Balochistan halts $3.5bn copper project
By Syed Fazl-e-Haider
KARACHI - Local authorities in Pakistan have canceled an agreement with an
Australian company for the exploration of copper and gold in the Reko Diq area
in southwestern Balochistan province at a time when a feasibility study for the
project was near completion.
Australia's Tethyan Copper Company (TCC), a joint venture between Canada's
Barrick Gold and Chile's Antofagasta Plc, had
an exploration license for the copper mine at Reko Diq, which has an estimated
four billion tonnes of low-grade copper and gold, in the district of Chagai.
Last month, when the Balochistan government passed a motion to terminate the
contract with TCC, it called the move a step towards getting control over
provincial resources in accordance with the wishes of the people. Critics said
the local government's action was politically motivated to appease Baloch
nationalists in the desperately poor and insurgency-hit province, who have been
demanding the cancelation of the agreement.
The deal was signed under the government of former president Pervez Musharraf.
The present central coalition government led by the Pakistan People's Party is
trying to end the insurgency and recently presented a "Balochistan Package",
which recommends a series of constitutional reforms, economic measures and
administrative steps to assuage the feelings of the Baloch people.
Balochistan chief minister Nawab Aslam Raisani said TCC had violated its
contract, which had been signed only for exploring for minerals, according to
the Dawn newspaper. The federal government had not yet sought any explanation
from the Balochistan government over the cancellation of deal, the report cited
Raisani as saying. The provincial cabinet decision relates to the termination
of the exploration contract after it expired, while the fate of the company's
proposal for a mining agreement is yet to be decided, according to the chief
minister.
Tethyan, which had a 75% interest in the project, allegedly introduced
unnecessary delays and exceeded the limits of the contract, which was awarded
only for drilling purposes. The provincial government, which has decided not to
lease out the land to TCC for further work, is believed to be looking for other
investors and technical expertise to manage the project indigenously.
TCC sees the contract cancelation as a violation of internationally accepted
exploration rules, under which the exploration company gets the first rights to
mining in the project area, as no mining firm can invest billions of dollars
only in exploration.
The United States has urged the central and provincial governments to stand
behind their agreements with international companies, as the cancelation of the
Reko Diq copper contract, involving two major international mining firms
threatens to cost the country a loss of US$3.5 billion in investment for one of
its least developed regions.
"Multinational corporations will not invest in a country where deals are
canceled," a Business Recorder report last Thursday quoted the US ambassador to
Pakistan, Anne Patterson, as saying.
Some analysts believe the Reko Diq mine may now be developed with the help of
China, which is engaged in extracting copper from the Saindak mine in the same
district. They also warn that the government should learn from its experience
at Saindak. Metallurgical Corp of China (MCC), which acquired Saindak on a
10-year lease in September 2002, is overmining in the area at the cost of the
mine's estimated life of 19 years, say local experts. They also point out that
copper extraction creates various toxic wastes, but there is still no reliable
data available on the production and environmental impact at Saindak.
Reko Diq, with an estimated life span of more than 50 years, is four times
larger in copper ore tonnage than Saindak.
The provincial government has handed over affairs of the Reko Diq project to
the provincial department of mines and mineral development, which has acquired
the services of Samar Mubarakmand, an eminent Pakistani nuclear scientist.
TCC has been criticized for selling its interests to Antofagasta and Barrick
without the permission of the Balochistan government, which holds the remaining
25% interest. Barrick's share price in New York has declined from a one-year
high of just below $48 on December 1 to $41.43 last week, after recovering from
about $38 on December 17. Antofagasta is trading at 1,024 pence in London,
close to its one-year high and more than double its price of a year ago.
Analysts also question why, if the provincial government had some grievance
against TCC's operations, it did not react earlier when the company declared in
July that it would invest $3 billion in the project in the current fiscal year,
which ends in June.
The cancelation is "a non-routine solution", said Sardar Shaukat Popalzai,
president of the Balochistan Economic Forum, according to The Nation daily
newspaper. The relevant departments and political leadership should not take
unwarranted decisions after projects are considered and then initiated after
all clearances are granted on their merits, he said. Popalzai has reportedly
suggested that a provincial assembly committee, along with a sub-committee
consisting of local stakeholders, including the investors, should be formed to
remove all irritants.
TCC itself has "not yet received any cancelation notice for the Reko Diq
project from the government", Samia Ali Shah, the company's public relations
manager, told Asia Times Online. "We will decide our strategy as soon as we
receive notification from the Balochistan government."
She said, "Tethyan is currently undertaking a feasibility study, which is in
its final stages, for development of the Reko Diq mine."
Feasibility studies include engineering analysis and studies of infrastructure
alternatives involving the likes of rail, road, power, port and water supplies
and overall technical and economical viability. "The environmental and social
impact assessment [ESIA] of the project is also expected to finish at the end
of the first quarter of this calendar year."
The Balochistan government first signed a contract for the Reko Diq exploration
area with BHP Minerals in July 1993 and established a joint venture with BHP
Billiton in June 2000, with the government keeping a 25% interest against BHP's
75%. TCC, which holds an alliance with BHP Billiton, raised funds for the
project by floating its shares on the Australian Stock Exchange and planned to
start the project in 2003 with an investment of $130 million.
Samia said her company was responsible for progress made since 2006, when
Antofagasta and Barrick Gold took complete control of TCC, which is now a
joint-venture company.
She said, "We have so far made significant progress. We had only 50 people as
employees of the project in 2006 when Barrick Gold and Antofagasta took over
the project. The number of our permanent employees presently exceeds 200.
"We spent $100 million, including expenditures on the feasibility study in
2008. An additional 146,000 meters were drilled last year and showed
significantly large resource estimates at Reko Diq. The infrastructure
developed at the exploration and feasibility stage of the project includes an
airstrip and high-standard camp site facilities."
Samia said a large part of the promised investment of $3 billion would start
coming as soon as the project entered the construction phase, after completion
of the feasibility report and signing of agreements with the government.
Balochistan, the country's least-developed province but a prospective
metaphorical and literal gold mine for companies eyeing its untapped mineral
reserves and hydrocarbon resources, direly needs foreign investment to create
jobs, develop communities and boost revenues.
The district of Chagai is one of the most backward and least-developed areas in
Balochistan. It lacks healthcare facilities and has a poor educational
infrastructure. The human development indicators in the district are among the
most challenging in the country. With no infrastructure, no proper road network
and no industry, the people of the Chagai desert lack almost any employment
opportunities.
TCC has spent $1.5 million to date on initiatives such as training local
people, local procurement, a school house, a health clinic, teacher training,
and humanitarian aid for natural disasters like floods and earthquakes in
Balochistan. The company also provides training to the local women in tailoring
skills to establish local businesses to supply TCC uniforms.
Samia said, "We plan extensive training and capacity building programs to
prepare local people for work within the Reko Diq project. We see our role as a
catalyst for economic and social development of the communities we operate in."
The first batch of TCC employees, 80% from the province and about 76% of them
from Chagai, has already been sent to the Descon Institute in Lahore for
training.
Syed Fazl-e-Haider (www.syedfazlehaider.com) is a development analyst in
Pakistan. He is the author of many books, including The Economic
Development of Balochistan (2004). He can be contacted at sfazlehaider05@yahoo.com.
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