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All that glitters…

Dispute over the Reko Diq mines may prove to be a blow to the impoverished economy

All that glitters…
Reko Diq site: Lack of appropriately educated and trained manpower will continue to haunt Pakistan for a long time.

Reko Diq had created the hope for an era of prosperity among the nation. However, due to inept handling, one of the biggest gold and copper reserves of the world at Reko Diq (Chaghai, Balochistan), yet remain to be exploited. Till minerals remain under the ground, they are worthless and of no consequence. But, once exploited, the minerals, especially gold, silver, copper etcetera, add to GDP and prosperity of nations.

For exploration at Reko Diq, an agreement — “Chaghai Hills Exploration Joint Venture Agreement” (CHEJVA) — was signed between the government of Balochistan and Australian mining company BHP in 1993, forming a de facto Public-Private Partnership. Under this agreement, the government of Balochistan had a 25 per cent interest in the joint venture while BHP held the remaining 75 per cent. However, till completion of the exploration stage, the agreement allowed the Balochistan government ‘free carry interest in this project.’ It meant that the government of Balochistan was not obligated to take any risk investment in exploration.

Deciding not to further develop exploration activities in the area, BHP in accordance with CHEJVA terms, offered the government of Balochistan to acquire BHP’s 75 per cent share in the project, but the Balochistan government declined the offer. Subsequently, with the Balochistan government’s approval, Tethyan Copper Company-Pakistan (TCCP) acquired BHP’s holdings and it managed the mine till 2008.

TCCP was a joint venture between the government of Balochistan, with a 25 per cent interest, and Antofagasta Plc of Chile and the Barrick Gold Corporation of Canada. For the Reko Diq project, TCCP and BDA (Balochistan Development Authority) held an exploration license, named EL-5 covering exploration work for an area of 1,000 sq. km approximately. Subsequently, TCCP had also acquired exploration licenses for EL-6 and EL-8 fields on 100 per cent ownership under Balochistan Mineral Rules, 2002. After making preliminary studies, the TCCP submitted a bankable feasibility report of this project to the government on August 26, 2010.

On the expiry of TCCP’s licence, the government of Balochistan decided not to extend the mining concession to the company. Following a dispute, the Supreme Court, in an order passed in January 2013, declared void the Chaghai Hills Exploration Joint Venture Agreement (CHEJVA) signed between the Balochistan government and Australian mining company BHP in 1993.

Due to inept handling, one of the biggest gold and copper reserves of the world at Reko Diq (Chaghai, Balochistan), yet remain to be exploited. Till minerals remain under the ground, they are worthless and of no consequence.

As the litigation continued, TCC also approached the World Bank’s International Centre for Settlement of Investment Disputes (ICSID), initially citing breach of contract. However, the ICSID denied its contention of mine ownership. The company then argued for loss of investments amounting to $400 million. An arbitration tribunal of the ICSID has confirmed that Pakistan had violated several provisions of its bilateral investment treaty with Australia, where TCC is incorporated, the company said in a press release issued by it on March 21, 2017. The arbitration claim was submitted by TCCP in 2012.

The dispute over the Reko Diq mines now appears to be headed for an out-of-court settlement. Instead of adding to Pakistan’s revenues and creating jobs for its citizens, the settlement amount may prove to be a blow to the impoverished country’s economy.

Located close to Saindak gold and silver project, Reko Diq had the potential to showcase Pakistan as a world class mining destination. The mineral resource at Reko Diq is estimated at 5.9 billion tons. From this resource, an estimated 2.2 billion tons of economically mineable ore, with an average copper grade of 0.5 per cent and an average gold grade of 0.3 grams per ton, can be processed to produce 2.2 billion pounds of copper (ten million tons) and 13 million ounces of gold in about 56 years of mine life. In other words, the estimated annual production of the Reko Diq project is expected to stand around 200,000 tons of copper and 250,000 ounces of gold contained in 600,000 tons of concentrate.

The copper and gold reserves discovered in Balochistan have been evaluated at 273 billion dollars approximately while, according to Dr. Samar Mubarakmand, the same kind of reserves have also been discovered in North Waziristan. Addressing a gathering at Government College University Lahore, on December 3, 2010, Dr. Samar Mubarakmand termed Pakistan “one of the richest countries of the world in terms of mineral resources and copper and gold reservoirs.” He said: “Pakistani students were capable of exploring and utilising the mineral reservoirs of the country. However, we need thousands of mathematicians, chemical analysts, engineers and other experts for exploration of the mineral resources at commercial scale. But, unfortunately, we have a very small number of education institutes of higher education, capable of producing quality manpower.”

Lack of appropriately educated and trained manpower will continue to haunt Pakistan for a long time. Of course, it is the result and direct consequence of neglecting education by the successive regimes in Pakistan. It is time that authorities wake up and start offering liberal incentives to talented students for pursuing higher education in the requisite areas of studies so that we can meet the need for educated and trained staff for undertaking such mega projects at the earliest possible.

Extracting minerals is a tedious, technically complex and cost intensive process, involving great expertise, especially when only one per cent of the mining projects reach the production stage. Furthermore, to dig and extract metal from the ore at mega level, an array of support facilities, like air-strip, colony for workers and their families, power generation facility and some other installations, involving expenditure in hundred millions of dollars, are required to be set up around the mining area.

Enormity of the Reko Diq mine and the ancillary projects can be assessed by the fact that almost 46 million man hours will be required to place the project in a working condition, using state-of-the-art heavy, but costly, machinery such as 360 tons haul trucks, Truck Loaders, Blasthole Drills and Electric Shovels, which are part and parcel of any serious mining venture.

Pakistan’s experience at Saindak Gold and Silver Project, which is located close to Reko Diq, and elsewhere tells that a project, with a profile such as that of Reko Diq — large-scale, low grade ore deposits — needed to be operated at the highest possible levels of efficiency to be profitable and to actually realise the fruits of mineral wealth. In the 1980s, the authorities attempted to run the Saindak project on their own, but failed due to political interference, inefficiency, corruption, overstaffing, lack of resources and appropriately trained staff, following which the project had to be entrusted to a Chinese company. If the government again engaged in such a venture without avoiding the factors that accounted for its failure at Saindak, what was the guarantee that it could run the project efficiently?

Given the situation, the best course would have been to split the field area into economically viable blocks (as has been done by the provincial government of Sindh at Thar) and the government of Balochistan may lease out one or two blocks initially and the remaining blocks on public-private-partnership basis or under any other suitable and more profitable arrangement at a later stage. Competition between the public and private sectors would have definitely produced better results when each of them would think that it was in competition with the other and must excel in giving good results. If the total area of the project was entrusted to a public sector entity, it is apprehended that given the level of greed and corruption, the new company may prove to be another white elephant needing constant dole outs from the government, like other mega companies in the public sector.

A peep in the manner our neighbouring countries are handling their mineral resources would provide a useful insight for handling the country’s mineral resources prudently. For instance, Iran has not only developed indigenous mining technology to extract gold and copper in a short span of time, but also export the finished copper products instead of exporting cheap raw material. While retaining 100 per cent wealth of their copper mines, Iran has also given exploration and mining licenses to foreign companies.

Iran’s official websites show that the Iranian government signed agreements with foreign investors very intelligently, keeping future strategic plans in mind. This has enabled Iran to prepare its own technically skilled human resource. Now, Iranian Industries Company (NICICo) can undertake not only new mining projects on its own, but also manufacture finished copper products for export.

Borrowing a leaf from Iran, in new and future projects the authorities would do well to make it obligatory upon the private sector companies to train Pakistani professionals in all the phases — from exploration to mining, extraction, refining and marketing, of the work involved in gold and copper extraction. This training should be of the level that Pakistani professionals could undertake any such new project, in future, at their own. In addition, all operations should remain open to Pakistani surprise checks and scrutiny and no one should be allowed to steal Pakistan’s wealth under a cloak of secrecy or protection of business interests.

Meanwhile, the authorities would do well to form a commission to determine what went wrong in this project, pinpoint the wrong-doers and punish them with a view to avoid lapses due to inept handling in future. 

Alauddin Masood

alauddin masood
The writer is a freelance columnist based at Islamabad. He can be reached at [email protected]

One comment

  • The ruling click is not interested in prosperity of the people Pakistan. because their prosperity is their death.How can they co mitt suicide.They shall try to devise the ways and mean to plunder and loot, if they can ?

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