Fool’s gold Pakistan could have made
big money from gold mines, now it’s paying penalties. HUSAIN HAQQANI 16 July, 2019
The
$5.8 billion penalty in the Reko Diq case should make Pakistanis reconsider the
military’s overwhelming presence in their lives.
At a time when
Pakistan’s debt-ridden economy cannot afford further bleeding, a World Bank
arbitration court has ordered Imran Khan’s government to
pay $5.8 billion in damages to a multinational mining giant, which discovered
gold and copper deposits in Balochistan only to have its mining lease
arbitrarily cancelled.
Pakistan also
lost another arbitration case against the asset recovery firm
Broadsheet LLC, and has been ordered to pay $33 million in damages and costs.
The company had been hired by Pakistan’s National Accountability Bureau (NAB)
to search for the hidden assets of former Prime Minister Nawaz
Sharif’s family. Broadsheet LLC’s contract was also terminated without
regard to international contract law.
Both cases
demonstrate how Pakistan’s economy suffers when the hyper-nationalist sentiment
of an intrusive and politicised military interferes with economic
decision-making. Within Pakistan, the military establishment manages to get its
capricious decisions endorsed by a subservient judiciary. But Pakistan has
faced a long streak of negative judgments in international arbitration
tribunals and courts because of overly simplistic choices made
by its generals.
Without the
military’s interference, the large gold
and copper deposits found at Reko Diq, Balochistan, would have
brought in revenues for Pakistan instead of a $5.8 billion penalty. The
deposits would have been exploited by Tethyan Copper, a joint venture between
Chile’s Antofagasta and Canada’s Barrick Gold, and Pakistan would have shared
the profits with the multinational corporation with mining experience.
Also read: Modi isn’t about to change India into national security
state like Pakistan & bankrupt it
With the
military’s backing, nuclear scientist Samar Mubarakmand demanded ejection
of foreign companies from Reko Diq in 2011, and subsequently started mining and smelting operations
with his own team.
The Supreme
Court, then headed by activist Chief Justice Iftikhar Chaudhry, ordered the
cancellation of the Tethyan Copper contract in 2013.
In January 2015,
the Pakistan military’s magazine Hilal published an article by Samar Mubarakmand, described
as ‘an eminent scientist who led the team of scientists and engineers to
conduct Pakistan’s Nuclear Tests at Chagai in May 1998’. The article titled ‘Destined Towards a Rich
Pakistan: Reko Diq Mineral Resources’ suggested that Pakistan did not need to
pay a foreign company to extract its minerals. It claimed that scientists who
succeeded in making nuclear weapons for Pakistan could also make it rich by
developing its natural resources.
Mubarakmand’s
pitch was received well by the military as well as xenophobic civilians.
Balochistan has long been a troubled province and, in the official Pakistani
view, easy prey to the usual foreign suspects.
The
hyper-nationalists thought the judgment of the country’s highest court was
enough to turn a multinational company away without sufficient
compensation. Some of the Reko Diq mines were turned over to
the Metallurgical Corporation of China (MCC).
The Chinese are, in Pakistani folklore, more mindful of Pakistan’s interests
and security needs than Westerners and can be trusted to never have any
truck with the Indians who allegedly encourage Baloch separatism.
But the Chinese
could not extract even an ounce of Reko Diq’s copper or gold, nor could
Mubarakmand’s team of patriotic scientists. Although the Chinese are still said to be involved in the mining
project as part of the China-Pakistan Economic Corridor.
More recently,
the Pakistan army’s Frontier Works Organisation (FWO) – a road and buildings
constructor – has been involved in the Reko Diq project, even
though it has no experience whatsoever of complex copper mining.
The World Bank’s
International Center for Settlement of Investment Disputes (ICSID)’s award in
favour of Tethyan Copper should serve as a reminder that military officers and
nuclear scientists with a greater claim to patriotism are not the best persons
to make decisions about commercial mining or understanding the inviolability of
international contracts. But it is unlikely that the lesson will be learnt any
time soon.
Pakistan’s
generals and officers of the ubiquitous Inter-Services Intelligence (ISI)
continue to believe that they are better positioned to define and defend
Pakistan’s national interest. This belief persists in the area of economic
decision-making even though economics and contract law are not taught at
Pakistan Military Academy or the Army Staff College.
Corruption
charges against civilian politicians have been used to wriggle out of
international contracts. During the late 1990s, contracts of several
Independent Power Producers (IPPs) funded by the World Bank were terminated. In 2011, several Rental Power
Projects (RPPs) were cancelled amidst allegations that the
civilian officials at the time received kickbacks from companies from the
United States, Turkey and UAE.
The militarised
anti-corruption drive is costing Pakistan more than the recoveries in unlawful
assets of corrupt politicians or officials. The Broadsheet case, for example,
shows how the generals hired an international firm to help them find hidden
overseas assets but then lost the opportunity of recovering these assets by
cancelling the asset recovery firm’s contract.
Now, not only
won’t Pakistan fail to recover the assets identified by Broadsheet, it would
have to pay the firm compensation for its work. Huge arbitration awards are
hurting Pakistan’s already thin pocketbook. In 2017, Turkish company Karkey
Karadeniz Elektrik Uretim AS won a $780 million award from ICSID over the
unlawful termination of its rental power project.
There are other
examples of militarised decision-making affecting Pakistan’s economy.
Privatisation of large loss-making state enterprises, such as Pakistan Steel,
and Pakistan International Airlines (PIA), has often been contemplated
but shelved due
to ‘national security concerns’. Xenophobic nationalism interferes with travel
facilities for foreign businessmen and corporate executives as well as with
large investment projects like the Reko Diq copper and gold mines.
Pakistan’s
military and intelligence services have often looked upon managing the economy
as integral to their remit of ensuring Pakistan’s security. One of the
arguments for each of Pakistan’s four direct military coups d’état and for
other military interventions in politics was the need to maintain equilibrium
in the government’s finances.
The military has
often spearheaded anti-corruption drives, although evidence suggests
that public sector corruption in Pakistan has increased, not
diminished, over the years, including during military regimes. It is not
unusual for Pakistan’s national security apparatus to intervene directly or
behind-the-scenes for the purpose of denying a local business or foreign
investor their legitimate dues from the federal or provincial governments.
The
permanent state apparatus wants to be able to sidestep constitutional and
legal restrictions, including the opportunity to get out of inconvenient
contractual obligations, by any means necessary. But that is not how the real
world works. Cancelling contracts and juggling aid packages are not a
substitute for land reform and sustained modernisation of agriculture, training
of a skilled workforce, and nurturing of innovation or entrepreneurship.
The $5.8 billion
penalty in the Reko Diq case should make Pakistanis reconsider the military’s
overwhelming presence in their lives. Pakistan’s recurrent economic crises are
partly the product of general disdain towards pursuit of economic activity in a
culture that extols the virtues of the warrior more than that of the trader.
Husain Haqqani,
director for South and Central Asia at the Hudson Institute in Washington D.C.,
was Pakistan’s ambassador to the United States from 2008-11. His books include
‘Pakistan Between Mosque and Military,’ ‘India v Pakistan: Why Can’t we be
Friends’ and ‘Reimagining Pakistan.’ Views are personal.
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