The Express Tribune - 28 October 2023
Investment treaty gets go-ahead
An executive committee of the Special Investment Facilitation Council (SIFC) has given the go-ahead for negotiating the Bilateral Investment Treaty (BIT) with Saudi Arabia aimed at addressing concerns of the kingdom that wants international arbitration in case of an investment dispute.
The investment treaty with Saudi Arabia and Qatar would be annexed with the free trade agreement (FTA) between Pakistan and the Gulf Cooperation Council (GCC), highly placed sources told The Express Tribune.
Pakistan and Saudi Arabia signed the preliminary FTA late last month but postponed the inking of the final FTA till the agreement on BIT, said sources.
The decision would now be placed before the apex committee of the SIFC, a civil-military body working to bring foreign investment, for formal endorsement in its next meeting, sources told The Express Tribune.
They said that the investment treaty would be negotiated on the basis of the new standard BIT template, which provides that in case of a dispute the arbitration will be under the Convention on the Settlement of Investment Disputes (ICSID Convention) in Washington.
However, the government would have to seek approval of the federal cabinet to bring amendments to its own BIT template that had been approved by the government of former prime minister Imran Khan. Under the template, any dispute can only be remedied through local arbitration.
The previous government had taken the decision of local arbitration after the World Bank’s International Centre for Settlement of Investment Disputes (ICSID) slapped a penalty of $6 billion on Pakistan for its decision to deny a mining lease for the Reko Diq project to Australia’s Tethyan Copper Company.
Sources said that there was no functional and effective local dispute resolution mechanism. The law ministry has not yet been able to have a functional ombudsman office and is still in the process of seeking cabinet approvals.
Foreign investors are not willing to bring major investment without having concrete guarantees and the international arbitration option. Saudi Arabia has already shared its draft template of BIT that talks about international arbitration, said sources.
A cabinet minister and two federal secretaries have confirmed the development but no one spoke on record. A member of the cabinet said that the executive committee had allowed negotiations on BIT with the GCC, which would address investment-related concerns of Saudi Arabia and Qatar.
To a question, he said that foreign investors wanted dispute resolution under international laws.
Pakistan eyes around $25 billion in investment from Saudi Arabia, out of the $60 to $70 billion that it hopes to get under the SIFC over the next three to five years. On the desire of Saudi Arabia, Pakistan first preferred to sign an FTA with the GCC instead of signing a bilateral FTA or the Comprehensive Economic Partnership Agreement (CEPA).
A Saudi delegation visited Pakistan in August in which it laid out the issues and sought their resolution. Sources said that Saudi Arabia enquired about the regime in place for investment protection and issues related to the dispute resolution mechanism. It also demanded additional benefits on investment.
Pakistan is seeking Saudi investment in Reko Diq gold and copper mines. For diluting some of Pakistan and Barrick Gold’s stakes in Reko Diq in favour of Saudi Arabia, Pakistani authorities took certain decisions in the fourth meeting of the apex committee.
Saudi Arabia has shown interest in making investment of billions of dollars in the Reko Diq project and the country’s leadership is interested in capitalising on it. However, the project’s bankable feasibility study has not yet been completed.
The SIFC has granted exemption from the Public Procurement Regulatory Authority (PPRA) rules for hiring consultants to fast-track the process of getting Saudi investment.
Saudi Arabia wants to make investment in mines, minerals, power, agriculture and plasma products.
A Saudi delegation was to visit Pakistan from Monday to explore investment options but due to some logistical issues the visit has been postponed for a few days.
According to the ICSID Convention, if a dispute is not settled within six months of the date of receipt of the request for consultations, each party can seek arbitration under the Convention on the Settlement of Investment Disputes.
Any arbitral award shall be final and binding on the parties to the dispute, according to the ICSID Convention.
The finalisation of BIT with the GCC would also help complete the FTA process, said the sources. The GCC and Pakistan signed a preliminary FTA last month.
A senior official of the Board of Investment said that BIT would be part of the GCC free trade agreement.
The GCC agreement comprises 14 chapters, including goods, services, investment, e-commerce, customs procedures, dispute settlement, competition, trade remedies, intellectual property, and small and medium enterprises.
The FTA could not be signed until the BIT is finalised. The GCC members including Saudi Arabia and Qatar are eager for the finalisation of the BIT before making any investment in Pakistan.
Saudi Commerce Minister and General Authority for Foreign Trade Chairman Dr Majid Al-Qasabi affirmed that the preliminary FTA would contribute to enhancing bilateral trade and economic cooperation between the Gulf countries and Pakistan.
The agreement was aimed at eliminating obstacles and facilitating the flow of goods and services, he added.
Due to the focus on the GCC’s FTA and BIT, negotiations for CEPA between Pakistan and the UAE are moving at a slow pace. Pakistan is not accepting the UAE’s demand for exemption from all types of import duties on its products.