Mining is no doubt an important economic activity in Balochistan and deserves full support

July 14 - 20, 2003




The Balochistan Finance Minister, in his budget speech on 20th June 2003, reportedly blamed the commercial banks of ignoring credit needs of his province, particularly of the mining sector. He announced setting up of Balochistan Bank for which Rs 100 million has been allocated in the budget. Next day in his post-budget conference, he reviewed the sources of deposits and the loaning practices of the big commercial banks in different areas of the country. He pointed out that that the NWFP and the Punjab had set up their respective banks and, therefore, his government also wanted to set up a similar financial institution. Mining was one of the main economic activities in Balochistan and it would get a boost after Balochistan Bank is set up and start providing funds to the miners. The minister was assisted by the concerned officers in the conference.

Mining is no doubt an important economic activity in Balochistan and deserves full support. Mining is also important for the economies of other provinces in the country. Mining activities have to be supported as otherwise the country might not be able to achieve the economic development objectives for which the government has been striving. The establishment of the Balochistan Bank might help the mining sector to some extent but much more needs to be done to facilitate the financing of the mining projects in Balochistan and in other areas of the country. The issue of relatively less credit to the miners and the reasons thereof might be looked into carefully by all the stakeholders.

The financing of mining sector has come under discussion earlier also at a few occasions. The Ministry of Petroleum and Natural Resources and the United Nations had sponsored an International Round Table Conference on Foreign Investment in Exploration and Mining in Pakistan. The Conference was held at Islamabad on October 16-18, 1994. Later, the Conference Proceedings were also published. At the Conference, this scribe had honour to read a paper entitled 'Role of National and International Financial Institutions in Development of Mining Sector in Pakistan'. An attempt was made to collect and present data on loans to mining projects by the main DFIs namely, NDFC, PICIC, IDBP, BEL and RDFC. Also, for promotion of mining sector the role of international agencies such as the World Bank, the ADB, Islamic Development Bank, ODA-UK, UNDP, MCC-China, German and French Banks, and AIDAB-Australia was summarized in the paper. Some of these institutions were very supportive of the Pakistan's efforts for promoting mining sector. In the final analysis it appeared that the government authorities were to take appropriate measures to be able to benefit from the financial assistance and support from these institutions and agencies. The following two Sections from the paper mentioned above, appear relevant to the present situation and are reproduced below for information of the stakeholders.

"REASONS OF LOW FINANCING: Banks and DFIs are more familiar with the financing of industrial projects as compared to Mining Units which are considered more risky and are generally located in far-flung areas having little infrastructure facilities or utilities and without adequate protection to life and property. Other main reasons for low level of advances and loans by banks and DFIs to mining units are as follows:

a. Mine owners are reluctant to incorporate their firms as limited companies, a requirement by all DFIs and most banks. Mine owners have apprehensions from the Income Tax and other similar departments of the Government.



b. Banks and DFIs want proper and adequate security for their advances and loans. Location of the project (at mine head in far flung areas), nature of mining machinery (moveable), etc. along with reluctance of mine owners to offer other collateral ultimately result into cancellation of most of the sanctioned facilities. Banks and DFIs are also hesitant to make loans to mining projects due to lack of geological data and authentic reserve evaluation reports.

c. Banks and DFIs are under the impression that the Mine Lease/Concession given to mine owners are not conducive for the purpose of perfecting the security nor helpful in loan recovery through liquidation. In this context, though replies from most of the Provincial Authorities are still awaited, the Industries & Mineral Development Department, Government of the Punjab has advised that the changes have already been introduced in the relevant Rules for the purpose of protecting the interest of the creditors of the mine owners.

d. Priority areas are generally specified by the Government for the purpose of loans and advances. In most cases the State Bank of Pakistan makes available to Banks and DFIs special purpose credit lines at concessional rates. Mining so far has not been added to this category.

e. Banks and DFIs overall experience with respect to loan recovery has been unpleasant. Due to this reason further loaning is either not considered at all or if considered terms and conditions including security are very tight with the result that most mine owners do not avail the approved facility."

"SUGGESTIONS FOR ATTRACTING THE LENDERS AND THE INVESTORS TO THE DEVELOPMENT OF MINING IN PAKISTAN: The above discussion on the one hand clearly establishes that the level of activity in the mining sector and the financing through loans have been rather low. On the other hand, the discussion points out to various factors, which have not been conducive for availability of larger financing to the Mining sector. This calls for remedial measures by the Federal Government, the Provincial Governments and various institutions set up for the development and exploitation of mineral resources in Pakistan. In order to attract local/foreign private investors in a big way for the promotion of mining sector in Pakistan, the following recommendations are submitted for consideration:


The Federal and Provincial governments have to coordinate their activities particularly in the following areas:

a. Preparation and implementation of Mining Development Policy. Federal government to provide concessionary credit line through State Bank of Pakistan and also to allow exemption of the mining machinery from customs duties. Also remove apprehensions of the mine owners by rationalizing income tax and royalty issues.

b. Revision and up-date of Mining Act and the Lease Rules by the respective Provincial Governments to make easier the raising of loan funds by the mine owners and the security enforcement by the creditors.

c. Federal and provincial mine development authorities to cooperate and form joint ventures instead of rivalry and disagreement particularly in grant of leases, concessions, etc. These authorities should pool their expertise and also benefit from one another.

d. The Government to declare Mining as apriority sector and raise loan and grant funds from foreign DFIs and development agencies for mining development.


a. Local and foreign investors generally and banks/DFIs particularly are averse to investment in mineral exploration and appraisal activities. These stages will need to be financed by the provincial governments themselves (or provincial mining bodies) from own cash resources coupled with technical assistance grants. It may be remembered that if there is no exploration there will be no mine.



b. The local and international DFIs will prefer to finance operational phase of mining projects based on processing of industrial minerals and located in industrial estates. Large projects involving mining or processing of mineral ore may be kept for public sector corporations or the joint venture promoted by the Government of Pakistan or Provincial Governments with the local/foreign private investors.

c. To attract loan from banks/DFIs, a mineral project has to be commercially viable and the owners should provide satisfactory collateral. In this context, the Provincial Government can contribute by way of amendment in the Lease Rules and by removing the difficulties in the grant and the period of lease/concession, collection of royalty and by providing utilities and roads to the mines.


a. The Government has to take steps for improving situation in the following areas which would be carefully examined by the Foreign and Local Investors before deciding to invest in Mineral Sector in Pakistan:

i. Legal and judicial system.
ii. Infrastructure including skilled man-power.
iii. Investment environment and incentives.

iv. Government policies.

v. Regulation and control including Labour Legislation.

vi. Royalty, Duties and Taxes.

vii. Frequency of change in investment policies and tax system.

viii. Customs duties on import / export of equipment.

ix. Reliable and comprehensive geological database.

x. Law and order situation and security.

b. (This sub-part is an elaboration of the earlier recommendations). The Federal and Provincial Governments have to take measures such that the foreign and the local investors get satisfactory answers to the following questions:

i. Will their operations and personnel, both local and foreign, be secure?

ii. Will they be able to carry on and manage their legitimate business on a day to day basis with no government interference?



iii. Are the regulations concerning mining property and taxes simple, fair and stable?

iv. Does the Government have balanced and clear Environment Regulations?

v. If they invest and are successful, will they be able to receive the benefits of their investment by being able to repatriate their recouped costs and profits and not be subject to expropriation?

vi. Will government encourage partnership with local companies and/or semi-government organizations in operation and ownership of mines?

vii. Will government allow major ownership to foreign companies?

c. The mining labour, supervisors, inspectors and other provincial officers supervising the mining operation need to be given extensive training so that the operation of the mines are efficient and safety of lives is assured.

d. Federal/Provincial mining authorities and agencies may start providing mining machinery and equipment to private mine owners on easy installments and/or on rent basis. Leasing companies can play very useful role in such financing."

Since the Conference in 1994, the Government has taken a number of positive steps such as the issue of the Mining Policy, the Environment guidelines, etc. for promotion of the mining sector in Pakistan. However, as the banks are not showing enthusiasm for mining, it appears that the government has as yet to take many more steps for making the mining sector attractive for the investors as well as the banks and DFIs.

As per press reports, both the Federal and Provincial Government authorities these days are having consultative meetings with a two-member technical mission from the World Bank. The Pakistani authorities have sought technical and financial help to develop the mining sector. The provinces have reportedly sought help for provision of technical expertise, training and equipment to the provincial mineral departments to make them more effective. The government might as well approach other agencies mentioned earlier for technical and financial assistance. However, it may be appreciated that the financing of mining projects is expected to take off when the conditions on ground are conducive, for which all the stakeholders have to diligently play their respective roles, take concrete legal or procedural measures and provide necessary resources for the purpose.