On 12th July 2019, an international arbitration tribunal of the World Bank’s Centre for Settlement of Investment Disputes (‘ICSID’), awarded damages in the sum of $5.84 billion to Tethyan Copper Company Pty Limited (‘TCC’)  following Pakistan’s 2011 denial of a mining lease to TCC for the Reko Diq Project. Although the rationale for the decision has not been made public, the damages award, which is as large as the IMF loan package recently approved for Pakistan, appears to have sent shock waves throughout the country. The Pakistani press has termed the outcome ‘a fiasco’, social media users have clamored for ‘accountability’, and the former Prime Minister, Imran Khan issued orders for the formation of a commission to investigate and fix responsibility for the penalty.

Petitions in relation to TCC and Reko Diq had been first filed in Pakistani courts as early as 2007. By 2012, the federal and Balochistan governments, as respondents in the multiple matters being heard by the Supreme Court, were aware of the arbitration clause in the agreement between TCC and the Balochistan government. They were also aware that TCC’s investment was governed by Pakistan’s Bilateral Investment Treaty with Australia (BIT Australia)  and that TCC had already brought a case before ICSID under BIT Australia and named Pakistan as the respondent in the proceedings. Pakistan was also aware of its substantive and procedural obligations as a signatory to BIT Australia and to the ICSID Convention.

Where is Reko Diq

Reko Diq, located in the Chagai district in Pakistan’s Balochistan province, is famous for its vast gold and copper reserves and is said to be the world’s fifth largest goldmine. In 1993, BHP Minerals Intermediate Exploration Inc., an American company, entered into a Joint Venture Agreement (the 1993 agreement) with Balochistan Development Authority (BDA) to explore the Reko Diq area. In terms of Clause 3.4 of the 1993 agreement, BHP and BDA agreed to share revenue in the ratio of 75:25, they agreed to refer any disputes arising under the 1993 agreement for arbitration to ICSID or if ICSID refused to accept jurisdiction, to the ICC. In 2000, the Balochistan government ratified the 1993 agreement as well as all actions already taken in pursuance of the 1993 agreement (the 2000 agreement).

Project

In 2006, the Australian joint venture TCC entered into a Novation agreement with the Balochistan government (the 2006 agreement), whereby TCC replaced BHP as a party to the 1993 and 2000 agreements. In doing so, TCC acquired BHP’s rights to explore the Reko Diq area, agreed to share revenue with the Balochistan government in the ratio of 75:25, and to refer any future disputes between TCC and the Balochistan government to ICSID or ICC for arbitration. Soon after the 2006 agreement, the 1993 agreement was challenged before the Balochistan High Court on the ground inter alia that the Balochistan government had acted illegally in relaxing the relevant rules and granting mineral titles for Reko Diq to BHP. By its order dated 26^th June 2007, the Balochistan High Court dismissed the petition.

Case

Aggrieved by the orders of the Balochistan High Court, the petitioners and several others filed petitions before the Supreme Court, challenging the license(s) granted to BHP/TCC on the grounds of absence of fairness, non-transparency, violation of laws, and risks to the vital interests of Balochistan and Pakistan. The three member bench of the Supreme Court, held in its detailed order that the 1993 agreement was contrary to law and public policy and, therefore, the 1993 agreement and the 2000 and 2006 agreements derived from it, were void.

The Balochistan government had entered into the 2000 agreement after duly negotiating its terms and with the approval of the Balochistan Chief Minister. By 2012, however, when the case was being heard by the Supreme Court, the Balochistan government, through its counsel Mr. Ahmer Bilal Soofi suggested that BHP had exercised undue influence first on BDA and then on the Balochistan government to convince them to sign the 1993 and 2000 agreements, that the 2000 agreement ratifying the 1993 agreement by the then Governor and Chief Minister of Balochistan was illegal and, therefore, void, and that TCC itself had drafted the rules that were to govern its mining operations in Reko Diq.

In this manner the Balochistan government distanced itself and rendered full assistance to the Supreme Court. Furthermore, the Balochistan government denied its ICSID obligations as well as Pakistan’s commitments under BIT Australia which was applicable by virtue of TCC being an Australian venture. It argued that the 1993 agreement was void under Pakistani contract law, and could not be ratified that the Balochistan as well as the federal governments were not parties to the 1993, 2000 or 2006 agreements that Pakistan was not liable before ICSID in its capacity as a party to the agreements but only voluntarily through its commitments under BIT Australia and that in bringing a case before ICSID, despite the Court’s ‘benevolence’ towards it, TCC had disrespected the Supreme Court.

The issue before the Supreme Court, therefore, as much one of Pakistan’s obligations under BIT Australia and international law as it was that of criminality under Pakistani law. BHP made this point before the Supreme Court and urged it to exercise judicial restraint. However, the Balochistan government framed the issue entirely as contractual rather than an international investment dispute under BIT Australia and termed the 1993 agreement a ‘surrender document’. The Supreme Court’s decision in this regard is also premised primarily on contract law and suggests that the Supreme Court’s understanding of Pakistan’s liability under a private international contract is conflated with its public international obligations under BIT Australia for which TCC had brought the case before ICSID.

The ICSID award has not yet been made public and, therefore, the tribunal’s findings in respect of the role played by the different parties to the Reko Diq dispute are not available for scrutiny. In the absence of the rationale of the decision, it is difficult to comment on the motivations and choices of the parties leading up to the dispute and the manner in which it was handled before the Supreme Court and then before ICSID. However, a review of ICSID’s 2017 decision on jurisdiction and liability provides important insight. It suggests that ICSID found that TCC held assets in Pakistan are protected by BIT Australia and that BIT Australia’s cover could not be retroactively revoked by a Supreme Court decision.

ICSID also found that BDA was empowered to exercise governmental authority and, therefore, the 1993 agreement as much as the 2000 and 2006 agreements derived from it, were to be treated as agreements between Pakistan and the TCC, the Australian investor. Finally, ICSID held that the Pakistani authorities (including BDA and Balochistan government) had created legitimate expectations that TCC would be granted a mining license upon meeting routine requirements. ICSID was not convinced by the reasons provided by Pakistan for denying the license to TCC and came to the conclusion that the relevant authorities had breached TCC’s legitimate expectations to camouflage ‘the state’s real motive of pursuing its own project at the site’.

In view of the preceding, the most pressing issue before Pakistan is not merely determining the quantum of damages that it may have to pay to TCC in pursuance of the ICSID award. Indeed, news reports suggest that Pakistan’s dispute with TCC is headed towards a negotiated settlement: TCC has offered it and Pakistan has welcomed it. The real issue for Pakistan is to recognise that cases such as Reko Diq raise significant public interest issues and must be addressed with the utmost legal transparency and with an understanding of Pakistan’s obligations in matters involving BITs and international investment arbitration.

Barrick Gold Corporation said that it had completed the reconstitution of the Reko Diq project, having received a favorable opinion from the Supreme Court of Pakistan and the required legislation having been passed into law. Barrick president and chief executive Mark Bristow said the completion of the legal processes was a key step in progressing the development of Reko Diq into a world-class, long-life mine which would substantially expand the company’s strategically significant copper portfolio and benefit its Pakistani stakeholders for generations to come. “We are currently updating the project’s 2010 feasibility and 2011 feasibility expansion studies. This should be completed by 2024, with 2028 targeted for first production,” Bristow said.

Reko Diq will be a major contributor to Pakistan’s economy which is expected to have a transformative impact on the underdeveloped Balochistan province where, in addition to the economic benefits it will generate, the mine will also create jobs, promote the growth of a regional economy and invest in development programs. The province’s interest in the mine will be fully funded, which means that Balochistan will reap the dividends, royalties and other benefits of its 25% shareholding without having to contribute financially to its construction and operation. “Reko Diq’s ownership structure is a further manifestation of Barrick’s commitment to partnership with its host countries and communities and to sharing the value our operations create fairly with all our stakeholders,” Bristow said.