock formation from Europe to south-east Asia that is believed to hold rich copper deposits. Analysts believe there is the potential for more mines.
Ahsan Iqbal, who recently stepped down as Pakistan’s planning minister and worked on the project, argued that Reko Diq would “put Balochistan on the mining map of the world”.
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Reko Diq “is 50 miles from Afghanistan and 40 miles from Iran”, one person involved with the project said. “So it will be a target.”
For support, Barrick has turned to Pakistan’s powerful army, which helps control the country’s politics and helped negotiate last year’s deal to revive the project, according to a person involved.
Pakistan’s army chief also this month attended a local mining conference alongside Bristow. “The military are a steadying hand,” Bristow said. “They are absolutely essential on the security side.”
Yet rights groups have repeatedly accused the army of abuses in Balochistan, including extrajudicial executions, allegations it denies.
Bristow has welcomed the potential Saudi interest in Reko Diq and dismissed hand-wringing over whether he can see through the project.
“When you look at the world, it is more complex than when I started,” he said. “Gone are the days that you can control a mining company from a multistorey, cushy building in the developed world.”
https://finance.yahoo.com/news/gold-billionaire-sawiris-eyes-stake-041314342.html
(Bloomberg) -- Egyptian billionaire Naguib Sawiris, who has forged a fortune in telecom and gold, is eyeing an investment in Barrick Gold Corp.’s $7 billion Reko Diq copper-gold project as he looks to expand his business in Pakistan.
Reko Diq, in the Balochistan region that borders Afghanistan and Iran, is one the world’s largest undeveloped copper and gold deposits, capable of producing 200,000 tons of copper and 250,000 ounces of gold a year for more than half a century. The project is jointly owned by Barrick and Pakistan.
Asked whether he was interested in investing, Sawiris, a major investor in gold miners including Endeavour Mining Plc through his La Mancha Resources Inc., said “yes.”
“I have an advantage compared to other investors. I know the country, I have friends here,” Sawiris said in an interview in Islamabad. “We want to be on the Pakistani side, because I have been here for 25 years.”
He did not elaborate on the potential scale of the investment, but added there were few other options, in part due to the lack of geological data: “We tried here to look but unfortunately there is only this one big project.”
Last month, Barrick Chief Executive Officer Mark Bristow said he was seeing newfound “interest” in Reko Diq from multinational mining firms that have to date been hesitant to venture into tricky regions of the world. The mine has also attracted interest from Saudi Arabia, whose presence could serve to stabilize the project in a contentious part of the world.
Pakistan’s state-owned energy exploration companies, which have a stake in the project, said last month they were looking into “potential engagement” with sovereign foreign investors, without giving details.
Sawiris’ Ora Developers is separately working on a luxury housing project, Eighteen, and he earlier set up one of Pakistan’s first mobile phone companies, Mobilink, now owned by Veon Ltd., and the nation’s largest cellular firm by subscriber numbers.
Pakistan’s lengthy, difficult official procedures, an unstable currency and capital restrictions are hurdles for investment, but Sawiris said he remained optimistic.
“If there is concrete in my way, I’ll drill through it and I’ll go,” he said. “I have never let anybody in my life hold me back from what I wanted to achieve.”