Centre seeks explanation from Balochistan

By Khaleeq Kiani
Saturday, 09 Jan, 2010

ISLAMABAD: The federal government has sought a detailed report from Balochistan after some foreign governments raised questions about the provincial government’s decision to terminate a multi-billion-dollar agreement with a Canadian-Chilean joint venture company to develop a copper and gold mine at Reko Dik.

Sources told Dawn on Friday that Pakistani diplomats in Canada and Chile had informed Islamabad about concerns expressed by the two countries over reports of cancellation of the agreement with the Tethyan Copper Company.
They sought details of the decision taken by the Balochistan cabinet and said that the termination of the contract with world’s leading gold and copper mining firm could mar Pakistan’s image as an investment destination.

The US ambassador in Islamabad Anne W. Patterson also raised the issue in a public statement and said that multinational corporations would not invest in a country where deals were cancelled after finalisation and that foreign direct investment depended on the ability of the government to stand by agreements concluded with international business partners.

Subsequently, the ministry of foreign affairs inquired about the status of the Reko Dik Copper Gold project and the circumstances in which the Balochistan cabinet had to take such a drastic step. The copper-gold deposits at Reko Dik are estimated to be fifth largest in the world.

Ore reserves are estimated to be more than four billion tons, valued at more than $70 billion at current market prices.

Only the western deposit system in the area holds more than three billion tons of ores, of which 0.5 per cent is expected to be copper, and every ton of processed ore is expected to yield 0.29 grams of gold.

The ministry of petroleum and natural resources wrote a letter to the Balochistan government seeking details of the provincial cabinet’s decision taken without bringing the matter to the knowledge of the federal government.

The sources said the ministry was surprised to know through media reports about the decision to terminate the contract with TCC and asked the provincial government why the federal government and the TCC had not yet been informed about the decision taken last month.

Sources in the Balochistan government, requesting anonymity, said the lease agreement with the firm for exploration of Reko Dik deposit in Chagai district was for an initial period of 10 years and alleged that the company had not been able to fulfil some of the work commitments.

They said the company did not complete about 600-km-long pipeline from the project site to Gwadar port through which the deposits were be transported for export.
These sources said the Balochistan government had two options. The first option was to raise international funding and use local expertise to explore and develop deposits for export.

If this option does not materialise, the provincial government would go for international bidding to ensure development and export of refined products at a better return.

In any case, the provincial government would seek to get about 80 per cent of the project share and would not give away more than 50 per cent of the project share even in the worst of cases.
Under the existing arrangement that TCC took over from BHP of Australia about three years ago, TCC holds 75 per cent share in the Reko Dik concession which is equally shared by Antofagasta Minerals of Chile and Barrick Gold Corporation of Cananda, while Balochistan owns 25 per cent without any investment towards the cost of exploration. The provincial government now wants this share to go up to at least 50 per cent.

The sources said the provincial government wanted the company to establish refining and processing facilities in Balochistan to ensure export of finished copper and gold for better economic returns, but the joint venture partners were not ready to accept this demand and wanted to export copper concentrate.

TCC representatives in Islamabad said they had not yet received any official communication about the provincial cabinet’s decision.
The sources said that after exploring the area for about three years now, the TCC was expected to submit a feasibility study and environment impact assessment study to the government by the end of this month and had offered a project implementation agreement for commercial exploitation, development and export of Chagai deposits, including payment of 25 per cent profit to Balochistan after recovery of the project cost in eight years and a small amount as upfront expected profit.

The proposal involved finalisation of mining lease in July 2010 and three year construction work to be completed in 2014.

The project in first phase is expected to generate around 300,000 tons of copper per year, accounting for about two per cent of world’s total copper production. The project investment in the first stage was estimated at $2.5 billion followed by another $2.5 billion in the second stage. (DAWN)