Pakistan's Activist Judges Hurting Business and Investment

Organization of Pakistani-American Entrepreneurs (OPEN) Silicon Valley has just announced a panel discussion featuring Pakistan's former Chief Justice Iftikhar Chaudhry and former attorney general Munir Malik.

Pakistan's Ex-Chief Justice Iftikhar Chaudhry
This discussion is titled "The Pakistani Legal Code And How It Impacts Investors And Entrepreneurs". It is scheduled  for 10:15 AM at "OPEN Forum 2014", the organization's annual conference on Saturday, May 10, 2014, at the Santa Clara Marriott in Silicon Valley

If I were asked to moderate this panel, I would not treat it as an abstract discussion of how rule of law impacts investors and entrepreneurs anywhere in general. Instead, I would focus on how Justice Iftikhar Mohammad Chaudhry conducted himself and how his conduct affected the investment climate and the economy in Pakistan during his tenure as Chief Justice of Pakistan.

Foreign Direct Investment in Pakistan:

World Bank's data shows that foreign direct investment (FDI) in Pakistan reached a peak of over $5 billion (3.6% of GDP) in 2007 and then fell sharply in the wake of Justice Chaudhry's reversal of the privatization of Pakistan Steel Mills. FDI has essentially dried up and the Pakistan Steel Mills Corporation has accumulated losses over Rs. 100 billion in spite of multiple bailouts at taxpayers expense. It is currently operating at just 3% of capacity and its monthly payroll adds up to Rs. 500 million, according to Dawn.

FDI as % of GDP in Pakistan Source: World Bank

Canceled Privatization Deals:

Huge subsidies are being given at taxpayers' expense to Pakistan Steel Mills and several other state-owned enterprises which take resources away from more pressing needs for spending on education, health care and infrastructure. In fact, Pakistan Education Task Force Report 2011 reported that "under 1.5% of GDP [is] going to public schools that are on the front line of Pakistan's education emergency, or less than the subsidy for PIA, Pakistan Steel, and Pepco."

Speaking at a recent international judicial conference in Islamabad, Dr. Ishrat Hussain, current dean of the Institute of Business Administration and former governor of The State Bank of Pakistan, said there has not been a single privatization deal in Pakistan since the Supreme Court's 2006 decision voiding the steel mill transaction.

Dr Hussain said that despite fulfilling the legal requirements, the fear that the country’s courts may take suo motu notice of the transaction, and subsequently issue a stay order, deters businesses from investing in Pakistan, according to a report in The Express Tribune. “A large number of frivolous petitions are filed every year that have dire economic consequences. While the cost of such filings is insignificant the economy suffers enormously,” he added.

Crucial Projects Delayed:

Among other projects, Dr. Hussain particularly cited Reko Diq and LNG projects which could not proceed because of judicial activism of Pakistan Supreme Court judges.

The lack of progress on liquefied natural gas (LNG) deal has exacerbated Pakistan's energy crisis. It would have brought in 400 million cubic feet of gas per day to bridge the growing supply-demand gap now crippling Pakistan's economy.

The invalidation of Reko Diq license to  Tethyan, joint venture of Canada's Barrick and Chile's Antofagasta, has turned away Pakistan's single largest foreign investment deal to date. The deposit in Balochistan was expected to produce about 200,000 tons of copper and 250,000 ounces of gold annually. Under the deal Baluchistan province would hold a 25 percent stake in the project, with Tethyan holding the remaining 75 percent.

Militants Released:

In addition to activist judges intervention in economic matters, there have also been many instance in which known militants have been released by Pakistani courts. Those released have then committed acts of terror which have also scared away investors, both foreign and local.

Summary:

Dr. Hussain closed his speech by pleading with Pakistan's judges "with all the humility and without sounding arrogant or offending anyone’s sensibilities, that economic decision are highly complex and its repercussions are interlinked both in time as well as space.”

I hope that this opportunity to question the former chief justice is not wasted by an adoring crowd asking him soft-ball questions at the OPEN conference on  May 10, 2014. It's important that we, including the honorable judge, do an honest assessment of our past mistakes to learn from them.

Related Links:

Haq's Musings

Shaukat Aziz's Economic Legacy in Pakistan

Saving Pakistan's Education, Steel Mill, Railway and PIA

Politics of Patronage Trumps Public Policy 

Iftikhar Chaudhry is no Angel

Musharraf Earned Legitimacy by Good Governance

Vindictive Judges Pursue Musharraf

Rare Earths at Reko Diq?

Comments

Riaz Haq said…
Here's an FT story on Pakistan plans to raise $2 billion through privatization:


Pakistan expects to raise at least $2bn by March next year through the international sale of shares in Pakistani energy and banking companies, according to the man spearheading the privatisation drive.
Muhammad Zubair, chairman of the privatisation commission, signalled the country’s return to global equity markets following what the government says is the end of a political crisis marked by weeks of demonstrations in the capital, Islamabad.


“There was uncertainty that the prime minister will be forced to resign, the parliament will be packed up,” he said, referring to the protests led by Imran Khan, the cricketer-turned-politician, and Tahirul Qadri, a moderate Islamic leader. “By mid-September, it was clear that the prime minister was staying and the parliament will remain intact.”
Demonstrators remain camped outside the parliament, but other political parties, including some opponents of Prime Minister Nawaz Sharif, have backed the government’s right to run the country until its five-year mandate expires in 2018.
Mr Zubair will share his message of returning political stability on Thursday when he meets potential investors at the start of a roadshow beginning in London to sell a 7.5 per cent stake in Oil and Gas Development Co. Analysts say the offer through global depositary receipts should raise more than $800m.
This will be followed by the offer of government shares in the privately run Habib Bank, which analysts said could fetch up to $1.2bn in the first quarter of next year. HBL was privatised in 2003 when 51 per cent was sold to the Aga Khan Fund for Economic Development.
Mr Zubair said a successful outcome of the two deals would build investor confidence and help pave the way for privatising other public sector companies. He said at least nine electricity distribution companies and six generating companies would be privatised.
Pakistan International Airlines, the lossmaking state-owned carrier would also be offered for sale. In the past week, Pakistani officials have said the government was planning to split PIA into two, offering its international operations to a Middle Eastern airline while selling ageing aircraft and domestic routes to a local investor.
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Mr Zubair said the privatisation programme had the support of every mainstream political party. “We have met with 60 international equity funds. At least 90 per cent are convinced that political stability will remain in Pakistan . . . We now have to demonstrate we are back at work.”
Mr Sharif was elected prime minister for the third time in May 2013 and is seeking to revive confidence in an economy ravaged by corruption, poor management and attacks on official and civilian targets by Taliban Islamist extremists.
As the scion of a prominent business family in the populous Punjab province, Mr Sharif has advertised himself as a business-friendly leader eager to privatise lossmaking state groups.
But some analysts are sceptical about the likely extent of privatisation, warning that even a successful sale of OGDCL and HBL shares will not necessarily lead to the sale of struggling electricity groups.
“Getting credible foreign investors has historically proven difficult, especially when it comes to taking charge of public sector companies,” said Sakib Sherani, a former adviser to the finance ministry.
“These assets include those that are heavily overstaffed and have run in loss for a long time. The real test will come when these assets are put up for strategic sales along with transfer of management.”
Nor is political stability guaranteed, with Mr Khan and Mr Qadri repeating their demands for Mr Sharif to resign and trade unions likely to flex their muscles.

http://www.ft.com/intl/cms/s/0/029b3250-487a-11e4-ad19-00144feab7de.html
Riaz Haq said…
ISLAMABAD, Pakistan - Pakistan plans to split ailing national flag carrier Pakistan International Airlines (PIA) into two companies and sell control of the core business to a global airline over the next 18 months, but political opposition to the sell-off will be intense, the country’s privatization czar said.

Financial advisers are now in talks with several airlines about taking over cash-strapped PIA, which has some 17,000 employees but just 36 aircraft — and 10 of them are grounded due to a lack of spare parts.

Mohammad Zubair told Reuters in an interview during a visit to New Delhi that no decision had been taken on the buyer, but he mentioned Emirates airline, Etihad and Qatar Airways — the Gulf giants that dominate the regional sector — as possibilities.

“It’s going to be the most difficult sale,” said Zubair, who is aiming to raise around $4bn this fiscal year from the sale of stakes in several companies, anticipating demands that the government hold onto PIA and nurse it back to health itself. “If we are saying that for 25 years PIA has been going from bad to worse, we can’t claim that we are business-savvy and we can turn it around. Anyone who thinks that the government can fund it is living in a fool’s paradise.”

Zubair, a former IBM chief financial officer for the Middle East and Africa, was tapped by Prime Minister Nawaz Sharif to take charge of a central plank of economic reforms promised by Islamabad in return for an International Monetary Fund bailout. Pakistan announced this week that it will seek to raise about $815mn through a sale of shares in Oil and Gas Development Co (OGDC), its largest offering in eight years.

Zubair said investors are returning to Pakistan after weeks of anti-government protests in Islamabad that have now fizzled out, and the OGDC deal representing 7.5% of the company’s share capital would be a test of their confidence. The OGDC sale is part of a sell-off drive to raise capital for an economy that has been crippled for years by power shortages, corruption and militant violence, and to staunch huge losses from dysfunctional companies. Zubair said the losses of power distribution companies alone are equivalent to one-sixth of the government’s fiscal revenues.

Next on the block will be the government’s 40% stake in Habib Bank Ltd, which will be sold in two stages between November and next March, for around $1.2bn. Also ahead is the sale, targeted at domestic investors, of the state’s 7.5% stake in Allied Bank Ltd, for around $150mn, Zubair said.

Over the years, critics say, governments have manipulated state Corps like PIA for political and financial gain, giving jobs to so many supporters that the size of the workforce has become unsustainable in the face of mounting losses.

Zubair said that PIA’s employee-to-aircraft ratio, at around 600, is one of the worst in the world and keeps going up as more planes are grounded. Under his plan, the airline will be spun off as a separate entity and PIA’s other interests — such as ground-handling, catering, hotels and even a poultry business — would go into a holding company that would be retained by the state.

To avoid mass layoffs that would run into political opposition the holding company would absorb all the employees, keep a share in the airline to earn dividend income and then sell off each of its interests individually over time.

Zubair said he could not proceed with the sale of PIA as quickly as other companies, partly because parliament may have to approve legislation allowing it to pass into private hands. “It’s more politically sensitive,” he said. “PIA is not going to be sold just like that.”

http://www.eturbonews.com/51147/pakistan-talks-several-airlines-about-taking-over-ailing-pia
Riaz Haq said…
Next Up for Bid: This Shuttered Pakistan Firm, Pakistan Steel Mills Corp, Is Hard to Sell "Nightmare" http://bloom.bg/1TPJJse via @business

Investors see about two-thirds of the company’s 16,000 workers as unnecessary and most others as incompetent, Zubair, who heads Pakistan’s privatization program, said in an interview. Losses are running at roughly $20 million a month after the firm stopped operating in June because it couldn’t pay its gas bill.
“Finding a potential buyer for Pakistan Steel will be a nightmare because the company is a nightmare," said Zubair, 59, a former IBM executive. “I’ve always sold IBM products which is the easiest -- you’re always going with the best products or services. Now you’re going with one of the worst."
Time is running out for Pakistan to sell stakes in about 40 state-run companies to meet conditions for a $6.6 billion loan package it received from the International Monetary Fund in 2013. Progress is crucial for Prime Minister Nawaz Sharif to show the world that Pakistan is changing as it seeks to attract foreign capital to its financial markets.
Behind Schedule
Asked about Zubair’s “nightmare" comment, Pakistan Steel spokesman Syed Abdul Hafiz Shah said the losses began piling up after the 2008 financial crisis.
“Production is zero and liabilities can’t be paid, so obviously it’s difficult to run," Shah said. “It’s up to the government what it decides. We will have to follow it."
The privatization program is already behind schedule and facing resistance among unions and opposition political parties. Five transactions yielding $1.7 billion have been completed so far, and deadlines are being pushed back.
Zubair emphasized that the privatization push is still on track. He said that legal and political hurdles have delayed the timeline for asset sales by only about three months.
“This is a very critical stage," Zubair said at his office on Dec. 4. “This is just the stage where the next momentum will be seen by the people of Pakistan."
Strategic sales are more complicated and time consuming than capital market transactions, according to Mohammed Sohail, chief executive Topline Securities Ltd.
“The challenge is not the opposition parties or people opposing privatization," Sohail said by phone from Karachi. “The situation of these companies is so bad that it will be difficult to find a buyer."
Airline Bids
The three companies seen as benchmarks for success are Pakistan Steel, national carrier Pakistan International Airlines Co. and Faisalabad Electricity Supply Co., known as Fesco. All have been earmarked for privatization for more than two decades.
A presidential decree issued last week repealed the 1956 law setting up Pakistan Airlines, removing a hurdle to selling a 26 percent stake in the national carrier by August. China’s Hainan Airlines Co. is among companies that have expressed interest, Zubair said, adding that he’ll also seek bids from Emirates, Etihad Airways PJSC and Qatar Airways Ltd.
Fesco is profitable and will be the easiest of the three to sell despite having 9,000 outstanding legal cases and spotty financial documentation, Zubair said. He plans to unload a 74 percent stake by May, a sale he hopes will generate momentum for other power producers that are in much worse shape.
Political Decisions
Pakistan Steel is more complicated. Established in 1973 to supply a nascent manufacturing sector, the company stopped operating in June after gas supplies were cut off due to mounting debts, according to Shah, the company’s spokesman. Its workforce has shrunk to 14,000 as those who hit retirement age aren’t replaced, he said.
The cabinet decided to allow the government of Sindh province -- where Pakistan Steel is based -- to have the first shot at the 74 percent stake up for sale. If Sindh doesn’t express interest by Dec. 15, Zubair said he would write to the cabinet and look for other buyers.
Riaz Haq said…
#Pakistan Steel Privatization Stalled. No production. $3.5 billion debt. $5 million weekly loss http://reut.rs/1Q0axpZ via @Reuters

Once the producer of almost half the country's steel needs, state-owned Pakistan Steel Mills' (PSM) cavernous factory buildings on the outskirts of Karachi stand eerily still.

A 4.5 km-long (2.8 mile) conveyor belt that once carried coal from the nearby port is idle and blast furnaces rest silent. Birds build nests in Soviet-era equipment and stray dogs nap outside abandoned plants.

The company is for sale, but the government cannot find a buyer as it struggles to get privatizations back on track after a series of setbacks. A glance at PSM's finances may explain why.

The company has $3.5 billion in debt and accumulated losses, loses $5 million a week and has not produced steel at its 19,000-acre facility since June last year. That was when the national gas company cut power supplies, demanding payment of bills of over $340 million.

Like many Pakistani industrial firms, political meddling and competition from cheaper Chinese imports left PSM vulnerable.

They also undermine Prime Minister Nawaz Sharif's promise to the International Monetary Fund to privatize PSM by March, in return for a $6.7 billion national bailout loan agreed in 2013.

More than 14,000 jobs are at risk, while the Pakistani economy needs industrial growth to provide employment for a growing population.

"Nine billion rupees ($86 million) are immediately needed to see the company through to June," company CEO Zaheer Ahmed Khan told Reuters at its sprawling premises.

"It's really sad, it's a national asset. We are a nuclear power but what does it say that we can't operate a small steel mill?"

PRIVATIZATION PAINS

The government has injected $2 billion into PSM since a failed selloff in 2006, but cannot invest more capital, Privatization Commission Chairman Mohammad Zubair said.

"The best option is to privatize so that private sector buyers inject capital to upgrade the plant and machinery, buy raw material and so on," he said.

PSM is one of several firms Pakistan wants to sell to revive loss-making entities that cost the government $5 billion a year.

But it has struggled to restructure bleeding companies, including PSM and Pakistan International Airlines (PIA), and get them in shape for potential buyers.

This month, Pakistan shelved plans to privatize power supply companies, and officials said Islamabad told the IMF it would not meet deadlines to sell PIA or PSM.

While the loss-making firms are a drain on Pakistan's resources - around an eighth of the government's fiscal revenues last year - few fear Pakistan will slide into economic crisis.

The IMF has continued to release installments of its 2013 bailout package despite missed targets, and Pakistan is exploring other sources of support, like ally China which plans to invest $46 billion in a new economic corridor.

BACK IN THE USSR

Designed and funded by the Soviet Union in the 1970s, PSM was once the pride of the nation, showcasing a rapidly industrializing Pakistan with the means to produce a basic building block for the future.

Across the site, signs implore workers to believe steel will make Pakistan stronger. The firm's motto is "Yes, I can."

The facility has the capacity to expand to produce 3 million tonnes of cold and hot-rolled steel annually, against today's 1.1 million tonnes, CEO Khan said. At 3 million tonnes, PSM would become "very profitable".
Riaz Haq said…
Barrick #Gold, partner win dispute over $3 billion cancelled #Pakistan mining project at Reko Diq https://www.thestar.com/business/2017/03/21/barrick-gold-partner-win-dispute-over-cancelled-pakistan-mining-project.html … via @torontostar


https://www.thestar.com/business/2017/03/21/barrick-gold-partner-win-dispute-over-cancelled-pakistan-mining-project.html

The Reko Diq project sits in the restive province of Balochistan, which shares a border with Afghanistan and Iran, and was estimated to have cost more than $3 billion to develop.

Barrick Gold Corp. says an international trade tribunal has ruled in its favour on a dispute over a multibillion-dollar mining project in Pakistan.

The company, along with joint venture partner Antofagasta plc, took the Pakistani government to the World Bank’s International Center for Settlement of Investment Disputes after the country denied a mining lease for the Reko Diq copper-gold project in 2011.

Barrick says the tribunal rejected Pakistan’s final defence against liability on Monday and ruled the country violated terms of an investment treaty with Australia, where the Tethyan Copper Co. joint venture is based.

The tribunal will start proceedings to determine the size of the damages on March 22 with a ruling expected in 2018, Barrick said.

The Reko Diq project sits in the restive province of Balochistan, which shares a border with Afghanistan and Iran.

Barrick said the Reko Diq project was estimated to have cost more than $3 billion (U.S.) to develop and is one of the world’s largest undeveloped copper and gold deposits.

Riaz Haq said…
World Bank ruling against Pakistan shows global economic governance is broken


http://theconversation.com/world-bank-ruling-against-pakistan-shows-global-economic-governance-is-broken-120414


The International Centre for the Settlement of Investment Disputes was established in 1966 as part of the World Bank Group. The centre oversees arbitrations between foreign companies and states in a process known as the investor-state dispute settlement (ISDS).

ISDS is hugely controversial for a variety of reasons ranging from the secrecy of the hearings to the substantial costs associated with defending a claim and the ability of corporations to challenge health and environmental measures.

The case that cost Pakistan $5.8 billion did not revolve around such measures but rather the decision of a provincial government to backtrack on a sweetheart deal that had been offered to a mining firm, allegedly the result of corruption. Leaving the merits of the case to one side — it is difficult to assess the tribunal’s reasoning when the award isn’t public, after all — let’s take a closer look at the payout.

According to the mining company — Tethyan Copper, partially owned by Canada’s Barrick Gold — it spent US$220 million on exploration activities before things went south. One might argue that a fair outcome, if the government was solely to blame, would be for the award to cover these sunk costs. Instead it was more than 25 times that amount. That is because the tribunal chose to award the company “lost future profits” from the project.

Arbitrators don’t have crystal balls. They don’t know what the value of a mineral will be in a year, let alone 30 years. And they are lawyers, not market analysts. So how do they decide how much profit a firm would have made in a hypothetical alternative future?

The answer is, partially, that they rely on “experts” brought in by each of the parties to the dispute. These experts provide a best guess for what they think a project is worth. International law scholar Robert Howse calls this “junk science.”

Unsurprisingly, the state’s expert often provides a low-ball estimate for the value of a project and the investor’s expert gives an inflated value. Faced with this discrepancy, arbitrators will often choose to go down the middle and pick an arbitrary value. Tethyan Copper had originally sought more than US$11 billion in damages, suggesting that the tribunal in this case may have taken this approach.

Riaz Haq said…
#Pakistan's Golden Opportunity in #Balochistan. It has large deposits of #gold, #copper, #chromite, #bauxite (aluminum), iron ore, rubies, emeralds, topaz, mineral salt and coal located in Balochistan whose land area is the same as Germany's https://stratforshare.page.link/9EMa via @Stratfor

Highlights
Until Pakistan and the Tethyan Copper Co. settle their dispute, development of the country's Reko Diq gold and copper mine will languish, leaving a potentially abundant revenue stream dry.
Growing foreign investment in the sector will heighten the need for an effective dispute resolution mechanism.
Unless Pakistan implements the necessary reforms to attract foreign investment, the country's mining sector will not grow beyond its current 3 percent contribution to Pakistan's gross domestic product.

In a remote and arid corner of southwestern Pakistan, Islamabad has found itself embroiled in a difficult battle: a multibillion-dollar dispute with a global mining company over one of the world's richest untapped deposits of copper and gold. In July, the World Bank's International Centre for Settlement of Investment Disputes (ICSID) ordered Pakistan to pay $5.9 billion in damages to the Tethyan Copper Co., a joint venture between Canada's Barrick Gold Corp. and Chile's Antofagasta PLC. The ruling stems from a 2012 case that Tethyan lodged at the ICSID against Islamabad for failing to issue a license to mine gold and copper at the Reko Diq site.

The case draws attention to the rich resources of Balochistan, Pakistan's rugged southwestern frontier in which Reko Diq is located, as well as the tug of war between domestic Pakistani law and international arbitration in resolving investor disputes. But above all, the Reko Diq affair shines a light on Pakistan's numerous underground resources and its broader failure to exploit them — something that will continue to haunt the country if it is to fulfill Prime Minister Imran Khan's goal of rapidly ramping up foreign investment.

The Big Picture
Pakistan's Balochistan province plays a vital role in the China-Pakistan Economic Corridor because of its location on the Arabian Sea. It's also known for its resource riches that include an abundance of gold and copper deposits. But a longstanding dispute between the government and a mining company point to the need for reforms, without which mining's contribution to Pakistan's economy won't exceed 3 percent.


.....Its strategically located coastline faces vital shipping lanes in the Arabian Sea, including traffic destined for the Strait of Hormuz. As a result, Balochistan is the site of a variety of projects as part of the multibillion-dollar China-Pakistan Economic Corridor, which aims to create a direct overland route linking western China and the Arabian Sea through Balochistan's port of Gwadar. At the same time, however, Balochistan is also home to an insurgent movement that seeks independence from Pakistan on cultural and economic grounds; indeed, Chinese investment in Balochistan has exacerbated long-standing separatist grievances of foreign exploitation in the province.

The mine itself is located in Chagai, Pakistan's largest and westernmost district. According to Tethyan, Reko Diq contains 2.2 billion metric tons of mineable ore that could yield 200,000 metric tons of copper and 250,000 troy ounces of gold annually for over half a century. To extract the precious metals, the company must shovel, crush and grind the ore into a fine powder before converting it into a slurry concentrate for transport through a 682-kilometer underground pipeline to Gwadar. At the port, the company plans to dry the concentrate before loading it onto ships for smelting abroad.

But for all of its lucrative potential — $353 million annually at current gold and copper rates — the development of Reko Diq has stagnated because of the long-running legal battle that culminated in last month's $5.9 billion fine.

Riaz Haq said…
How #WorldBank Arbitrators Mugged #Pakistan . The latest shakedown is a $5.9 billion award against Pakistan’s government in favor of two global #mining companies for an illegal #copper-#gold project that was never approved or carried out. Project Syndicate

by Jefferey Sachs

https://www.project-syndicate.org/commentary/world-bank-corrupt-arbitration-ruling-against-pakistan-by-jeffrey-d-sachs-2019-11


Thanks to the World Bank’s flawed and corrupt investment arbitration process, the rich are making a fortune at the expense of poor countries. The latest shakedown is a $5.9 billion award against Pakistan’s government in favor of two global mining companies for an illegal project that was never approved or carried out.

NEW YORK – Wall Street hedge funds and lawyers have turned an arcane procedure of international treaties into a money machine, at the cost of the world’s poorest people. The latest shakedown is a $5.9 billion award against Pakistan’s government in favor of two global mining companies – Antofagasta PLC of Chile and Barrick Gold Corporation of Canada – for a project that was never approved by Pakistan and never carried out.


Here are the facts.

In 1993, a US-incorporated mining company, BHP, entered into a joint venture (JV) with the Balochistan Development Authority (BDA), a public corporation in Pakistan’s impoverished Balochistan province. The JV was set up to prospect for gold and copper, and in the event of favorable discoveries, to seek a mining license. BHP was not optimistic about the project’s profitability and dragged its feet on exploration. In the early 2000s, it assigned the prospecting rights to an Australian company, which created Tethyan Copper Company (TCC) for the project.

In 2006, Antofagasta acquired TCC for $167 million, and sold half to Barrick Gold. Soon after the purchase, however, the original JV agreement with BHP was challenged in Pakistan’s courts. In 2013, the Pakistan Supreme Court found that the JV’s terms violated Pakistan’s mining and contract laws in several ways and declared the agreement – and thus the rights claimed by TCC – to be null and void.

Specifically, the Court ruled that the BDA did not have authority to bind Balochistan to the terms of the JV agreement; that it awarded the contract without competition or transparency; and that it had greatly exceeded its authority and violated the law by promising extensive deviations from the rules normally applicable to mining projects. Moreover, the JV failed to obtain, and even to pursue, many mandatory approvals from the state and federal governments, and BHP failed to undertake prospecting in a timely manner required under the mining law.

The Supreme Court’s decision came after years of public-interest litigation challenging the deal for violations of domestic law and the rights of the public. In the meantime, the BDA’s chairman was found to have conflicts of interest and to be living beyond the means afforded by his official salary, which in the Court’s words was tantamount to corruption.
Riaz Haq said…
How #WorldBank Arbitrators Mugged #Pakistan . The latest shakedown is a $5.9 billion award against Pakistan’s government in favor of two global #mining companies for an illegal #copper-#gold project that was never approved or carried out. Project Syndicate

by Jefferey Sachs

https://www.project-syndicate.org/commentary/world-bank-corrupt-arbitration-ruling-against-pakistan-by-jeffrey-d-sachs-2019-11

In a normal world, the Court’s judgment would be respected absent proven evidence of corruption or other wrongdoing against the justices. But in the world we actually inhabit, the so-called international rule of law enables rich companies to exploit poor countries with impunity and disregard their laws and courts.

When TCC lost its case in Pakistan’s Supreme Court, it simply turned to the World Bank’s International Center for the Settlement of Investment Disputes (ICSID), in complete disregard of Pakistan’s laws and institutions. A panel of three arbitrators with no expertise in or respect for Pakistan’s legal system ruled that TCC deserved compensation for all future profits that it allegedly would have earned if the non-existent project, based on a voided agreement, had gone forward!1

Because there was no actual project, and no agreement for one, the arbitrators had no basis to say what terms – royalties, corporate taxes, environmental standards, land area, and other basic provisions – the governments of Balochistan and Pakistan would have set. In fact, disagreement on many of those terms had stalled negotiations for years.

Nonetheless, the ICSID panel arbitrarily decided that TCC would have had the right to mine 1,000 square kilometers, though the mining law forbade licensing such a vast area. The arbitrators ruled that TCC would have received a tax holiday for 15 years, even though there is no evidence that such a tax holiday was in the offing – or even legal. The arbitrators decided that TCC would have benefited from a royalty rate several percentage points below the mandatory statutory rate, though there is no reason why Pakistan would have set such a low rate.

The arbitrators also ruled that TCC would have met all environmental standards, or that the government would have exempted TCC from relevant requirements, though the mining area is in a desert region subject to extreme water stress, and the mining project would have demanded vast amounts of water. And the arbitrators ruled that to obtain the land needed for TCC’s pipeline, the government would have taken it from its owners and inhabitants.

The arbitration ruling is utterly capricious. An illegal project, declared null and void by Pakistan’s Supreme Court and never pursued, was found by the World Bank’s arbitration panel to be worth more than $4 billion to TCC’s owners, who had paid $167 million for it in 2006. Moreover, the tribunal declared that Pakistan must compensate TCC in full, with back interest, and cover its legal fees, raising the bill to $5.9 billion, or roughly 2% of Pakistan’s GDP. It is more than twice Pakistan’s entire public spending on health care for 200 million people, in a country where 7% of children die before their fifth birthday. For many Pakistanis, the World Bank’s arbitration ruling is a death sentence.

The ICSID is not an honest broker. One of the tribunal members in the TCC case is using the same expert put forward by TCC for another case in which the arbitrator is acting as counsel! When challenged about this obvious conflict of interest, the arbitrator refused to step down and the ICSID proceeded as if all were normal.

Thanks to the World Bank’s arbitrators, the rich are making a fortune at the expense of poor countries. Multinational companies are feasting on unapproved, non-existent projects. Fixing the broken arbitration system should start with a reversal of the outrageous ruling against Pakistan and a thorough investigation of the flawed and corrupt process that made it possible.
Riaz Haq said…
#Pakistan's #copper #export to #China up 400%
in 3 years from $106 million to $550 million in 2019. Metallurgical Corporation of China (MCC) that is #mining Saindak expects to grow export to $10 billion per year once Reko Diq is settled. #economy #CPEC https://nation.com.pk/31-Mar-2020/pakistan-copper-s-export-to-china-increase-by-400-percent

Pakistan has confirmed a 400 percent increase in the export of copper products to China in the recent year.

According to a report published by China Economic Net, this huge rise in the export of copper and other copper-related products from the country has helped to boost local industry.

Three year back exports of copper from Pakistan were of only 106 million dollars, however, In the year 2019, copper exports to China have risen to 550 million dollars.

The current rise in exports is seen though the largest copper reserves of Pakistan "Reko Diq project" which is under dispute at the international court of justice.

If the dispute settles down shortly then one of the biggest players in the copper industry of China, Metallurgical Corporation of China (MCC) that is mining in Saindak mines expects to take the export to $10 billion per year.
It is to be noted that mining and processing of copper requires a high-end technology and the expertise of Chinese copper processing companies like MCC have played a very vital role to develop the Saindak copper mines from the year 1995 onwards.

Talking to CEN, Director of Administration Office Song Guozhao said that Saindak Copper-Gold Project is designed to produce and process 12,800 tons of copper ores per day (4.25 million tons per year); currently, the output of copper blister is about 13,000 tons annually.

“By the end of February 2020, the project has a total of 1,977 employees, 256 Chinese and 1,721 Pakistani, of which the number of local employees accounts for 87% of the total,” he mentioned.

He stated that as the Pakistani managerial and technical personnel continuously improve their capacity, the company will further, carry forward the process of localized administration.

Saindak Copper-Gold Project composes of three ore bodies, that is the South, the North and the East Ore Bodies (SOB, NOB & EOB). The MCC has been working in SOB and NOB, and the mineable resources in the two ore bodies are going to run out soon.

The Chinese and Pakistani sides are in close communication on its feasibility. Since the other two ore bodies are going to run out of resources soon,

it is imperative to find supplementary resources so that the development of the project would be sustained, the employment of local people will be secured, and more continuous contributions will be made to local economy, Song said.

Saindak is an open-pit mining project rather than underground mining, so there is no sinking problem in the mining area. We have been operating the project for so many years and we have a good knowledge and understanding of the country, especially the mining industry, cultural environment, religious practices in Balochistan.

We also enjoy sound cooperation with federal and local governments and other partners in Pakistan. Given this, we are willing to expand our investment in the mining sector in Pakistan.

We are interested in the development of the H4 and Reko-Diq, and we hope that the Pakistani government will conduct international tenders for these projects as soon as possible, Song added.

Talking with CEN, Commercial Counselor of Pakistan Embassy in China Badar u Zaman said that the Pakistani government is eager to increase the exports of copper to China.

The commercial section of the embassy is putting huge efforts which have resulted in a 400 percent increase in copper exports in the last two years.
Riaz Haq said…
#Pakistan's #copper #exports to #China jump 400% to $550 million last year from $106 three years ago. https://swarajyamag.com/news-brief/pakistan-gains-from-sterlite-plant-closure-in-tns-thoothukudi-its-copper-exports-to-china-surge-400-per-cent via @swarajyamag

The Sterlite copper plant was ordered shut by the Tamil Nadu government on 28 May 2018 after protests demanding its closure turned violent.

In the violence that occurred on 22 May 2018, at least 13 persons were killed when police fired at protesters who turned violent and began damaging vehicles and properties.

The protests demanding the closure of Sterlite began in February 2018 after Vedanta launched works for further expansion of the Thoothukudi plant.

The Sterlite Copper plant contributed 40 per cent of the country’s total copper production when it was forced to shut down.

The Union government told Parliament earlier this year that the plant’s closure had led to a domino effect with imports rising and exports slipping.

In view of the Thoothukudi plant’s closure, India became a net importer of copper after 18 years. Imports more than doubled to 92,990 tonnes during the 2018-19 financial year, while exports dropped to a meagre 47,917 tonnes from 3.78 lakh tonnes.

A total of $605.20 million of precious foreign exchange was spent on imports during the 2018-19 financial year, while $684.02 million was spent during the April-September period of 2019-20 financial year.

According to Trading Economics, Pakistani exports of copper and articles increased over 66 per cent to $353.87 million in 2019 from around $210 million the previous year.

The News said that Pakistan increased its exports to China through one of its largest copper reserves, the ‘Reko Diq project’.

Reko Diq is a small desert area town in Balochistan province bordering Afghanistan and Iran. The “Reko Diq project” is under dispute since Anglo-Australian mining firm BHP discovered large deposits of gold and copper ores.

BHP sold its stakes to Tethyan Copper Company (TCC) but the Balochistan government failed to acknowledge it.

TCC went to the World Bank’s International Centre for Settlement of Investment Disputes and got $5.95 billion order in its favour.

However, the dispute is yet to be resolved.

China’s biggest copper industry player, Metallurgical Corporation of China, is looking forward to increasing Pakistan copper exports to $10 billion a year if the “Reko Diq project” dispute is resolved.

The Metallurgical Corporation is executing the Saindak gold-copper project in Balochistan since 1995.

The Saindak project produces 4.5 million tonnes of copper ores a year that helps smelt 13,000 tonnes of copper blister annually.

Since the resources are fast depleting at Saindak, the Chinese company is keen on taking over the operations at the ‘Reko Diq project’.

Beijing has asked Pakistan to call for international tenders for this and another project called H4, even as Islamabad sounds confident of increasing its copper exports to China.
Riaz Haq said…
#Pakistan government has wasted Rs58 billion in subsidies to #Karachi-based Pakistan #steelmill (PSM) since 2008 when ex Chief Justice Iftikhar Chaudhry blocked its #privatization by #Musharraf. The Express Tribune

The federal government has so far disbursed Rs58 billion to the Pakistan Steel Mills (PSM) through five bailout packages since 2008-09 to ensure survival of the country’s largest industrial unit, said a report compiled by the Ministry of Industries and Production.

The report was submitted to the Supreme Court on Saturday – days after the Economic Coordination Committee (ECC) of the Cabinet – the country’s top forum for economic decision making – decided to terminate all employees of the PSM which is not functioning since 2015.

A three-judge apex court bench, headed by Chief Justice of Pakistan Gulzar Ahmed is also going to take up on June 9 a slew of petitions filed against the ECC decision.

The ministry compiled the report to respond to a query of CJ Gulzar who while heading a three-judge bench on March 12 wondered why the PSM had employed thousands of people and how it was giving salaries to them when the mills was not operating for years.

The bench had also asked the federal government to attend to all PSM affairs immediately.

According to the report, the PSM owes Rs22 billion to the Sui Southern Gas Company –a state owned gas supply company – as principal amount. The National Bank of Pakistan (NBP) – a state owned bank – also extended a loan of Rs36.42 billion to the PSM and the loan is yet to be paid.

The report said the PSM stopped commercial function in 2015 without formulating any human resource plan of its 14,753 employees. The number of PSM employees declined to 8,884 in 2019 wherein 2,233 are officers and 6,651 are workers.

The government of Pakistan pays Rs355 million for monthly net salaries of the PSM employees and it doesn’t include the component of leave encashment, provident fund and gratuity.

So far the government has released Rs34.01 billion as net salaries to the PSM employees. The government has also made a payment of Rs1. 266 billion to deceased employees on compassionate grounds to mitigate suffering of families.

It said the government constituted Expert Group in 2018 with an object to invite professional recommendations for the revival of PSM.

The group primarily recommended that the government should establish a Public Private Partnership (PPP) to raising the necessary capital investment and obtaining technical expertise for revival of PSM.

It recommended that government should appoint a technical advisory consortium (TAC) to design an appropriate public-private partnership structure after ensuring a transparent international competitive bidding process to select a preferred bidder and propose and implement liability settlement plan.

The report revealed that a financial adviser has been appointed and working in collaboration with the Privatization Commission. The PSM board of directors on April 16 approved a Human Resource Retrenchment Plan that was presented before the ECC of the Cabinet.

The ECC directed the PSM to resubmit the proposal after reformulating it with consultation of the PSM management so that its scope could be extended to the maximum number of the PSM employees along with disbursement and payment plan.

Later, the PSM with the approval of its board of directors shared revised Human Resource Rationalization Plan to retrench 100 per cent workforce. The ECC on June 3 approved this plan with direction that payment to the PSM employees shall be contingent upon the decision of the apex court.

“The payment calculated by the PSM shall be final once and for all and shall not accrue any further liability against the government of Pakistan and the PSM in this regard,” said the report.
Riaz Haq said…
#Pakistan $6 Billion Reko Diq (copper-gold mine) Penalty Might Get Annulled After Arbitrator Found Guilty. #ICSID has also annulled penalty imposed on #Spain by the same arbitrator after finding him guilty of partiality

https://propakistani.pk/2020/06/16/pakistans-6-billion-reko-diq-penalty-might-get-annulled-after-arbitrator-found-guilty/


The prospects of Pakistan’s $6 billion penalty in the Reko Diq case to be waived off have received a significant boost.

Recently, the International Centre for Settlement of Investment Disputes (ICSID) nixed a €128 million penalty imposed on Spain after an arbitrator Stanimir Alexandrov, who had represented the claimants in the case against Pakistan as well, was found guilty of conflict of interest.

It is pertinent to note that ICSID has annulled an award for the first time due to the arbitrator’s lack of impartiality and independence.

Following the development, Pakistan has once again knocked on ICSID’s door for the annulment of the $6 billion penalty in the Reko Diq case.

Legal experts have suggested Pakistan should raise objection over the inclusion of Stanimir Alexandrov of Bulgaria in the tribunal.

Pakistan’s legal team Allen & Overy LLP had also previously applied for the disqualification of the Bulgarian arbitrator from the tribunal but failed to convince the ICSID.

In July 2019, the ICSID had imposed a $6 billion penalty on Pakistan following the Supreme Court’s decision in 2011 which revoked the mining lease of Tethyan Copper Company (TCC), a consortium of Chilean and Canadian companies, for the Reko Diq project.

ICSID had concluded that Pakistan unlawfully annulled the lease of TCC and violated the Australia-Pakistan bilateral investment treaty.

Reko Diq, a small town in Chagai, Balochistan, has the biggest gold and copper deposits in Pakistan. Once fully developed, 250,000 ounces of gold and 200,000 tons of copper can be extracted from the mines each year for the next 50 years.
Riaz Haq said…
#Pakistan seeks relief from $5.8 Billion fine over Reko Diq #copper/#gold mining lease in #Balochistan. Economist Jeffrey Sachs calls it “mugging” of Pakistan. Others question reasoning behind huge award, over 2X biggest prior awards. .https://finance.yahoo.com/news/pakistan-seeking-relief-5-8b-055830333.html?soc_src=social-sh&soc_trk=tw via @YahooFinance


Pakistan is seeking the reversal of a $5.8 billion penalty imposed by an international tribunal for denying a mining lease to an Australian company, saying that paying the fine would hinder its handling of the coronavirus pandemic.

The Reko Diq district in southwestern Pakistan’s Baluchistan province is famed for its mineral wealth, including gold and copper. Prime Minister Imran Khan’s government considers it a strategic national asset, though instead of yielding a bonanza the Reko Diq mining project may cost the country dearly.

The World Bank’s International Center for Settlement of Investment Disputes is considering Pakistan's appeal against enforcing the penalty over its cancellation of the Reko Diq mining lease for Tethyan Copper Corp., a 50-50 joint venture of Barrick Gold Corp. of Australia and Antofagasto PLC of Chile.

In the meantime, the Baluchistan government has set up its own company to develop the mine: As prices for commodities surge, with gold recently at more than $2,000 an ounce, turning fiasco to fortune is all the more appealing.

Pakistan and Tethyan both have signaled a willingness to discuss alternative solutions, such as a settlement, but the status of any talks on a deal is unclear. Officials on the Pakistan side said they have not been in direct contact and no specific settlement has been proposed.


--------------

By then, Tethyan had invested $220 million in Reko Diq. The Australian mining company sought help from the World Bank arbitration tribunal in 2012, and it ruled against Pakistan in 2017, rejecting an earlier decision against Tethyan by the Pakistan Supreme Court.

The miner originally sought $8.5 billion. The tribunal opted to use a formula for calculating damages for the cancelled lease based on the assumed profits Tethyan might have earned from the mine over 56 years, said an official at the Justice Ministry who spoke on condition he not be named because he was not authorized to speak to media about the case.

The resulting fine, of nearly $6 billion including the damages award and interest, is equal to about 2% of Pakistan’s GDP and is on a par with a recently agreed upon bailout package for Pakistan from the International Monetary Fund.

Economist Jeffrey Sachs described it as a “mugging” of Pakistan. Other experts also have questioned the reasoning behind huge award, which is more than double the size of the largest similar arbitration award, in the case between Dow Chemical and Kuwait Petrochemical Corp.

Documents explaining the award suggest one intention was to penalize Pakistan for having violated its investment treaty with Australia.

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