FOREIGN INVESTMENT IN MINERAL SECTOR
SYED FAZL-E-HAIDER, QUETTA
Oct 01 - 07, 2007
Pakistan plans to focus on the development of mineral sector for attracting international investment particularly in metallic minerals and coal related energy projects in the country. It has earmarked Rs 326 million for mineral sector in the current financial year. Major projects to be carried out during the current year include the ground follow-up aero-magnetic anomalies in Chagai district of Balochistan at a cost Rs 35 million, upgradation of geo-science advance research laboratories of Geological Survey of Pakistan (GSP) in Islamabad at a cost of Rs 70.180 million.
Balochistan is endowed with a large number of metallic and non-metallic minerals. Unfortunately, mineral sector contributes nominally to the provincial GDP. The sector can contribute to the economic development of Balochistan through royalties, employment, and community development.
The province's near term growth potential exists with commercial exploitation of Saindak copper and gold deposits and the possible future exploitation of Reko Diq copper deposits in Chagai and Duddar zinc-lead deposit in Lasbela district. Balochistan's strategic copper and gold assets have attracted interests of foreign investors who have purchased stakes in copper projects during the last five-year period. The Chagai district is expected to become a hub for the metallic mineral mining industry in the next five years.
Saindak and Reko Diq projects can make Pakistan one of the major producer and exporter of copper in the world. The country can save a huge amount, which is spent on the import of minerals each year. It can earn a large foreign exchange by exporting minerals, and its products. The key issues related to the development of mineral sector in the province include the policy issue, lack of infrastructure and law and order problem.
The officials claim that the revised mineral policy would attract local and foreign investment and accelerate exploration and research activities in the country. The export-oriented minerals have been given priority under the policy. What has happened to the export-oriented mining projects in Balochistan, is a shocking story. The Saindak copper project was abruptly closed after trial production in 1995.
The latest example of the cancellation of the Gulf Minerals' license, may be cited in this regard. Gulf Minerals, a Dubai-based company is set to wind up its mining operations at Sonmiani in Lasbela district. The company had been engaged in setting up export-oriented mineral exploration and allied facilities in the proximity of Sonmiani area. Balochistan government recently issued a notification to the company in which the official exploration lease has been withdrawn due to the strategic importance of the area. The initiative has not only created uncertainty among foreign companies presently involved in the exploration of minerals in the province but it has also sent a discouraging signal to the potential investors.
The company had started the project of the minerals sand with an investment of $199 million. This particular project is 100 percent export-oriented with minimum export of Rs 500 million per year. US$200 million mineral sands project around Sonmiani was aimed at exploring zircon, garnet, hematite, rutile and other iron-associated minerals. Balochistan government had granted the Exploration License covering an area of 978 square kilometers last year in April. Since then, the company started conducting geo-topographical survey and exploratory drilling in its licensed area. As per its lease, the Gulf Minerals had invested about 5.5 million dollars over the year in raising an infrastructure to exploit the mineral potential of the coastal area.
The federal government has mainly been responsible for mineral sector promotion and co-ordination across federal, provincial, and local governments. However, the results are still below expectations mostly due to relatively slow implementation of the National Mineral Policy (NMP). What is really needed is to implement the NMP that was formulated in 1995 with an aim to bring reforms in the sector. The NMP decentralized licensing, regulatory, oversight functions, and taxation to provincial governments to achieve efficiencies and promote local economic development.
As per revised mineral policy, the basic geological data would be generated and disseminated through print and electronic media and project profiles of world class mineral resources would be published in well-reputed mining magazines. Accelerated geological mapping and geo-chemical exploration of high mineral potential areas like Balochistan would assist understanding the genesis and geometry of these deposits for the subsequent development.
Government should first collect maximum valid resource data on minerals in the province. This resource data can be collected by carrying out a detailed exploration of the minerals, which will quantify the reserves. It is deplorable that even mineral reserves of many ores have not yet been categorized. The mineral reserves of all the ores found in the province must duly be categorized as "measured", "indicated" and "inferred". The funds should be allocated the purpose.
The provincial mining concession rules, which fail to meet international standards, must be abolished. The inadequacies of these rules created uncertainty decelerating the pace of development in the sector. Another reason for negligible growth in the sector has been the lack of knowledge of the mineral potential of the province.
Balochistan, the country's least-developed province, is mired in poverty. It suffered from years of neglect. The mining districts in the province essentially lack the facilities like electricity, gas and water, which have plagued timely development and commissioning of mines. The exploration of underground water potential of the area is essential for carrying out any mining project.
Some districts like Chagai are faced with acute shortage of water. Like the Saindak project, the expected mining operations in Reko Diq will depend on sub-surface water. To overcome the shortage of water, there is a dire need to explore and develop underground water potential of the mining areas in Balochistan.
The government may establish Export Processing Zones (EPZs) in different districts of Balochistan where mining and production activities are underway. The utilization of EPZ facilities by foreign companies would bring foreign investment in mineral sector. There are other indirect benefits of establishing EPZ such as income from taxation, development of rural areas, infrastructure and support industries and poverty alleviation.
A fully operational Gwadar port provides the province enormous opportunities to exploit its mineral resources, which have so far been untapped. The Gwadar seaport and its the related planned regional highway projects will help the province become a world-class mining center. Foreign mining firms, which are presently operating mining business in Balochistan province, have already shown keen interest in bringing their cargoes through the new port of Gwadar on Arabian Sea. A delegation, comprising Canadian, Australian and Chinese companies reportedly approached the Ministry of Ports and Shipping and the Gwadar Port Authority (GPA) to collect basic facts about the operational activity of the port.
The Gwadar port operator, Port of Singapore Authority (PSA) is presently holding preliminary meetings with authorities concerned for fixing tariffs and port charges which are yet to be announced. The province due to its strategic location has comparative advantage in the region. Gwadar port is expected to enhance the capability of the province to export its products and commodities to foreign countries. It will revive trade links between China and Central Asian states extending cargo facilities to both sides. Islamabad has already declared Gwadar as Special Economic Zone (SEZ).
Mineral sector development is subject to stable political and security environment in the province. No foreign investment can be allured as long as the province remains in the state of turmoil. Many foreign mining firms have closed their operations due to the security reasons in the province.
Though discovered some 35 years back, the Chamalang coal mines could not be exploited due to security reasons. The Luni and Marri tribes had been at war over the ownership of the mines during the last three decades. This tribal rivalry had not only hampered mining activities in the area but also caused human casualties. Resultantly, the coal reserves remain untapped. As result of peace moves on both sides under official patronage, the two tribes entered into an agreement to revive the mining operations in the area.
A conciliatory approach needs to be applied while dealing with the prevailing situation in the province. Government must try to resolve the security problem amicably through a peace truce with the tribal jirga and stop military operation in the province. Following the example of Chamalang fund, some others fund may also be established in other areas of the province where other projects are underway for the socio-economic uplift of the local people. Saindak fund and Reko Diq fund in Chagai, Duddar fund in Lasbela and Dilband fund in Mastung may also be set up in the province. Such initiatives will ensure that fruits of development are available to the local people at their doorsteps.