The Truth About Reko Diq

Farooq TirmiziHow valuable is one’s wealth if it is buried underground and one has no way of getting it out? And what would one say to somebody who came along and volunteered to extract this wealth, providing all of the technical expertise and putting up the entire investment costs, and letting you keep half of the profits? Would it be fair to say that this person was indulging in exploitative behaviour? Or would we say that a fair deal was on offer?

The above scenario is not hypothetical. It is exactly what is currently going on in the case of the Reko Diq mining project in Balochistan. The Tethyan Copper Company, a joint venture between Canada’s Barrick Gold and Chile’s Antofagasta, has spent $220 million to explore the Reko Diq area and, having discovered a feasible reserve of minerals, is now willing to spend the further $3.3 billion it would take to extract the minerals. And yet it is being treated like a neo-imperialist villain out to pillage Pakistan’s national treasures.

Here are the facts: The Balochistan government gets a 25 per cent stake in the profits of the company for doing absolutely nothing besides being lucky enough to have jurisdiction over Reko Diq. It also gets a royalty fee on every penny of revenue earned by the Tethyan Copper Company. In addition, the company will pay the full 35 per cent of its income in corporate income taxes to the federal government. When all is said and done, the provincial and federal governments walk away with 52 per cent of the net cash flows of the project, while putting up none of the investment. By what standard is that a bad deal?

Yet if one were to pay attention to all of the populist screeching emanating from every corner of the print and electronic media, and now from 19-odd senators who have filed a petition in the Supreme Court on the matter, and also from people who have absolutely no expertise in resource economics, one could be forgiven for thinking that a great crime is about to occur. The truth, however, is that the crime is being committed right now, with the people of Pakistan being used as accessories to one of the biggest highway robberies in history.

The populist frenzy currently being whipped up on television and in newspapers is no accident. You see, a field is worth almost nothing when it has no proven reserves. Yet it can suddenly become worth billions the minute it is announced that there are significant quantities of minerals buried underneath. And that is when the vultures start to circle, smelling a fortune to be made by crooked means.

Here is how it will happen: The government officials who gave away the licences to the Tethyan Copper Company before it discovered anything at Reko Diq were unable to extort any bribes when the field was worth nothing. Now that it is worth billions, however, they can either extort bribes from Tethyan or from another mining company (and at least two Chinese companies have shown interest). Yet in order to get those bribes from Tethyan, the threat of losing the contract needs to be real enough. Hence the creation of a popular hysteria to give these officials the political cover they need for their banditry.

The other option is to actually kick out Tethyan (for which the popular hysteria is still useful) and then quietly give away the contract to the company willing to offer the highest kickbacks. Either way, the national interest, in the truest sense of the word, will have been cast aside since no company in its right mind will want to do business in a country that kicks an investor out the minute the latter finds something worth mining. The legendary wealth of Balochistan will remain buried beneath the sands of misery that currently haunt the Baloch people.

But, of course, the chest-thumping politicians will have made their cut and the journalists who helped them drum up the smokescreen of patriotic fervour will have unwittingly destroyed the nation’s interests. I do not know about you, but I do not like being used in this manner.

Farooq Tirmizi is a consultant who has worked previously on the business desk of The Express Tribune. He is a graduate of Georgetown University. This column was published in The Express Tribune on 26 January 2011.

Kashkol and RGST

kashkolI have said before that people need to stop calling my country a beggar nation and stop saying that our government is some street urchin traveling the world with a begging bowl in hand. Apparently Mian Nawaz is not listening because he’s still using this old insult to criticise the government.

The first reaction I had when I read this was, why are people accusing Mosharraf Zaidi of degrading the mother land when Nawaz Sharif is going around telling the old ‘beggar country’ insult again. More irritating, though, is that Nawaz is saying that not only is the present government holding a begging bowl, but he will do nothing to help change things.

“The incumbent government cannot control the crises in the country, while we don’t even accept a government, which has extended a begging hand. The government did not take the opposition on board while signing an agreement with the International Monetary Fund (IMF). Therefore, the prime minister should not expect any support from the opposition,” Nawaz said while addressing a public gathering. He asked the government to depart from anti-public policies. “We will oppose all such policies,” he announced.

Great. Nawaz Sharif promises to oppose everything, but he cannot provide any ideas of his own. Brilliant.

What really made me laugh, though, was when Nawaz Sharif accused the government of ‘deliberately’ creating the sugar crisis. First, this simply makes no sense. Say what you want about the competence of some government officials, but what government offical would deliberately create a sugar crisis that they knew would cause them problems? In short – what do they stand to gain from a sugar crisis?

The only people who would gain from sugar hoarding and a high sugar price are the owners of sugar mills. Waaaaaiiiit just one minute…I think I am remembering something…what was it now? Some story from one year ago about sugar… Ah yes!

The government disclosed on Friday the names of three big sugar mills and said they were responsible for the current crisis and hoarding of the commodity.

The mills are Tandliawala Sugar Mills, Brother Sugar Mills and Kashmir Sugar Mills. According to the statement, the mills have held back 240,000 tons of the government-purchased sugar, creating an artificial shortage in the market.

Isn’t that Brother Sugar Mills owned by Sharif brothers? Now, I am not going to accuse Sharif brothers of deliberately creating the present sugar crisis, but Mian Nawaz would be well advised to get his own house in order before he goes around making such accusations at others with no proofs at all.

But let’s get back to the thing that really bothers me. While Nawaz is running around accusing the government of carrying a begging bowl, his leader in the National Assembly Chaudhry Nisar is calling support for reformed general sales tax (RGST) as a crime.

Why is this such a crime? Altaf Hussain says that RGST will put a burden on the poor, it only proves how completely out of touch he is in his expensive London home. The RGST is actually only a temporary tax for 6 months and only affects people with annual income over Rs.300,000.

Per capita income in this country is only Rs.89,000 and even that number is inflated by the mammoth wealth of people like Nawaz Sharif and Altaf Hussain. Why are these uber-wealthy people complaining about paying a little bit more tax for 6 months only to help the flood affectees? How can we complain about the world not doing enough for flood affectees, when we are not willing do any small thing ourselves?

This is ridiculous. All of these politicians complain about IMF loans, they complain about US aid like Kerry-Lugar, they complain about RGST, they complain about foreign investment like Reko Diq. It’s always a complaint and never any productive suggestions.

Oh, yes, Mian Nawaz has called for his ‘green revolution’ and his ’25 year plan’; Imran Khan talks about ‘revolution’ just like Altaf bhai wants a ‘French Revolution’ (he has been in Europe way too long) – but these are only labels, they are not actual policies. Instead of complaining about policies and saying that that they want some other plan, all these politicans need to come up with some alternative proposal that can be discussed. If they have a better idea, let us all hear it! If they cannot be part of the solution, they are being part of the problem. And we don’t need any more of that, please.

Redefining Strategic Depth

Redefining Strategic Depth

As President Obama takes a tour to India, lots of opportunistic commentators are making the comment that this is proof that the USA is a friend to India and, therefore, a false ally for Pakistan. The proof in the pudding for these people is that Obama made some remarks about how extremists are still in Pakistan. But this idea that the US cannot be friendly with both India and Pakistan is based on a misdirected mindset that defines Pakistan’s geo-strategic importance only in negatives. We must change this.

The rivalry with neighboring India is deeply rooted in mistrust based on previous acts of aggression, but our defining ourselves in the world community – particularly with the US – as an ‘anti-India’ is based in cold war politics that are no longer relevant. When India decided to take a ‘non-aligned’ stance with regard to the US-Soviet Cold War, there was an opening for Pakistan to become the regional ally of the US side.

But this was a weak entrance to forming a lasting partnership with the superpower. Certainly we provided some security to the Americans during the Cold War era, but India was never really on the verge of being a Soviet satellite. We provided an important avenue for the Americans to fight the Soviets in Afghanistan using jihadi proxies, but even this only brought short-term benefits. By the time the Cold War ended, these reasons for being a close ally of the Americans had expired.

After 9/11, we were able to revive some of this same geo-strategic rationale to renew aid from the US – now as a partner in the fight against Taliban instead of Soviets. But this is still a negative. This is why you see many hard line commentators saying that we have to abandon our reliance on US aid and turn to other regional partners like China because eventually the Americans will have to leave Afghanistan (either winning or losing) and then where will we be?

We should be working to make agreements with all nations – especially those like China with whom we share borders. But we should also be working to establish closer partnerships with superpowers like the US and EU based on positives, not negatives. This nation is not only good for serving as a security checkpoint – we need to look beyond military and security agreements and concentrate more effort on trade and natural resources.

There has been some controversy recently over a contract for foreign companies to work the copper and gold mines of Reko Diq. A controversial article by Shaheen Sehbai (Jang Group) has suggested that there is some conspiracy to defraud the nation of its potential wealth by ‘giving away’ the natural resources.

Shaheen Sehbai says that we should be more like Venezuela when negotiating mining contracts to make sure we maximize our benefits. But this shows just how little Sehbai knows. Venezuelan President Hugo Chavez’s nationalization schemes have actually hurt the long term prospects of their economy.

Export Development Canada, which provides trade finance and risk management services for exporters and investors, said, “The business climate is turbulent and the Chavez administration has been openly hostile toward private capital and foreign direct investment.”

EDC said the Venezuelan’s leader’s “willingness to expropriate businesses and breach contracts is a significant worry for both domestic and foreign-owned businesses.” It said, “Private business is under constant threat, and other sectors impacted by expropriation are petrochemicals, oil services, cement, telecommunications, steel, media and food,” EDC added.

Moody’s ratings agency said, “Venezuela is a wealthy country compared to its peers. But despite this comparative advantage Venezuela remains the only major Latin American country still in recession in 2010, a reflection of haphazard policymaking that has depressed investment and growth.”

The type of economic policy that Shaheen Sehbai is promoting can be considered like alcohol – In the very short term, it makes you feel good, but in the long term it destroys your health.

We should be looking not at Venezuela but at the economy of Indonesia which is another Muslim country with a large mining sector in copper and gold. By following the opposite model of Venezuela and demonstrating that it is a safe place for investment, Indonesia has been able to increase foreign investment by 32 percent.

The BKPM on Sunday announced investment figures from foreign and domestic investors. Foreign and domestic investment came to Rp 149.8 trillion this year through September.

Among notable recipients of foreign funding were the real estate, industrial estate and office- building sector, with $800 million. It was followed by mining ($700 million; 88 projects); transportation, storage and telecommunications ($600 million); foodstuffs ($400 million); and plantations ($300 million).

Shaheen Sehbai and others who are opposing the foreign investment in Reko Diq are doing more than simply promoting backwards economic policies – they are failing to take advantage of an important opportunity to redefine Pakistan’s role in the world as a positive instead of a negative.

Opening Pakistan to more foreign investment is not ‘giving away’ the nation’s wealth. Certainly contracts should be determined in a way that is open and transparent and without corruption. But we are not selling the resources of gold and copper, we are working with international partners who can provide the expertise and resources to be able to transform these resources from dirt to jobs to economic growth. And just as policies of isolation feed on each other and can quickly cut off a country from others, policies of openness help change the perception of a country from ‘failing’ to ‘miracle’.

The Reko Diq mine is one example only. We are situated in a place that makes us strategic for regional security, but also for more positive reasons like natural resources and trade routes. It’s time to stop defining ourselves with negatives that bring short-term agreements and start showing the world the many positive ways that we can be partners in long-term ways. Once we make this shift, our strategic depth will be economic and it will be global. And only then we will truly be secure.