EDITORIAL: Economic Coordination Committee of the Cabinet (ECC), the highest economic decision-making body in the country, under the chairmanship of Finance Minister Ishaq Dar approved the payment of 6.238 billion rupees on short-term finance facility of 65 billion rupees by the Finance Division (31 March to 30 December 2022) to fund Balochistan government’s share of the obligation for Reko Diq dispute settlement.
This agreement was reached after extensive negotiations and deliberations by the Khan administration with the then Prime Minister tweeting on 20 March 2022: “I congratulate the nation and people of Balochistan on successful agreement with Barrick Gold for development of Reko Diq mine after ten years of legal battles and negotiations.
Penalty of approximately 11 billion dollars offset, 10 billion dollars will be invested in Balochistan creating 8,000 new jobs. Reko Diq will potentially be the largest copper mine in the world. It will liberate us from crippling debt and usher in a new era of development and prosperity.”
Barrick’s website notes that the “reconstituted project will be held 50 percent by Pakistan stakeholders comprising a 100 percent free-carried, non-contributing share held by the government of Balochistan, an additional 15 percent held by a special purpose company owned by the government of Balochistan and 25 percent owned by other federal state-owned enterprises. A separate agreement provides for Barrick’s partner Antofagasta PLC to be replaced in the project by Pakistani parties.”
However, in lieu of previous court rulings – those involving complex sovereign arrangements, including the 2013 court ruling on Reko Diq, and/or privatisation of state-owned entities – the government as per the agreement took the matter up in the Supreme Court which declared in December 2022 that the agreement with Barrick Gold for development of Reko Diq was legal: “As per the Reko Diq agreement, most workers will be Pakistanis. This is not for a single person but for Pakistan. There is nothing illegal in this agreement.”
There is no doubt that Reko Diq dispute settlement was a major achievement of the Khan administration as was the successful renegotiation in 2020 of contracts signed with Independent Power Producers (IPPs) set up under the 1994 power policy on take or pay basis.
This no doubt set a precedence that complex sovereign arrangements can be renegotiated to the benefit of all concerned parties. One would hope that the incumbent government can take this one step further and renegotiate with the IPPs set up under the China Pakistan Economic Corridor as well.
The ECC however deferred the decision: (i) to raise the price of 119 drugs and fix the price of 54 new drugs due to lack of preparedness of the health ministry (though it agreed to keep the price of Remdesivir 100mg injection at Rs 1,892 per vial as proposed by the Ministry); deferral in raising the price of drugs requested by pharmaceuticals is premised on the fact that raw material imports have risen in rupee terms due to massive recent depreciation as well as due to the rise in other input costs including electricity and petrol.
If past precedence is anything to go by, deferrals often lead to severe shortages of these drugs on the market, thereby generating angst amongst the general public; and (ii) the summary of the Ministry of Aviation on engagement of International Finance Corporation as transaction adviser to outsource three international airports.
This postponement of action indicates political considerations were held paramount instead of economic considerations and may well constitute yet another reason for the failure to reach the ninth review agreement with the International Monetary Fund.
It is important to note that the bulk of the decisions being taken by the economic team leaders continue to be geared towards political instead of economic considerations contrary to their stated aim as structural reforms are taking a back seat to passing the entire cost of sector inefficiencies on to the hapless consumers to meet the lender objective of utilities achieving full cost recovery.
Copyright Business Recorder, 2023