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Introduction
In a significant development, Saudi Arabia has made a strategic offer to acquire a 15% stake in Pakistan’s Reko Diq mining project, coupled with a substantial grant to build infrastructure around the mining area. This marks the first major investment under the Special Investment Facilitation Council (SIFC) framework and could pave the way for strengthened economic ties between the two countries.
Details of the Saudi Offer
Saudi Arabia’s Public Investment Fund (PIF), through its subsidiary Manara Minerals, has expressed interest in purchasing a 15% stake in the Reko Diq mining project. The offer includes not only cash for the acquisition of shares but also a grant to develop critical infrastructure around the mining area, particularly the Mashkhel-Panjoor road, to ensure smooth operations and movement.
The federal government of Pakistan currently holds a 25% stake in the Reko Diq project, and it plans to sell 15% of this share to Saudi Arabia. In response to the Saudi offer, the Pakistani government has decided to form a negotiation committee to review the terms of the deal and recommend a final price to the federal cabinet for approval.
Significance of the Deal
If the deal materializes, it will mark a new chapter in Pakistan-Saudi Arabia economic relations. The investment is expected to create employment opportunities in the region and contribute to the overall economic development of the country. Pakistan is also in the process of securing a rollover of a $5 billion Saudi cash deposit and has requested a $1.2 billion new oil financing facility, further highlighting the deepening economic ties between the two nations.
Infrastructure Development and Economic Impact
In addition to the acquisition of shares, Saudi Arabia’s offer includes a grant for constructing road infrastructure around the Reko Diq mining area. The Ministry of Economic Affairs is currently working with the Saudi Fund for Development (SFD) to finalize the road scheme, with plans to complete a feasibility study once the talks progress.
The Reko Diq project, which is highly capital-intensive, holds immense potential for economic growth. The project is currently owned 50% by Barrick Gold, 25% by three federal government entities, and 25% by the government of Balochistan. Barrick Gold is updating the project’s feasibility studies, with completion expected by December 2024 and the first production anticipated by 2028.
Once operational, the project is expected to attract joint investments from Saudi Arabia, the government of Balochistan, and the federal government, potentially leading to a $5 billion investment by June 2025 in the mining and agriculture sectors.
Challenges and Future Prospects
While the Saudi offer presents a significant opportunity for Pakistan, several challenges need to be addressed. Pakistan has already taken steps to reassure Saudi investors about the repatriation of profits, given the country’s external sector liquidity constraints. Prime Minister Shehbaz Sharif has instructed the State Bank of Pakistan (SBP) to prioritize Saudi companies in profit repatriation, a move aimed at bolstering investor confidence.
The US Export-Import (Exim) Bank has also shown interest in financing the Reko Diq project, offering a loan of $1.5 billion to $2 billion. However, the loan is contingent on the bank receiving preferential creditor status, which is currently under consideration.
As negotiations continue, the three federal government-owned companies that hold shares in Reko Diq on behalf of the government will begin the process of divesting their shareholding proportionately, following board approvals.
Conclusion
The Saudi offer to invest in the Reko Diq mining project represents a significant step forward in Pakistan-Saudi economic relations. With the potential for substantial infrastructure development and job creation, this deal could have far-reaching implications for Pakistan’s economy. As the negotiation committee reviews the offer, the outcome will likely shape the future of not only the Reko Diq project but also the broader economic partnership between Pakistan and Saudi Arabia.
