As a general rule, the crunching of big numbers is a big deal. When these numbers ring to the tune of a few billion dollars and some change, often to be paid in full by one's state to a foreign party, the stakes are different altogether. Naturally, a citizen is entitled to ask questions: why are seemingly endless entities, with names as unnerving as Karkey, Broadsheet, and Tethyan, allowed to syphon off whatever essence still manages to sputter about in an already troubled economy? These questions, whilst often emotively charged with a deep sense of mistrust and dislike for international arbitration, do so at the expense of recognising the nuances involved.
The recent announcement trumpeting the rebuilding of bridges in the Reko Diq case calls for some much-needed introspection.
The case of Reko Diq was birthed in 1993 by way of a joint-venture agreement between the Balochistan Development Authority (BDA) and BHP Minerals, a foreign company, to explore and ascertain the prospects of mineral resources in the Chagai district of Balochistan. An agreement in 2006 sees BHP Minerals replaced as a party, with the Australian-incorporated Tethyan Copper Company taking its place. Things start to go awry from here. Tethyan strikes gold -- literally -- and formally requests a mining lease under the agreement, which is refused. Around the same time, petitions start to inundate the gates of our courts on the grounds that the whole tale is a sordid affair doused with procedural irregularities. The Supreme Court is inclined to agree; it finds the original joint-venture agreement, and all other agreements flowing from it, to be void.
Aggrieved, Tethyan puts its case before the International Centre for Settlement of Investment Disputes (ICSID), alleging Pakistan to have carried out foul-play in breaching its obligations under the Pakistan-Australia Bilateral Investment Treaty, specifically: for not having acted equitably and by impairing the operation of Tetyhan's foreign investment.
For fear of turning a regular article into a meandering review littered with the legalese of the tribunals' findings, it will suffice for our purposes to acknowledge that the ICSID saw fit to slap a 6 billion dollar bill with Pakistan's name on it. Now, I do not propose to delve into the propriety of the findings -- that would entail a tome in itself. However, having graduated from this rudimentary crash course (hopefully), we begin to see the emergence of a vividly glaring theme: we practically handed the butcher his cleaver.
The Supreme Court's judgement, alluded to above, in Maulana Adul Haque Baloch v The Government of Balochistan case, found the joint-venture agreement to be a contractual body riddled with the bullets of illegalities and nullities. The coroner's inquiry comprised a rather winding list of fatal injuries including, but not limited to: Tetyhan's attempt to prey on political instability and gaps in the government of Balochistan's understanding to manipulate agreements to their will; a lack of transparency against the public interest, owing to the absence of any public floating of advertisements for the project; and charges of corruption against state officials, with those at the very top involved.
Now that's a decent dose of devious designing, but to mutilate an oft-quoted adage: a handshake is not struck with the one hand, and we wouldn't fare too badly by taking a look at our own. All the grounds listed by the Supreme Court, and relied upon by Pakistan to make a case for corruption before the international tribunal, eventually find their way back to us. The relaxation of legal provisions to facilitate the granting of mineral rights to BHA was signed off by the government of Balochistan whilst the BDA was the entity that deemed it proper to not publicly float advertisements for the project. On a similar note, the lack of federal and provincial institutions' capacity to adequately grapple with such complex matters is incompetence of our own complacent making. To put the proverbial cherry on top, any allegations of bribery on behalf of BHP were carried out by our own officials. Simply put, the whole matter is not some brain(dead)child that traces its entire lineage to some foreign conspiracy; we practically nurtured a monstrosity in the making. To then cry afoul against one's own misdeeds is blatant dishonesty.
The above constitutes the tip of a very sharp iceberg. Reko Diq is merely a subset within a set that exhibits broader themes of (mis)management not in line with international best practices. Academics and arbitration practitioners bemoan the dearth of commitment and understanding shown by the state in matters of foreign investment, the lack of uniform and effective negotiation in the drafting or revision of bilateral-investment treaties and investment contracts, as well as the complete absence of any pre-emptive measures that nip any brewing conflict in the bud.
For starters, there is a need for a holistic overview that keeps tabs on foreign investments at every stage. Such an approach would include the vetting of any foreign companies that may potentially invest, as well as a case-monitoring mechanism that picks up on any disharmony between parties and attempts to address them promptly. Transparency is something that wouldn't go amiss either with the previous handling of such cases, heavily clouded by financial and administrative obscurity. A transparent framework for the management of cases must be developed. Lastly, we must embrace the fact that arbitration is not a pariah concept that we can conveniently ignore; investors look to it as an invaluable right. To that end, state institutions must embrace and acquaint themselves with all the intricacies that it involves in building up their capacity.
None of this, however, is to absolve international arbitration entirely. The general apprehension that forced the hands of developing countries such as Venezuela and Bolivia to pull out of the ICSID Convention must have some weight to them, right? Well, to an extent. A number of studies have pointed out the relative advantage held by private investors from capital-exporting countries against developing respondent states.
The difference in relative bargaining position is something that self-serving investors may seek to exploit. Professor Sachs' scathing review of the case takes this further. He appropriately focuses on how far the tribunal in Reko Diq took its discretion in determining the quantum of damages. Thus, the ICSID gave vivid colour to a hypothetical world where Tethyan would have been awarded a lease and, most importantly, assumed that the resulting damages would in no way be impeded by the likes of stringent environmental standards and further statutory requirements set out by Pakistani law. In doing so, it gave currency to the chief concern often levelled against international investment arbitration: that these forms of arbitration consider the matter from a contractual lens only.
By determining a matter, international arbitrators indirectly decide upon a state's subjects and their interests. Developing states such as Pakistan are especially vulnerable to any blowback that foreign investments may result in. Maintaining a balance between the contract and public interest is something the system of international investment arbitration hasn't always succeeded in keeping.
To merely see this side of the coin, however, would be akin to missing the woods for the trees. Reko Diq was recently settled out-of-court, as was the Karkey Karadeniz case. Billions were touted to have been saved in an international arena rigged against us. But if we're being honest with ourselves, the need to pay damages should never have arisen in the first place. Composing odes that celebrate the limitation of needless damage within empty halls is nothing glorious.
The recent announcement trumpeting the rebuilding of bridges in the Reko Diq case calls for some much-needed introspection.
The case of Reko Diq was birthed in 1993 by way of a joint-venture agreement between the Balochistan Development Authority (BDA) and BHP Minerals, a foreign company, to explore and ascertain the prospects of mineral resources in the Chagai district of Balochistan. An agreement in 2006 sees BHP Minerals replaced as a party, with the Australian-incorporated Tethyan Copper Company taking its place. Things start to go awry from here. Tethyan strikes gold -- literally -- and formally requests a mining lease under the agreement, which is refused. Around the same time, petitions start to inundate the gates of our courts on the grounds that the whole tale is a sordid affair doused with procedural irregularities. The Supreme Court is inclined to agree; it finds the original joint-venture agreement, and all other agreements flowing from it, to be void.
Aggrieved, Tethyan puts its case before the International Centre for Settlement of Investment Disputes (ICSID), alleging Pakistan to have carried out foul-play in breaching its obligations under the Pakistan-Australia Bilateral Investment Treaty, specifically: for not having acted equitably and by impairing the operation of Tetyhan's foreign investment.
For fear of turning a regular article into a meandering review littered with the legalese of the tribunals' findings, it will suffice for our purposes to acknowledge that the ICSID saw fit to slap a 6 billion dollar bill with Pakistan's name on it. Now, I do not propose to delve into the propriety of the findings -- that would entail a tome in itself. However, having graduated from this rudimentary crash course (hopefully), we begin to see the emergence of a vividly glaring theme: we practically handed the butcher his cleaver.
The Supreme Court's judgement, alluded to above, in Maulana Adul Haque Baloch v The Government of Balochistan case, found the joint-venture agreement to be a contractual body riddled with the bullets of illegalities and nullities. The coroner's inquiry comprised a rather winding list of fatal injuries including, but not limited to: Tetyhan's attempt to prey on political instability and gaps in the government of Balochistan's understanding to manipulate agreements to their will; a lack of transparency against the public interest, owing to the absence of any public floating of advertisements for the project; and charges of corruption against state officials, with those at the very top involved.
Academics and arbitration practitioners bemoan the dearth of commitment and understanding shown by the state in matters of foreign investment, the lack of uniform and effective negotiation in the drafting or revision of bilateral-investment treaties and investment contracts, as well as the complete absence of any pre-emptive measures that nip any brewing conflict in the bud.
Now that's a decent dose of devious designing, but to mutilate an oft-quoted adage: a handshake is not struck with the one hand, and we wouldn't fare too badly by taking a look at our own. All the grounds listed by the Supreme Court, and relied upon by Pakistan to make a case for corruption before the international tribunal, eventually find their way back to us. The relaxation of legal provisions to facilitate the granting of mineral rights to BHA was signed off by the government of Balochistan whilst the BDA was the entity that deemed it proper to not publicly float advertisements for the project. On a similar note, the lack of federal and provincial institutions' capacity to adequately grapple with such complex matters is incompetence of our own complacent making. To put the proverbial cherry on top, any allegations of bribery on behalf of BHP were carried out by our own officials. Simply put, the whole matter is not some brain(dead)child that traces its entire lineage to some foreign conspiracy; we practically nurtured a monstrosity in the making. To then cry afoul against one's own misdeeds is blatant dishonesty.
The above constitutes the tip of a very sharp iceberg. Reko Diq is merely a subset within a set that exhibits broader themes of (mis)management not in line with international best practices. Academics and arbitration practitioners bemoan the dearth of commitment and understanding shown by the state in matters of foreign investment, the lack of uniform and effective negotiation in the drafting or revision of bilateral-investment treaties and investment contracts, as well as the complete absence of any pre-emptive measures that nip any brewing conflict in the bud.
For starters, there is a need for a holistic overview that keeps tabs on foreign investments at every stage. Such an approach would include the vetting of any foreign companies that may potentially invest, as well as a case-monitoring mechanism that picks up on any disharmony between parties and attempts to address them promptly. Transparency is something that wouldn't go amiss either with the previous handling of such cases, heavily clouded by financial and administrative obscurity. A transparent framework for the management of cases must be developed. Lastly, we must embrace the fact that arbitration is not a pariah concept that we can conveniently ignore; investors look to it as an invaluable right. To that end, state institutions must embrace and acquaint themselves with all the intricacies that it involves in building up their capacity.
None of this, however, is to absolve international arbitration entirely. The general apprehension that forced the hands of developing countries such as Venezuela and Bolivia to pull out of the ICSID Convention must have some weight to them, right? Well, to an extent. A number of studies have pointed out the relative advantage held by private investors from capital-exporting countries against developing respondent states.
The difference in relative bargaining position is something that self-serving investors may seek to exploit. Professor Sachs' scathing review of the case takes this further. He appropriately focuses on how far the tribunal in Reko Diq took its discretion in determining the quantum of damages. Thus, the ICSID gave vivid colour to a hypothetical world where Tethyan would have been awarded a lease and, most importantly, assumed that the resulting damages would in no way be impeded by the likes of stringent environmental standards and further statutory requirements set out by Pakistani law. In doing so, it gave currency to the chief concern often levelled against international investment arbitration: that these forms of arbitration consider the matter from a contractual lens only.
By determining a matter, international arbitrators indirectly decide upon a state's subjects and their interests. Developing states such as Pakistan are especially vulnerable to any blowback that foreign investments may result in. Maintaining a balance between the contract and public interest is something the system of international investment arbitration hasn't always succeeded in keeping.
To merely see this side of the coin, however, would be akin to missing the woods for the trees. Reko Diq was recently settled out-of-court, as was the Karkey Karadeniz case. Billions were touted to have been saved in an international arena rigged against us. But if we're being honest with ourselves, the need to pay damages should never have arisen in the first place. Composing odes that celebrate the limitation of needless damage within empty halls is nothing glorious.