Islamabad:
Pakistan revised the cost of the first phase of the Reko Diq Copper and Gold Mines project on Thursday for the second time in six months. The cost has now jumped 79% to reach $ 7.7 billion compared to the initial estimate due to the increase in loan costs for the project and to compensate for any future price shock.
The Economic Coordination Committee (ECC) of the firm approved the second revision of the total cost of the first phase of the project. The Minister of Finance Muhammad Aurangzeb chaired the meeting. The ECC also erased the signing of the implementation agreements to formally launch the strategically important project.
In addition, the ECC has approved sovereign guarantees to support a loan of $ 390 million to contract by Reko Diq Mining Company to finance the Pakistani railways for the construction of an 880 kilometers railway. This line will carry minerals to Karachi Seaport.
The ECC has increased the total cost of the project for phase I to $ 7.72 billion. This includes $ 5.8 billion in capital expenditure.
This is the second revision in six months. In March this year, the ECC had approved the cost increase to $ 6.8 billion.
A Ministry of Finance document said that the ECC had considered a summary of the oil division. The summary linked to approvals for final agreements and financial commitments for the Reko DIQ project.
“The ECC approved the proposed final conditions of the agreements,” said the press release. He added that if the legal and financial advisers, as well as the operating company of Reko Diq, identified any material difference, they would be returned to the ECC for approval.
The Minister of Finance observed that the inclusion of emergency costs showed the concerns of the company concerning the risks in the implementation of the project. He urged the authorities to take all measures to complete the project in time.
Two and a half years ago, the project was estimated at $ 4.3 billion. It is now up 79% or 3.4 billion dollars even before the start of production.
Phase II is due in 2034 at an additional cost of $ 3.3 billion. This will increase the capacity to 90 million tonnes per year (MTPA), indicates the report. With this, the total cost of the project will affect almost $ 10 billion.
The ECC has also approved the increase in the debt component from 3 billion to 3.5 billion dollars. The loan of additional $ 500 million adds additional $ 180 million in interest cost.
Officials informed the ECC that the increase was due to around $ 2 billion in project financing needs. Inflation during construction, operating costs during the construction period and expenses before 2025 also increased the figure, according to officials of the Ministry of Finance.
Due to the largest debt, shareholders’ contribution has also increased by $ 458 million. However, Reko Diq Mining Company is still trying to maintain the cost of less than $ 7 billion. In the event of success, shareholders’ commitments would drop $ 3.5 billion.
The first revision was based on a new feasibility and technical report prepared by Barrick Gold, which holds 50% of the project.
The project is of world interest, attracting the United States and China. Its net cash flow over 37 years is planned at $ 70 billion. This represents almost 10 times the current exchange reserves of Pakistan.
The technical report indicates that production will start in late 2028. The mine initially reports 200,000 tonnes of copper per year in phase I at a cost of $ 5.7 billion. The completion of this first phase is expected in 2029.
The participation of Pakistan is divided between three federal companies – The Oil and Gas Development Company Limited (OGDCL), Pakistan Petroleum Limited and Government Holdings (Private) Limited. Each has 8.33%, making a combined participation of 25%. Another 25% is held by the Balutchistan government, while Barrick Gold has 50% and is the operator.
The ECC has also been informed of the long term sheet project. This sheet describes the common terms for lenders and will constitute the basis of the final agreements.
These agreements include a direct government agreement with lenders, a federal guarantee agreement, a Baloutchistan completion agreement, a public enterprise completion agreement and a transfer restrictions agreement.
The ECC allowed public companies to repatriate funds from January 2023 over seven years or more. This will respond to their finance action of $ 2.2 billion.
It also allowed OGDCL and PPL to organize currencies from their own resources. If they face deficits, the federal government will provide currencies.
The ECC has also authorized the Secretaries of Petroleum and Finance to the FINALIAE execution forms of the agreements.
Railway project
The ECC also examined a summary of the Ministry of Railways. It was linked to a rail development agreement and a bridging financing agreement with Reko Diq Mining Company. The company will extend $ 390 million in bridges funding to place a 1,350 km track from Balutchistan in Karachi, the Ministry of Finance said.
The ECC approved the proposal. He ordered the Ministry of Railways to share the documents with the Finance Division for Evaluation. He also asked the two ministries to submit an implementation update by March of next year.
The Minister of Petroleum, Ali Perviz Malik, underlined the surveillance of the project so that the railways of Pakistan can return the $ 390 million with interest in three years.
The Minister of Finance said that ECC’s approvals had reported the government’s commitment to Reko Diq. He said the project could transform the economy of Balutchistan and benefit the whole country.
He added that Reko Diq would unlock one of the largest copper deposits not developed in the world. It would create jobs, improve infrastructure and support long-term socio-economic growth.
The rail link is essential for the commercial success of the project. It will allow the shipment of copper concentrate for treatment and sale abroad. The mining company has favored a rail link via Port Qasim, connecting ML-III and ML-I.
The funding of $ 390 million, approved by the Prime Minister last month, will bring a tenor of three years to approximately 7% interest. Nokundi’s existing ML-III track in Rohri needs urgent improvement. Without this, the line cannot manage the planned heavy freight traffic from Reko Diq at the port of Karachi.
