China rescue option emerges as Pakistan slapped with $5.9bn fine

[VCheng]

I don't know what the process is like in Pakistan for that.

Pakistan goes by whims, not by law. And that is the problem.

 

[Verve]

Highly unlikely that China will get it all for $6b as suggested by Indoos here.

 

[niaz]

That or something akin to that....is what likely will end up happening.

They can get the mining permit and some kind of excise rate cut for operations (that amounts to some out of court settlement). But the sticking point could be the judgement by the Supreme Court of Pakistan that will need to be re-litigated and overturned?...because that is after all a ruling/verdict that still in play right now.

I don't know what the process is like in Pakistan for that.

Maybe a more knowledgeable person on the matter can comment.

@VCheng @niaz @Oscar @ziaulislam @ps3linux

This is a matter where the highest court of Land has already decided. This judgment may be totally arbitrary, it is a "Judgment". I have no legal background and regret my inability to make any constructive comment in this regard. Instead, IMHO the real question to be answered is "Are Supreme Court Judges qualified to be the ultimate decider on every aspect of life as considered by many Pakistanis?"

Judges are neither doctors or engineers or economists nor are they foreign policy experts. Their domain should be restricted to the legality of the issues only, not whether any contract or selling price of any item is 'ethically' unfair because what is fair or unfair is a subjective issue, not a legal one.

For example, Supreme Court CJ's determined the level of school fees, the retail price of Sugar, can you force Suger mills or flour mill to sell their goods at a price which the SC considers 'Fair' but is actually loss-making for the investor?

This essential point has been raised in the following article.

Ambush at Reko Diq
Irfan HusainJuly 20, 2019
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THE sum the international tribunal for investment settlement has awarded the Tethyan Copper Company (TCC) is a cool $5.9 billion. This nearly equals the IMF bailout of $6bn that Pakistan has been negotiating for months, and that has now been approved, albeit with many strings attached.

Prime Minister Imran Khan has set up a commission to fix responsibility for this staggering loss. Meanwhile, the TCC has signalled its willingness to negotiate the amount we finally fork out. But there is little doubt that after winning its case after years of arbitration in which Pakistan is said to have spent $100 million in legal fees, we will have to pay the firm a large percentage of the amount of the award.

However, I fear the prime minister’s commission will be wasting its time because we know who was ultimately guilty of causing this colossal loss. In his freewheeling days as Pakistan’s chief justice, Iftikhar Chaudhry went about his merry way, issuing suo motu notices, humiliating politicians and bureaucrats, and even removing an elected prime minister. He has also caused the exchequer massive losses by his cavalier disregard of economic realities. The Reko Diq disaster was only one of a series of ill-informed judgements that we are having to pay for years after his retirement. This newspaper carried a recent editorial going over this case in some detail.

Had Chaudhry permitted the privatisation of the Pakistan Steel Mills to go through, taxpayers would not be saddled with the billions of debts this white elephant devours every year.

The disaster was only one of several questionable judgements.

In both cases, Chaudhry cited corrupt practices as reasons for his intervention, although this was not proved at any stage. In fact, some have asked whether it would not have been preferable to overlook any suspected transgressions on the part of the entities mentioned in order to avoid the billions in penalties and losses that we are now stuck with.

Another thing the higher judiciary ignored at that time, at our peril, was that to attract foreign investments, we need to establish our credentials as a country where investors have a level playing field. As it is, interference by institutions in the affairs of others makes it very difficult to conclude deals and make a profit. This can lead to a poor reputation for the country.

This is especially true of long-gestation projects in the mining sector. TCC, for example, spent $220m over five years to undertake detailed technical and financial studies of the potential of the copper and gold deposits at Reko Diq. No wonder the company felt aggrieved when it was told that it would not be granted a mining licence. Although its case was upheld by the Balochistan High Court, the Supreme Court under Iftikhar Chaudhry very quickly overruled the judgement and brought the project to a halt.

And this brings us to a crucial point: should cases be taken on if technical expertise is lacking and the realities of global finance do not appear to be well understood? Reko Diq is the perfect example of how to discourage investment.

If the prime minister’s commission finds that Iftikhar Chaudhry was responsible for coming to a decision that led to this loss, what will this government do? Ask him to reimburse the $5.9bn? A mild rebuke is the best we can hope for.

It does seem that accountability is for politicians and civil servants only. The military establishment claims it has its own in-house anti-corruption mechanisms in place. True, the Supreme Judicial Council is operational, but we must ask how often we have heard of judges facing charges for suspected wrongdoing over the years. In fact, a huge backlog of cases has been allowed to accumulate (2m and counting) in courts across Pakistan.

Against this backdrop, it is somewhat surprising to assume that our judiciary has the answers to Pakistan’s many ills. The recently (and mercifully) retired chief justice, Mian Saqib Nisar, enjoyed being in the limelight so much that he constantly issued edicts on everything from clean drinking water to school fees to how dams should be financed and built. So much so that he brought the work of the government — never very swift — to a virtual halt. Some say that he connived with higher forces to bring down Nawaz Sharif.

So it is refreshing to have a chief justice who does not feature daily on the front pages of our newspapers. Indeed, most people in other countries would be hard-pressed to name their senior-most judge.

There was a time when judges would decline invitations to social events to avoid a possible conflict of interest. Now a judge of an accountability court can confess to hobnobbing with a dubious character, and telling him he was pressurised to give a guilty verdict against Nawaz Sharif. How times have changed.

irfan.husain@gmail.com

Published in Dawn, July 20th, 2019

https://www.dawn.com/news/1495140/ambush-at-reko-diq

 

[VCheng]

Judges are neither doctors or engineers or economists nor are they foreign policy experts. Their domain should be restricted to the legality of the issues only, not whether any contract or selling price of any item is 'ethically' unfair because what is fair or unfair is a subjective issue, not a legal one.

Judicial overreach is just as deadly for the country as just another manifestation of its general all-pervasive lawlessness.

 

[American Pakistani]

Why would someone awarded a binding judgment of over $5billion, negotiate to take only $500million?

Because they will make way more by investing in Reko Diq.

 

[Khafee]

Pakistan goes by whims, not by law. And that is the problem.

Hussain Haqqani of PDF at work.

 

[jamal18]

Make sure that they don't get a penny.

 

[Khafee]

It is common sense that govt negotiate with the company and come to a settlement which could avoid the penalty or any sort of amount above 500 million $. What is taking so long for govt to decide.

There are a couple of options in my opinion. Without paying a dime from GoP's pocket. This btw will test the mettle of this govt.

Option1
Negotiate a new contract with Tethyan Copper, with penalties awarded annulled, new Contract fee of US$2bn to be paid by Tethyan Copper, plus US$10bn of royalties in advance.

This can be deducted from future royalties, over a 30yr period. So total US$12bn now.
Worst case scenario, they say no.

Option2
Find a new mining company, willing to pay upfront, the US$5bn+ penalty, plus a US$2bn contract fee, and US$10Bn royalty in advance.

US$17bn+ in the mining industry, plus given the proven reserves, is a very reasonable amount.


People, particularly clueless journalists, start jumping - nobody will give you a loan for US$5bn, only China will etc.

Idiots like these should stick to playing pigeon, report facts on the ground and shut up.

 

[Shane]

Hussain Haqqani of PDF at work.

More like a cross between him and Tariq Fateh, mindset that is, not alluding towards anything remotely pervasive.

There are a couple of options in my opinion. Without paying a dime from GoP's pocket. This btw will test the mettle of this govt.

Option1
Negotiate a new contract with Tethyan Copper, with penalties awarded annulled, new Contract fee of US$2bn to be paid by Tethyan Copper, plus US$10bn of royalties in advance.

This can be deducted from future royalties, over a 30yr period. So total US$12bn now.
Worst case scenario, they say no.

Option2
Find a new mining company, willing to pay upfront, the US$5bn+ penalty, plus a US$2bn contract fee, and US$10Bn royalty in advance.

US$17bn+ in the mining industry, plus given the proven reserves, is a very reasonable amount.


People, particularly clueless journalists, start jumping - nobody will give you a loan for US$5bn, only China will etc.

Idiots like these should stick to playing pigeon, report facts on the ground and shut up.

Both options are workable and IK is already heading to US where there is plenty of potential with respect to exploring such possibilities.

 

[niaz]

Make sure that they don't get a penny.

Hon Sir,

A third world country cannot afford to completely ignore World Bank arbitration judgment against her. Firstly, FDI could completely disappear as foreign investors would not trust contracts made with Pakistani State organizations.

Additionally, Tethyan could start to attach Pakistani assets such as ships carrying goods for Pakistan or even the ships, airplanes belonging to the state organizations when the same dock at foreign ports or land at a foreign airport by obtaining a court order. However, this is a time consuming & cumbersome process. That is why in most such cases, “out of court” settlements resolve the matter.

By the way, I heard the ex CJ Iftikhar Chaudhry in the TV show "Aitraz hai". He stated that he was not alone but there were two other Judges, besides according to Pakistan Constitution, Supreme Court Judges are not answerable to anyone about their decisions.

On specifics, he stated about PSM he said the Steel Mill had been sold to an Indian owned company. I would say that it was not specified that Indian owned international companies are not qualified to bid, to cancel the award after the bids had been received and the best bidder approved by the GOP is a highly subjective decision.

On Rekodiq, he declared that the estimated value of the deposits was $1000-billion, but Pakistan would have received only $21-billion, hence he canceled it. No one including the BHP Billington ( later Tethyan Copper) could know the value of the deposits before actual exploration had been carried out. BHP signed the contract and later Tethyan risked $220-million only on the expectations. It was also possible that deposits were not commercially viable as it happened in the recent offshore oil exploration venture by Exxon. We would not know how much Copper/Gold was there until Tethayan spent a huge amount on the exploration and the feasibility study.

Even layman like me considers it unjust to cancel the contract after half the job has been done and we know how much is there. At worst SC should have said that the percentage for Pakistan should be renegotiated instead of declaring the contract null & void. No wonder he World Bank decided against Pakistan.

 

[Foggy_Bottom]

Because they will make way more by investing in Reko Diq.

Two questions.

1. How will the Turkish company make more money?
Right now, they are getting a zero risk $5 billion profit. Risks, as I see it, are: This company would need to make significant investments to mining facilities again. It would take 15 -20 years to realize a $5Billion 'net' profit they are getting right now if they choose to give it up for a paltry $500 million. Lastly, no guarantees- The contract can be terminated again, or this company would need/ask a fully guaranteed ALA 'sovereign guaranteed contract' for 40 plus years at a minimum. Which means if they DO NOT perform up to par, Pakistan is stuck with the baby.

2. Who has the right over the mines it right now and would they sue if you broke their contract to give it back to this Turkish company?

 

[Zulfiqar]

Everyone is saying 100 B $ plus worth of mineral but one should ask is whether it is price of finished product or raw ore.

What about the cost to extract this? What are the COGS margins?

100 B plus will be the revenue not the profits.

Pak govt should have renegotiated the contract right back.

Forget royalties, duties and taxes.

It is better to settle this with tethyan for 500 M $ and ask them them to become an equity shareholder in an SPV/JV with local conglomerates, FWO, govt of pakistan (GOP/Govt of balauchistan's equity in form of royalties discounted to present value) and other local conglomerates.

Things have changed a lot now since 2011. Engro is in better condition now with cash lying around. They have experience from mining coal. FWO has also improved a lot financially and technically.

Better to mine this resource via a JV with maximum value addition within the country rather than have the raw ore exported with no profits being retained here.

 

[Armchair]

Make sure that they don't get a penny.

Supreme court is the highest decision and they have decided on the issue. No foreign court has the authority to overturn SC decision. This is just yellow journalism at work making a mountain out of a mole hill.

Someone needs to start digging this gold.

 

[Foggy_Bottom]

Supreme court is the highest decision and they have decided on the issue. No foreign court has the authority to overturn SC decision. This is just yellow journalism at work making a mountain out of a mole hill.

Someone needs to start digging this gold.

If I could explain, why it's not a good idea to simply give the proverbial finger at this.

1. These specific International courts have jurisdiction over contract dispute resolution and arbitration over any countries highest judicial body. They can pass judgment even on international contracts when the contract is between a country and an international private firm.

2. Judgments are binding in terms of fees and penalties ONLY. BUT- they can't enforce it.

3. However, not paying penalties have detrimental consequences. In this case, Pakistan's credit rating suffers because the credit rating agencies see Pakistan's non-compliance as not fulfilling its obligations. Future FDI investors see this as a wrong place to invest and Pakistan as not being a trustworthy partner in honoring its signed commitments.

 

[YeBeWarned]

Hussain Haqqani of PDF at work.

I gave him that Title glad its sticking on to him and kinda suits too