ISLAMABAD: The government on Sunday approved a payment of more than $900 million to the Chilean company Antofagasta over six years in order to terminate the Reko Diq project, following the Supreme Court’s approval of a settlement agreement for more than $6.5 billion last week.
In order to move the gold and copper mining project forward, the committee also approved state-owned enterprises’ (SOEs) $1.91 billion in shareholder funding.
The decisions were made at a special meeting of the Economic Coordination Committee (ECC) of the cabinet, which was presided over by Finance Minister Ishaq Dar via video link from Lahore. The meeting was called to meet deadlines for an out-of-court settlement with the Tethyan Copper Company in order to avoid a looming $10 billion international arbitration award.
The settlement agreement states that the “definitive agreements” are prepared for signing by December 15.
According to the agreement, the government and its subsidiaries, OGDCL, Pakistan Petroleum Limited, and Govt Holdings Pvt Limited (GHPL), have already put $900 million into an escrow account for payment to Antofagasta Minerals of Chile in order to terminate the project. This payment will also include interest over a six-year period.
ECC makes a choice to avoid a potential $10 billion arbitration award.
These organisations must also secure around $4.3 billion in equity investments for the revamped project, now known as Barrick Reko Diq Holdings Limited (BRDHL), which will be run by Canadian mining company Barrick Gold Corporation.
An announcement made following the meeting stated that “The ECC considered and approved two important agenda items related to the Reko Diq project, paving the way for early start of the Reko Diq Project.” It also stated that it permitted the concerned government agencies and SOEs to act in a way that ensured the deposited funds, along with interest, would form part of the consideration for the share purchase of the Reko Diq Mining Co.
According to reliable sources, the finance ministry informed the ECC that, in accordance with “definitive agreements” ready for signature by December 15 as part of the settlement agreement, Pakistan Minerals Ltd. (SOE SPV) and the government of Balochistan (GoB SPV) would each contribute $1.194 billion and $717 million, respectively, toward the funding obligation in the restructured project, out of the $4.297 billion to be adjusted for inflation.
Approximately $11 million of this financing is needed this year, and a total of $730 million will be needed by the 2026–2027 fiscal year. This funding is needed over a six-year period.
The foregoing equity contribution might be reduced to $597 million for SOEs SPV and $359 million for the provincial one, whose financing arrangement is also the responsibility of the federal government, in the case of project financing of up to 50%.
Thus, the ECC gave the finance minister permission to start the process of obtaining a guarantee from a financial institution or multilateral development lender that was unanimously agreed upon in order to raise debt funding.
The Petroleum Division also filed a summary of accumulated interest on the $900 million held in escrow as part of the Reko Diq project dispute settlement for approval.
The Tethyan Copper Company Pvt Limited, a partnership between Barrick Gold and Antofagasta, and the federal and Balochistan governments entered into an out-of-court dispute settlement over their long-running disagreement over the Reko Diq copper and gold mining project in the Chagai district, it was reported to the Economic Coordination Committee.
The federal government must pay Antofagasta’s debts in accordance with the settlement’s provisions.
In accordance with the terms of the settlement agreement, the ECC granted permission to the finance division to direct the GHPL, OGDCL, and PPL to deposit the total interest amount of $22.72 million in the escrow account between March 31 and December 15 of this year, for both their own purposes as well as the Balochistan government’s share.