DesPardes + PKonweb

How Much Pakistan May Have Lost While Contesting Reko Diq Challenge

Reko Diq bloodbath could have been avoided, and it still can be: monetizing the obvious loss, and not arguing the fait accompli— both can run concurrently.

IRSHAD SALIM (Updated) — Pakistan was slapped last week with roughly $4.2bn plus interests for a total $5.8bn in damages– having lost its arguments in the international arbitration on Reko Diq gold contract back in 2017. The Supreme Court verdict of 2011 against gold digging and selling contract with a foreign entity triggered the contest for restitution versus damage control by the parties.

Transactionalism is the business-as-usual way commercial ventures are looked at even if it’s sprinkled with politics or geopolitics. Reko Diq is too. So it’s all about monetizing the obvious, not arguing with the intent to under-carpet the fait accompli. The opportunity still exists.

Money spent not being able to minimize or monetize the obvious: $25m; Hours spent: unknown: The who’s who in the team: unknown.

The opportunity cost ( 2011 thru 2019: 8 years) while waiting for the ‘obvious’ to happen is humongous: An estimated 250,000 ounce of marketable and exportable gold daily translated into a revenue stream loss of $1.05 trillion over the 8 lost years.

Gold futures rate in 2011 was $1457/oz and in August 2019 it’s $1454/oz.

Fast Forward: Assuming, that the highest gold futures rate could be double the present rate of $1422, the average gold futures rate ($2133) could then yield a total estimated albeit expected revenue stream of $11 trillion over the 56 years process cycle.

Over the last 8 years, the total revenue lost by both parties combined and based on 2011 and 2019 gold futures average rate of $1440 (2011 was $1457 & 2019 is $1454) was: $1.05 trillion.

With roughly 25 percent profit/loss equity share held by the country in the highly profitable contract, the revenue lost by the country during this period was $263 billions ($1.05tr x 25%). That equates to yearly revenue loss of $33bn ($263bn/8) during the 8 years.

The damages estimate to be $725m for each of the eight year (2011-2019).

By adding the damages to revenue lost over the period, the figure totals $39bn– roughly $5bn each year.

Decades back I learnt (the hard way) that, when u want to pass the buck for lack of capability and capacity, hire a lawyer and be ready for the worst.

The damages announced translates to little over two percent (2.21%) of $263bn in total revenue Pakistan lost over 8 years, contesting the foreign firm’s complaint against Pakistan post-Supreme Court verdict in 2011.

The 2.21 percent is approx 0.28 percent each year. This could have been avoided from techno-commercial standpoint.

So the self-inflicted revenue loss (I dare to say) of $263bn overwhelms $5.8bn damages announced.

Ironically, we spent only $25m to contest rather than seek settlement and move on using business and commercial approach, so we that could have moved forward. If this was ever attempted, it is publicly unknown.

Assuming it did not happen then, still, a techno-commercial approach is needed as a way forward while the damage announced is appealed and negotiated on all fronts.

Other collateral losses as a result of the contest, included time and opportunity costs not being able to make socio-economic improvement in the area which could then have made a huge difference.

I suggest embedding the loss– let underwriters or the complainant buy the risk over the total business cycle or both. There’s no uncertainty any more in the number– nor a contingency claim referred to in the financials on both sides.

Transactionalism is the business-as-usual way commercial ventures are looked at even if it’s sprinkled with politics or geopolitics. Reko Diq is too. So it’s all about monetizing the obvious, not arguing with the intent to under-carpet the fait accompli. The opportunity still exists.

In Reko Diq expectations always matched– key to successful negotiations. The Supreme Court verdict was a spoiler though. The 2017 ADR (Alternate Dispute Resolution) defeat however opened the door for techno-commercial avenue, as the decision recognized existence of a contract. Meaning, a team of business professionals (not lawyers) would have, could have done a deal on this premise. Decades back I learnt (the hard way) that, when u want to pass the buck for lack of capability and capacity, hire a lawyer and be ready for the worst.

I rather opted to become a student of contracts and claims and made lawyers hate me for settling– I would ask them just to wrap the settlement with a”boiler plate” –a jargon they use.

The writer is a business consultant and analyst presently based in Islamabad. He’s also the Editor-in-Chief of despardes.com and pkonweb.com.