Pakistan Seeks Reversal of $5.8 Billion Reko Diq Penalty

Pakistan is seeking relief on an international tribunal’s $5.8 billion penalty for unilaterally revoking the agreement with an Australian mining company. The federal government is arguing that paying the fine will hamper its efforts against the coronavirus pandemic.

The government of Pakistan had filed a petition with the World Bank’s International Center for Settlement of Investment Disputes, seeking its previous decision overturned as the country is in financial crunch due to the pandemic.

The issue started when the Balochistan government canceled the mining lease for Tethyan Copper Corporation in Reko Diq district on the orders of the Supreme Court of Pakistan. In the meantime, the provincial government set up its own company to develop the mine.

In the past, Pakistan and Tethyan had agreed to settle the dispute out of court, but no further development was made in this regard. An international news agency quoted officials from Pakistan saying that they had not been in direct contact with the company for any settlement.


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A statement from Tethyan, following the arbitral proceedings, had raised hope of a breakthrough.

Despite the initiation of arbitral proceedings in order to protect its rights, TCC remains hopeful of an opportunity to reach a negotiated resolution to the case.

However, the company says that there are no further updates.

According to sources in the Pakistan attorney general’s office, an out of court settlement is possible after the final decision on the award, which might be delayed until next year.

Background

Tethyan signed an agreement with the Balochistan government in 1998 to develop the gold and copper mines in Reko Diq. After submitting an extensive and detailed feasibility study, the company sought a mining lease license in 2011, which was rejected.

Both federal and provincial governments say that the lease was canceled because it was a non-transparent agreement that offered too many concessions to the company. By the time, Tethyan had invested $220 million in the project. They took the case to the World Bank arbitration tribunal in 2012, which ruled against Pakistan late in 2017.


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The company had initially claimed damages of $8.5 billion. However, after the calculation of Tethyan’s assumed profit over the 56 years (lease period), it was settled on $5.8 billion. Pakistan immediately filed a review against the decision. The penalty is equivalent to the bailout package Pakistan has received from the International Monetary Fund (IMF).

Experts’ Reaction

Renowned economist Jeffrey Sachs described the international tribunal’s decision as a “mugging” of Pakistan. Other experts also rallied against the decision, questioning the reasoning behind the massive penalty. The award for Tethyan is more than double the size of the largest similar arbitration award in the case between Dow Chemical and Kuwait Petrochemical Corp.



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