Pakistan Wins Interim Stay Order on $6 Billion Investment Penalty 

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Moshiuzzaman holds a 2:1 LL.B degree from BPP University (UK). He is currently pursuing the CFA chartership and working as an independent legal researcher at the American Society of International Law (ASIL)

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The World Bank’s International Centre for Settlement of Investment Disputes (ICSID) has granted a stay order on the enforcement of the $6 billion imposed on Pakistan for its decision to deny a mining lease for the Reko Diq project to Australia’s Tethyan Copper Company (TCC).

Background

In 1993, Australian mining giant BHP began exploring gold and copper prospects in Balochistan, Pakistan’s insurgency-hit province that borders Iran and Afghanistan. Reko Diq is a desert town in Chagai district of Balochistan, which is famous for its mineral wealth, including gold and copper reserves and widely believed to be the world’s fifth-largest goldmine. The site is also known for being used to carryout Pakistan’s nuclear tests two decades ago. It is in the Tethyan belt (known for a reservoir for rare metals) that stretches from Europe to Pakistan.  

BHP drilled dozens of holes, dug out samples and concluded that the mine could produce substantial quantities of minerals at a profit. By 2006, the ownership of the Reko Diq project was passed on to a consortium of Chile’s Antofagasta and Canada-based Barrick Gold, the world’s largest miner of precious metals. They began work on the mine under a subsidiary called Tethyan Copper Company (TCC). Later in 2011, the Balochistan government refused to permit the mining companies to start digging for the minerals stating that they were not getting a “fair deal”. 

The investors, however, disagreed. They claimed that they had sufficiently compensated Balochistan, which held a 25% stake in the expected profit from the mine. Former Balochistan Chief Minister Aslam Raisani insisted that mining companies like the TCC joint venture siphoned off profit through a web of offshore subsidiaries that bloat up the cost of mining operations – a practice widely known as transfer pricing, leaving little stake for developing nations. The Balochi Chief Minister alleged that a mining license could not be agreed and given to the consortium as it is not willing to negotiate a fair deal with neither the Balochistan government nor the federal government of Pakistan.

The ICSID Tribunal decision 

Failing to get a mining permit, Antofagasta and Barrick took Pakistan to international arbitration at the ICSID, which is part of the World Bank, in late 2011. The ICSID is regulated under the ICSID Convention, which was adopted in October 1966. Pakistan had ratified the Convention in the same month. However, the Convention did not guarantee that a country where an investment is being made will necessarily allow an ICSID tribunal to arbitrate in case of a dispute. This gap was inadvertently filled by what is regarded as the Bilateral Investment Treaty (BIT) agreements that governments signed to promote international private investment from other countries. The Reko Diq case in Pakistan had been decided under the BIT that Pakistan signed with Australia in 1998. 

The tribunal – chaired by Germany’s Klaus Sachs and including Bulgarian arbitrator Stanimir Alexandrov and the UK’s Lord Hoffmann had ordered Pakistan to pay over $4 billion in damages to the TCC in addition to $1.7 billion in pre-award interest. It held that the state had committed an unlawful expropriation under the Australia-Pakistan bilateral investment treaty. Later, the TCC approached five different countries courts for the enforcement of the penalty imposed on Pakistan.

In what is widely regarded as “voodoo finance”, Antofagasta and Barrick, which had long written of their $220 million investment in the Reko Diq project from their financial statements, were awarded multibillion-dollars in damages based on that investment by the ICSID tribunal. No parameters of the tribunals’ assessments of the damages were mentioned in the official case judgment. Several academics practising international investment law has criticized the tribunal’s decision for being “appalling” and “ridiculous”. Soon after the award was announced, Antofagasta said it was willing to negotiate a settlement. Pakistan responded positively to this, as it had no other option. 

Pakistan’s penalty annulment plea 

In November 2019, Pakistan moved a plea before ICC for annulment of the award on several grounds. When the country’s plea was registered, an interim stay was granted automatically on the enforcement proceedings initiated by the TCC. A hearing to confirm the stay order took place via video conference in April 2020. In September 2020, the tribunal finally ruled in favour of Pakistan, confirming the stay on the enforcement of the award.

The ICSID is still considering Pakistan’s appeal against enforcing the penalty over its cancellation of the Reko Diq mining lease and a final hearing is expected to take place in May 2021. Reko Diq is famous for its mineral wealth, including gold and copper. Prime Minister Imran Khan’s government considers it a strategic national asset, though instead of yielding a bonanza the Reko Diq mines have cost the country dearly owing to ongoing international litigation with the TCC. The quantum of the award is the same as the bailout package recently granted to Pakistan by the International Monetary Fund (IMF). If enforced, the prize will result in severe economic repercussions for the country. Seen in this context, the stay is a success and significant relief for Pakistan.


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