Mining the future

In a world swayed by stories of instant gratification and game-changers, some still marshal the old-school mindset – hard work paves the way to true prosperity.

This enduring belief transcends fleeting trends, reminding us that genuine progress requires multi-generational dedication. This mental model evaluates a sector's possible contribution to the country’s GDP and explores the practical strategies for making the contribution a reality.

The notion that Pakistan’s mineral wealth has the potential to significantly boost its GDP is true. It is equally true that in 76 years of our existence, we have been unable to fully decipher this potential through world-class geological surveys, let alone exploit it. Available data suggests that minerals span around 600,000 square kilometers, many with commercial production capacity.

Although Pakistan boasts substantial reserves of copper, coal, zinc, gold, and crude oil, the mineral sector's contribution to the country's GDP remains surprisingly low, accounting for less than 1 percent. This stark contrast between potential and actual contribution underscores the need for strategic development and investment in this crucial sector.

The resolution of legal disputes surrounding the Reko Diq project heralds a new era of significant mining endeavors in Pakistan. Geological studies have confirmed the presence of substantial gold and copper deposits within the Reko Diq site.

Under the newly negotiated settlement, ownership of the project is equally divided between Pakistan and Barrick Gold Corporation (BGC). Of Pakistan's 50 per cent stake, the province of Balochistan retains a 25 per cent share, while the remaining 25 per cent is held collectively by three state-owned enterprises: Oil and Gas Development Company Limited, Pakistan Petroleum Limited, and Government Holdings Limited on behalf of the federal government. This restructured ownership model aims to balance national interests with provincial development, potentially setting a precedent for future large-scale mining projects in the country.

Expected to commence production in 2029, Reko Diq carries an estimated revenue potential of $1 billion per annum and a projected economic lifespan of 40 years. Over the next three decades, it could inject an impressive $10 billion into Balochistan’s economy through royalties and profit-sharing arrangements.

The project is anticipated to create approximately 7,500 jobs during peak construction and 4,000 long-term positions once production begins, with a strong focus on employing local people. BGC is also investing in development programs focused on bringing comfort to the sick through healthcare facilities, raising new educational facilities, and creating vocational training centers for youth.

As time passes the community will hopefully be able to concentrate on enhancing food security and ensuring access to clean drinking water. Reko Diq must strive to set a new paradigm, leading the way in environmental stewardship and cultivating strong community ties at the core of Pakistan's mining industry. The project is progressing encouragingly, with sound social settlements and a comprehensive security framework, including internal guards, local levies, and frontier corps.

Undeniably, it has been an arduous journey since the US Geological Survey first highlighted Reko Diq's potential from 1960 to 1970. The path ahead is equally challenging. The project still needs financial closure, and infrastructure requirements, particularly those of transporting minerals to the designated port. The daunting 600-kilometer journey from Nokandi to Gwadar will necessitate an investment of nearly $ 4 billion – a figure not included in the initial project cost. A more economical alternative involves upgrading the bulk breaking terminal at Karachi Port, which would require an investment of under a billion dollars.

Reko Diq is an opportunity to put Pakistan on the map of serious mining countries, but it is no panacea. The project demands further financial input, the creation of infrastructure, and contingency plans to address potential risks. Given Pakistan's stretched financial resources, Reko Diq could benefit from partnerships that share the burden and pave the way for future investments.

Despite earnest efforts by authorities, foreign direct investment (FDI) has been less forthcoming, hindered by macroeconomic instability, regulatory burdens, administrative inefficiencies, and continued reliance on IMF support. Foreign investors tend to favor established projects with predictable cash flows and hard currency returns – a harsh reality for Pakistan.

Reko Diq has attracted multiple international interests, validating its commercial potential. Consequently, Pakistan and the Kingdom of Saudi Arabia (KSA) have been on the negotiating table for a potential deal for KSA to acquire a minority stake in the Reko Diq project.

It's a delicate dance of diplomacy, finance, and strategic interests, with the potential to make new alliances and strengthen existing ones. It requires serious due diligence. Pakistan, KSA, and BGC have had three separate financial assessments of the shareholding value in Reko Diq. Pakistani authorities must professionally assess these technical financial and legal assessments. They should engage economic and financial experts capable of looking beyond FDI's short-term benefits to manage the broader implications of the contract.

Understandably, both Pakistan and KSA are seeking to grow their respective mineral sectors. KSA has the know-how in upstream mining. Our Saudi friends have a stash of capital to invest and if we play our cards well this should translate into investments beyond Reko Diq, building a foundation for a medium-term involvement of KSA.

Mining is a key focus area for Saudi Arabia's Public Investment Fund. Beyond attracting FDI, including Saudi Arabia as a partner can benefit regional security and stability. The Saudis have explored various investment opportunities in Pakistan, including mining, state-owned entities, and private companies. A recent private sector deal between ARAMCO and Gas and Oil Pakistan Limited bodes well for Pakistan's economic prospects.

Investment negotiations are presumably on the last lap to establish a mutually beneficial mining partnership that strikes the right balance between financial stakes, ownership ratios, and agreed-upon returns. Pakistani authorities must ensure that the deal makes commercial sense, factoring in country risk and the strategic benefits that KSA's involvement might bring. Both BGC and Balochistan are not keen on diluting their share – suggesting that KSA’s involvement would likely come through acquiring shares owned by the federal government.

The federal government is expected to dilute its ownership by 10–15 per cent. The intergovernmental act which allows government-to-government sale will come in handy to close the deal placing the onus on authorities to engage the best minds in the process. Pakistan must not forego its shares for KSA in isolation but should link the deal with investment in other sectors as well. If executed properly, this deal can expand bilateral relations with Saudi Arabia beyond loans and grants.

Achieving a favourable outcome hinges on meticulous management by professionals alongside Pakistan's polity and establishment. Viewing the involvement through the lens of hard work, getting KSA to commit to ongoing efforts like exploring the new holes around Reko Diq, may be seen as a continuous effort rather than a one-time game-changer media frenzy.

We aspire to transform Balochistan’s rugged landscapes into a thriving hub of mineral wealth and prosperity. Reko Diq can be showcased as a model of Pakistan’s ability to forge international partnerships, engage communities, and demonstrate robust legal regulations. The responsibility lies with us to achieve these goals in a manner that looks after the interests of 250 million Pakistanis.

The writer is former adviser, Ministry of Finance. He tweets @KhaqanNajeeb and can be reached at:

khaqanhnajeeb@gmail.com