Daily Times

Many media reports and some politicians have recently expressed fears that after the huge fine of $700 million imposed on Pakistan in the IPPs case by international arbitrators, a much bigger and devastating fine is coming our way in the Reko Diq case.

Since I started the initial media reporting on the subject some years back and then Supreme Court Chief Justice Iftikhar Chaudhry quickly took suo moto notice of the matter, I still maintain some of my potent information sources and contacts.

For any ordinary citizen, the situation may look bad in the International Centre for Settlement of Investment Disputes (ICSID) — the World Bank-led arbitration court. But it is not too bad. Though we have lost the case to the Canadian-Chilean consortium and now damages/fine will be imposed in 2018, but in the present economic conditions there is no reason to panic.

The outcome of the case has given us the opportunity to decide once again to exploit and use the huge asset in our national interest and there are many opportunities and potential bidders in the market. Gold prices are projected to be go up in coming years.

What is good is that Pakistan got rid of an international consortium that was about to rob, steal and deprive the country of its biggest mineral resource for peanuts, in cahoots with vested political interests that better not be named as they are now irrelevant. Nobody can steal gold buried under our soil, until we throw it away for our selfish corrupt offshore accounts.

The latest situation is that Pakistan will be fined in 2018 and some interested parties are sounding alarm bells that the amount of the fine could be billions of dollars, as the demand is for $11.5 billion.

Though we have lost the case to the Canadian-Chilean consortium and now damages/fine will be imposed in 2018, but in the present economic conditions there is no reason to panic

I ran a Google search for similar fines imposed by international arbitrators in the last few years the world over and found that the maximum fine imposed was $1.77 billion and the average was below half a billion dollars. Pakistan falls in a category where it could be fined $350 to $500 million at the most.

In October 2012, the ICSID awarded Occidental $1.77 billion against Ecuador and $380 million fine was imposed on the same country in another case in February this year.

Though it is no small sum of money but in terms of the overall Reko Diq contract these numbers are peanuts, which can easily be absorbed by potential bidders, if properly negotiated. The good news is that Pakistan can now quickly seek international bidders and negotiate the terms of the deal on its own terms.

What was worrying me was that under pressure and in panic, Pakistan could have compromised on this treasure. Not anymore because my sources and contacts say the Armed forces are directly involved and monitoring the situation.

What had sounded all the alarms and raised all antennae was a report in a Karachi business daily that under CPEC, Pakistan planned to establish nearly 50 industrial parks and mineral processing zones, of which 27 were to be granted the status of Special Economic Zones (SEZs) and Mineral Processing Zones (MEZs), mostly in Balochistan.

The proposed MEZs are to be located in Khuzdar (chromite, antimony), Chaghi (chromite), Qila Saifullah (antimony, chromite), Saindak (gold, silver), Reko Diq (gold), Kalat (iron ore), Lasbela (manganese), Gwadar (oil refinery), and Muslim Bagh (chromite).

According to an international expert, at the current London Metal Exchange rates, Reko Diq’s ‘in ground value’ alone is worth $230 billion, and its ‘revenues after recovery’ will be $184 billion and ‘notional net revenue’ $100 billion. This is calculated at 47 million ounces of gold at $1200 per unit and 61 billion pounds of copper at $2.85 per pound. The total profit of $110 billion in say 45 or 50 years is after deducting operating costs of about $74 billion.

So Reko Diq alone can give us more than twice the cost of the entire CPEC. Then what is the point, and in whose interest, to include it in other run of the mill CPEC projects.

Of the total $110 billion profit, Pakistan can negotiate a $30 to $40 billion only if free international bidding is done now and full security provided to companies, which offer the best bid.

My contacts say many bidders are ready and at least one has already written to the Prime Minister, the Army chief and 10 other key decision-makers in the country that they are ready to invest the initial $4 billion for five years and negotiate a win-win deal for all.

The good news is that these bidders are ready to include in their offer to pay any penalty that may be imposed by the arbitrators, as they do not expect a fine of over $500 million.

Smart dealers/brokers can also negotiate that Pakistan needs dollars to boost its economy now, so for the first 10 years the profits may be shared at a 50-50 ratio and then adjusted later according to the overall bid offer that is accepted.

If Pakistan gets a deal of 70:30 or 65:35, its total earnings from Reko Diq over a 40 or 50 year period will be around $30 to $35 billion. We can negotiate, and some bidders may be ready, to offer say $1b or $1.5 billion a year for first 10 years and adjust the rest later.

No CPEC project will give that kind of money, but if we can handle this properly we may be able to get a better deal in CPEC loans as well, and also make our trade and current account deficit manageable.

What is then needed now is to disconnect the Reko Diq from the CPEC, immediately start the process of international bidding, do some smart negotiations under expert supervision with input from the Armed forces. We should use this huge national asset to help the economy now, when it is needed the most. All is not lost but the situation can be turned around for the country’s benefit.

The writer is a senior journalist. Twitter: @Ssehbai1

Published in Daily Times, October 20^th 2017.