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
"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:
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
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.
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:
COORDINATED APPROACH FOR MINING DEVELOPMENT
The Federal and Provincial governments have to
coordinate their activities particularly in the following areas:
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.
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.
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.
Government to declare Mining as apriority sector and raise loan and
grant funds from foreign DFIs and development agencies for mining
MAKING MINING PROJECTS LESS RISKY TO BANKS/DFIS
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.
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.
ATTRACTING LOCAL AND FOREIGN INVESTORS TO MINING
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:
Legal and judicial system.
Infrastructure including skilled man-power.
Investment environment and incentives.
Regulation and control including Labour Legislation.
Royalty, Duties and Taxes.
Frequency of change in investment policies and tax system.
Customs duties on import / export of equipment.
Reliable and comprehensive geological database.
Law and order situation and security.
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
Will their operations and personnel, both local and foreign, be
Will they be able to carry on and manage their legitimate business on
a day to day basis with no government interference?
Are the regulations concerning mining property and taxes simple, fair
Does the Government have balanced and clear Environment Regulations?
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?
Will government encourage partnership with local companies and/or
semi-government organizations in operation and ownership of mines?
Will government allow major ownership to foreign companies?
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
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.