Reko Diq Copper and Gold Mining: Issues & Recommendations

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2.1 Government’s Role/Regulatory Mechanism:

The purpose of the legal review is to identify the strengths and weaknesses of the legal framework for mining in Pakistan and its provinces in relation to current, generally recognized international best practices. With respect to issues that may restrain the ability of Pakistan to attract significant private investment into its minerals sector, suggestions are presented as to solutions implemented in other countries that could be considered by the Government.

2.1.1 The Role of the State in the Minerals Sector

Clarity of Authority

The National Minerals Policy 1995 notes that minerals other than oil, gas and nuclear mineralsand those occurring in special areas under the control of the national government (e.g., the FederallyAdministered Tribal Areas and the national area surrounding the capital city are governedby the laws and regulations of the provinces in which they are located. This is based on articles141 and 142 of the Constitution of the Islamic Republic of Pakistan, 1973 as amended andrecently restored to effect (the “Constitution”), and the absence of minerals other than oil, gasand nuclear minerals from both the Federal Legislative List and the Concurrent Legislative Listin Schedule 4 of the Constitution.Thus, it appears to be clear that the Federal Government of Pakistan has exclusive authority overthe development of:

Petroleum resources,natural gas and “mineral resources necessary for the generation of nuclearenergy;” andall other mineral resources occurring in federally administered areas;while the respective provincial governments of the four provinces of Pakistan have exclusiveauthority over the development of:

All mineral resources occurring within their respective borders other than those resources under the exclusive control the Federal Government.

2.1.2 Mitigation of Conflicts of Interest

In order for the State or province to be able to effectively promote and regulate private investment in the minerals sector, it is necessary for the sovereign to establish regulatory institutions that are independent from, and that grant no preferential treatment to, state-owned mining enterprises.According to the NMP, Pakistan decided to privatize the public sector mineral corporations existing in 1995 and to refrain from establishing such entities in the future. Furthermore, the NMP does not contemplate that governmental departments or entities will play a role in commercial exploration and mining in the future. The provincial rules implementing the NMP appear to be consistent with this policy. Accordingly, the current policy and rules do seem to adequately mitigate the potential conflicts of interest between the governments’ former role as operator and its current role as regulator of minerals activity, provided that the 1995 policy has indeed been implemented – particularly with respect to the privatization of the public sector mineral sector corporations.

2.1.3The Nature Of Mineral Rights (Constitutional Basis)

There is no Constitutional basis for private mineral rights in Pakistan. This is typical of commonlaw jurisdictions. Mineral rights in Pakistan are purely creatures of provincial law. This islogical in a federal system, but investors in major projects are likely to want to satisfy themselvesthat the mineral rights they obtain are recognized by the federal government as property rightsthat cannot be taken without due process of law and prompt and adequate compensation. The

NMP contemplates that such assurance could be obtained through the negotiation and executionof a mineral agreement. That may be acceptable and desirable for major investors; but it requiresconsiderable resources on the part of the federal government and the provinces to first negotiateand then administer the mineral agreements.

Definition by, and Status in, Law

Although the mining rules of the three provinces reviewed for this paper describe the rights and obligations of mineral licenses and leases, they do not explicitly clarify the nature of those rights.The licenses are presumably personal property rights and the leases are presumably real property rights; the exact legal nature of the rights may be determined by other laws. Both are subject to some restrictions on transfer. It would be desirable to clarify the legal nature of such rights in the provincial mining laws, by specifying whether they are real or personal property, inheritable,mortgage able or pledge able and transferable.

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