OPEN Forum 2014: Question Iftikhar Chaudhry About His Adverse Impact on Pakistan Economy

[Riaz Haq]

Organization of Pakistani-American Entrepreneurs (OPEN) Silicon Valley has just announced a panel discussion featuring Pakistan's former Chief Justice Iftikhar Chaudhry and former attorney general Munir M...

Pakistan's Ex-Chief Justice Iftikhar Chaudhry

This discussion is titled "The Pakistani Legal Code And How It Impacts Investors And Entrepreneurs". It is scheduled  for 10:15 AM at "OPEN Forum 2014", the organization's annual conference on Saturday, May 10, 2014, at the Santa Clara Marriott in Silicon Valley

If I were asked to moderate this panel, I would not treat it as an abstract discussion of how rule of law impacts investors and entrepreneurs anywhere in general. Instead, I would focus on how Justice Iftikhar Mohammad Chaudhry conducted himself and how his conduct affected the investment climate and the economy in Pakistan during his tenure as Chief Justice of Pakistan.

Foreign Direct Investment in Pakistan:

World Bank's data shows that foreign direct investment (FDI) in Pakistan reached a peak of over $5 billion (3.6% of GDP) in 2007 and then fell sharply in the wake of Justice Chaudhry's reversal of the privatization of Pakistan Steel Mills. FDI has essentially dried up and the Pakistan Steel Mills Corporation has accumulated losses over Rs. 100 billion in spite of multiple bailouts at taxpayers expense. It is currently operating at just 3% of capacity and its monthly payroll adds up to Rs. 500 million, according to Dawn.

FDI as % of GDP in Pakistan Source: World Bank

Canceled Privatization Deals:

Huge subsidies are being given at taxpayers' expense to Pakistan Steel Mills and several other state-owned enterprises which take resources away from more pressing needs for spending on education, health care and infrastructure. In fact, Pakistan Education Task Force Report 2011 reported that "under 1.5% of GDP [is] going to public schools that are on the front line of Pakistan's education emergency, or less than the subsidy for PIA, Pakistan Steel, and Pepco."

Speaking at a recent international judicial conference in Islamabad, Dr. Ishrat Hussain, current dean of the Institute of Business Administration and former governor of The State Bank of Pakistan, said there has not been a single privatization deal in Pakistan since the Supreme Court's 2006 decision voiding the steel mill transaction.

Dr Hussain said that despite fulfilling the legal requirements, the fear that the country’s courts may take suo motu notice of the transaction, and subsequently issue a stay order, deters businesses from investing in Pakistan, according to a report in The Express Tribune. “A large number of frivolous petitions are filed every year that have dire economic consequences. While the cost of such filings is insignificant the economy suffers enormously,” he added.

Crucial Projects Delayed:

Among other projects, Dr. Hussain particularly cited Reko Diq and LNG projects which could not proceed because of judicial activism of Pakistan Supreme Court judges.

The lack of progress on liquefied natural gas (LNG) deal has exacerbated Pakistan's energy crisis. It would have brought in 400 million cubic feet of gas per day to bridge the growing supply-demand gap now crippling Pakistan's economy.

The invalidation of Reko Diq license to  Tethyan, joint venture of Canada's Barrick and Chile's Antofagasta, has turned away Pakistan's single largest foreign investment deal to date. The deposit in Balochistan was expected to produce about 200,000 tons of copper and 250,000 ounces of gold annually. Under the deal Baluchistan province would hold a 25 percent stake in the project, with Tethyan holding the remaining 75 percent.

Militants Released:

In addition to activist judges intervention in economic matters, there have also been many instance in which known militants have been released by Pakistani courts. Those released have then committed acts of terror which have also scared away investors, both foreign and local.

Summary:

Dr. Hussain closed his speech by pleading with Pakistan's judges "with all the humility and without sounding arrogant or offending anyone’s sensibilities, that economic decision are highly complex and its repercussions are interlinked both in time as well as space.”

I hope that this opportunity to question the former chief justice is not wasted by an adoring crowd asking him soft-ball questions at the OPEN conference on  May 10, 2014. It's important that we, including the honorable judge, do an honest assessment of our past mistakes to learn from them.

Related Links:

Haq's Musings

Shaukat Aziz's Economic Legacy in Pakistan

Saving Pakistan's Education, Steel Mill, Railway and PIA

Politics of Patronage Trumps Public Policy 

Iftikhar Chaudhry is no Angel

Musharraf Earned Legitimacy by Good Governance

Vindictive Judges Pursue Musharraf

Rare Earths at Reko Diq?

[Riaz Haq]

#Pakistan Steel Privatization Stalled. No production. $3.5 billion debt. $5 million weekly loss http://reut.rs/1Q0axpZ via @Reuters

Once the producer of almost half the country's steel needs, state-owned Pakistan Steel Mills' (PSM) cavernous factory buildings on the outskirts of Karachi stand eerily still.

A 4.5 km-long (2.8 mile) conveyor belt that once carried coal from the nearby port is idle and blast furnaces rest silent. Birds build nests in Soviet-era equipment and stray dogs nap outside abandoned plants.

The company is for sale, but the government cannot find a buyer as it struggles to get privatizations back on track after a series of setbacks. A glance at PSM's finances may explain why.

The company has $3.5 billion in debt and accumulated losses, loses $5 million a week and has not produced steel at its 19,000-acre facility since June last year. That was when the national gas company cut power supplies, demanding payment of bills of over $340 million.

Like many Pakistani industrial firms, political meddling and competition from cheaper Chinese imports left PSM vulnerable.

They also undermine Prime Minister Nawaz Sharif's promise to the International Monetary Fund to privatize PSM by March, in return for a $6.7 billion national bailout loan agreed in 2013.

More than 14,000 jobs are at risk, while the Pakistani economy needs industrial growth to provide employment for a growing population.

"Nine billion rupees ($86 million) are immediately needed to see the company through to June," company CEO Zaheer Ahmed Khan told Reuters at its sprawling premises.

"It's really sad, it's a national asset. We are a nuclear power but what does it say that we can't operate a small steel mill?"

PRIVATIZATION PAINS

The government has injected $2 billion into PSM since a failed selloff in 2006, but cannot invest more capital, Privatization Commission Chairman Mohammad Zubair said.

"The best option is to privatize so that private sector buyers inject capital to upgrade the plant and machinery, buy raw material and so on," he said.

PSM is one of several firms Pakistan wants to sell to revive loss-making entities that cost the government $5 billion a year.

But it has struggled to restructure bleeding companies, including PSM and Pakistan International Airlines (PIA), and get them in shape for potential buyers.

This month, Pakistan shelved plans to privatize power supply companies, and officials said Islamabad told the IMF it would not meet deadlines to sell PIA or PSM.

While the loss-making firms are a drain on Pakistan's resources - around an eighth of the government's fiscal revenues last year - few fear Pakistan will slide into economic crisis.

The IMF has continued to release installments of its 2013 bailout package despite missed targets, and Pakistan is exploring other sources of support, like ally China which plans to invest $46 billion in a new economic corridor.

BACK IN THE USSR

Designed and funded by the Soviet Union in the 1970s, PSM was once the pride of the nation, showcasing a rapidly industrializing Pakistan with the means to produce a basic building block for the future.

Across the site, signs implore workers to believe steel will make Pakistan stronger. The firm's motto is "Yes, I can."

The facility has the capacity to expand to produce 3 million tonnes of cold and hot-rolled steel annually, against today's 1.1 million tonnes, CEO Khan said. At 3 million tonnes, PSM would become "very profitable".

[Riaz Haq]

World Bank ruling against Pakistan shows global economic governance is broken


http://theconversation.com/world-bank-ruling-against-pakistan-shows...


The International Centre for the Settlement of Investment Disputes was established in 1966 as part of the World Bank Group. The centre oversees arbitrations between foreign companies and states in a process known as the investor-state dispute settlement (ISDS).

ISDS is hugely controversial for a variety of reasons ranging from the secrecy of the hearings to the substantial costs associated with defending a claim and the ability of corporations to challenge health and environmental measures.

The case that cost Pakistan $5.8 billion did not revolve around such measures but rather the decision of a provincial government to backtrack on a sweetheart deal that had been offered to a mining firm, allegedly the result of corruption. Leaving the merits of the case to one side — it is difficult to assess the tribunal’s reasoning when the award isn’t public, after all — let’s take a closer look at the payout.

According to the mining company — Tethyan Copper, partially owned by Canada’s Barrick Gold — it spent US$220 million on exploration activities before things went south. One might argue that a fair outcome, if the government was solely to blame, would be for the award to cover these sunk costs. Instead it was more than 25 times that amount. That is because the tribunal chose to award the company “lost future profits” from the project.

Arbitrators don’t have crystal balls. They don’t know what the value of a mineral will be in a year, let alone 30 years. And they are lawyers, not market analysts. So how do they decide how much profit a firm would have made in a hypothetical alternative future?

The answer is, partially, that they rely on “experts” brought in by each of the parties to the dispute. These experts provide a best guess for what they think a project is worth. International law scholar Robert Howse calls this “junk science.”

Unsurprisingly, the state’s expert often provides a low-ball estimate for the value of a project and the investor’s expert gives an inflated value. Faced with this discrepancy, arbitrators will often choose to go down the middle and pick an arbitrary value. Tethyan Copper had originally sought more than US$11 billion in damages, suggesting that the tribunal in this case may have taken this approach.

[Riaz Haq]

How #WorldBank Arbitrators Mugged #Pakistan . The latest shakedown is a $5.9 billion award against Pakistan’s government in favor of two global #mining companies for an illegal #copper-#gold project that was never approved or carried out. Project Syndicate

by Jefferey Sachs

https://www.project-syndicate.org/commentary/world-bank-corrupt-arb...


Thanks to the World Bank’s flawed and corrupt investment arbitration process, the rich are making a fortune at the expense of poor countries. The latest shakedown is a $5.9 billion award against Pakistan’s government in favor of two global mining companies for an illegal project that was never approved or carried out.

NEW YORK – Wall Street hedge funds and lawyers have turned an arcane procedure of international treaties into a money machine, at the cost of the world’s poorest people. The latest shakedown is a $5.9 billion award against Pakistan’s government in favor of two global mining companies – Antofagasta PLC of Chile and Barrick Gold Corporation of Canada – for a project that was never approved by Pakistan and never carried out.


Here are the facts.

In 1993, a US-incorporated mining company, BHP, entered into a joint venture (JV) with the Balochistan Development Authority (BDA), a public corporation in Pakistan’s impoverished Balochistan province. The JV was set up to prospect for gold and copper, and in the event of favorable discoveries, to seek a mining license. BHP was not optimistic about the project’s profitability and dragged its feet on exploration. In the early 2000s, it assigned the prospecting rights to an Australian company, which created Tethyan Copper Company (TCC) for the project.

In 2006, Antofagasta acquired TCC for $167 million, and sold half to Barrick Gold. Soon after the purchase, however, the original JV agreement with BHP was challenged in Pakistan’s courts. In 2013, the Pakistan Supreme Court found that the JV’s terms violated Pakistan’s mining and contract laws in several ways and declared the agreement – and thus the rights claimed by TCC – to be null and void.

Specifically, the Court ruled that the BDA did not have authority to bind Balochistan to the terms of the JV agreement; that it awarded the contract without competition or transparency; and that it had greatly exceeded its authority and violated the law by promising extensive deviations from the rules normally applicable to mining projects. Moreover, the JV failed to obtain, and even to pursue, many mandatory approvals from the state and federal governments, and BHP failed to undertake prospecting in a timely manner required under the mining law.

The Supreme Court’s decision came after years of public-interest litigation challenging the deal for violations of domestic law and the rights of the public. In the meantime, the BDA’s chairman was found to have conflicts of interest and to be living beyond the means afforded by his official salary, which in the Court’s words was tantamount to corruption.

[Riaz Haq]

How #WorldBank Arbitrators Mugged #Pakistan . The latest shakedown is a $5.9 billion award against Pakistan’s government in favor of two global #mining companies for an illegal #copper-#gold project that was never approved or carried out. Project Syndicate

by Jefferey Sachs

https://www.project-syndicate.org/commentary/world-bank-corrupt-arb...

In a normal world, the Court’s judgment would be respected absent proven evidence of corruption or other wrongdoing against the justices. But in the world we actually inhabit, the so-called international rule of law enables rich companies to exploit poor countries with impunity and disregard their laws and courts.

When TCC lost its case in Pakistan’s Supreme Court, it simply turned to the World Bank’s International Center for the Settlement of Investment Disputes (ICSID), in complete disregard of Pakistan’s laws and institutions. A panel of three arbitrators with no expertise in or respect for Pakistan’s legal system ruled that TCC deserved compensation for all future profits that it allegedly would have earned if the non-existent project, based on a voided agreement, had gone forward!1

Because there was no actual project, and no agreement for one, the arbitrators had no basis to say what terms – royalties, corporate taxes, environmental standards, land area, and other basic provisions – the governments of Balochistan and Pakistan would have set. In fact, disagreement on many of those terms had stalled negotiations for years.

Nonetheless, the ICSID panel arbitrarily decided that TCC would have had the right to mine 1,000 square kilometers, though the mining law forbade licensing such a vast area. The arbitrators ruled that TCC would have received a tax holiday for 15 years, even though there is no evidence that such a tax holiday was in the offing – or even legal. The arbitrators decided that TCC would have benefited from a royalty rate several percentage points below the mandatory statutory rate, though there is no reason why Pakistan would have set such a low rate.

The arbitrators also ruled that TCC would have met all environmental standards, or that the government would have exempted TCC from relevant requirements, though the mining area is in a desert region subject to extreme water stress, and the mining project would have demanded vast amounts of water. And the arbitrators ruled that to obtain the land needed for TCC’s pipeline, the government would have taken it from its owners and inhabitants.

The arbitration ruling is utterly capricious. An illegal project, declared null and void by Pakistan’s Supreme Court and never pursued, was found by the World Bank’s arbitration panel to be worth more than $4 billion to TCC’s owners, who had paid $167 million for it in 2006. Moreover, the tribunal declared that Pakistan must compensate TCC in full, with back interest, and cover its legal fees, raising the bill to $5.9 billion, or roughly 2% of Pakistan’s GDP. It is more than twice Pakistan’s entire public spending on health care for 200 million people, in a country where 7% of children die before their fifth birthday. For many Pakistanis, the World Bank’s arbitration ruling is a death sentence.

The ICSID is not an honest broker. One of the tribunal members in the TCC case is using the same expert put forward by TCC for another case in which the arbitrator is acting as counsel! When challenged about this obvious conflict of interest, the arbitrator refused to step down and the ICSID proceeded as if all were normal.

Thanks to the World Bank’s arbitrators, the rich are making a fortune at the expense of poor countries. Multinational companies are feasting on unapproved, non-existent projects. Fixing the broken arbitration system should start with a reversal of the outrageous ruling against Pakistan and a thorough investigation of the flawed and corrupt process that made it possible.

[Riaz Haq]

Barrick Gold Corporation (GOLD) Q4 2021 Earnings Call Transcript


https://www.fool.com/earnings/call-transcripts/2022/02/16/barrick-g...


Tanya Jakusconek -- Scotiabank -- Analyst

OK. And just my last question, if I could, just on your copper strategy. Just wanted to understand a little bit how Reko Diq fits into that strategy and just where we are on this asset?

Mark Bristow -- Chief Executive Officer

So right now, the asset that we have is the arbitration award of which we share with Antofagasta and ourselves, Barrick. We are working and have been in its general knowledge in the spirit of Barrick philosophy of how we can convert that into something that's more meaningful. And that's something that doesn't end up with the Pakistan government having to write out a big check without any benefits. And Reko Diq is an opportunity that we've been working on whereby everyone will benefit.

Our shareholders, of course, and same with the Balochistan government and the Pakistan government. And that's really where I would want to stop it because there's still a lot of work and water to flow under the bridge, but that's the tactic. And as I said, and I think I told Greg at this conference that it's a real asset. And we would like as miners to convert that into our mining asset.

It's one of the better ones around. Otherwise, we end up in conflict and that's not a good thing to do with your host country or potential host country.

Tanya Jakusconek -- Scotiabank -- Analyst

OK. So is it fair to say that this is a ways out in terms of fitting into your 10-year pipeline?

Mark Bristow -- Chief Executive Officer

It would be fantastic in our 10-year pipeline. It's a real deal.

Graham Shuttleworth -- Senior Executive Vice-President, Chief Financial Officer

But it's not in our 10-year pipeline.

Mark Bristow -- Chief Executive Officer

But it's not in -- yes, sorry, it's not in our 10-year pipeline right now.

Tanya Jakusconek -- Scotiabank -- Analyst

I understand that. But in terms of resolving everything and then probably having a feasibility study and other stuff in country, would you be able to even fit it into your 10-year pipeline?

Mark Bristow -- Chief Executive Officer

Sure. Absolutely.

Tanya Jakusconek -- Scotiabank -- Analyst

OK. Great. Thank you.

Mark Bristow -- Chief Executive Officer

Thanks, Tanya.

Operator

Our next question is from Mike Parkin with National Bank Financial. Please go ahead.

Mike Parkin -- National Bank Financial -- Analyst

Hey, guys. Congrats on the good quarter. Just a question with respect to the performance dividend. Does that indicate kind of a comfort level with carrying debt on the balance sheet? Or are you agnostic to where the debt is given that performance dividend is linked to the net cash position?

Mark Bristow -- Chief Executive Officer

So I think you've just answered your own question, Mark. Net cash means there's no net debt. And so the way it's designed is that if we have -- because what we've done initially is our debt to pay it all up is expensive. Hopefully, it gets cheaper and cheaper with the growing interest rates.

But we've offset it. We've got cash balancing the debt. And what we've said is anything above 0. So from zero to $500 million net cash payout of $0.05 dividend and then $500 million to $1 billion and $1 billion to $1.5 billion.

And so that's -- and what it does is it's -- it really is -- it's a nonnegotiable process because if we're investing heavily in a big project, for example, and we drive -- we increased the net debt to fund that. Then we are investing our shareholders' money into that project. And given our return criteria, we think most -- in fact, more than most of our shareholders would support that. If we don't and we build cash on the balance sheet, we make sure that we don't create an easy balance sheet and that on a formulaic basis money goes back to shareholders.