Balochistan Mining and Regional

Integration Policy Dialogue Paper

Leveraging Extractive Industries for

Economic Development and Diversification
`

Revised April 2013

1. Introduction/Background ........................................................................................................ 1
2. Definition and Elements of a Resource Corridor ..................................................................... 3
3. Potential Resource Corridor in Western Balochistan .............................................................. 7
4. Moving Towards a Resource Corridor Approach .................................................................. 18
 1. INTRODUCTION/BACKGROUND

Balochistan is endowed with abundant natural resources. The production of solid minerals
continues to grow as the Province benefits from higher quality marble and granite resources,
coupled with metallic minerals for which global commodity prices are strong. With the exception
of the Saindak copper / gold mine in northwestern Balochistan, many of the mining operations are
smaller, which is aligned with the size of the deposits being produced. However, it is now widely
acknowledged that Balochistan is also endowed with much larger metallic mineral resources that,
when developed, will have significant economic, environmental and social impact within the
local area, across the Province and nationwide. And so, the Government of Balochistan will want
to provide clear direction on how these resources are to be leveraged towards economic growth,
poverty reduction and jobs. This clarity will come from a vision for inclusive growth processes
and integrated planning that aligns public and private sector actions, so that Balochistan’s citizens
derive full sustainable benefit from development of their natural resources.

Policies and actions are being designed globally to leverage private sector investments in oil, gas
and mining that catalyze broader economic development and diversification. These are often
most needed where a cluster of districts face significant deficiencies in infrastructure and
adsorptive capacity in local communities – two key elements for growth and diversification. The
challenge for government, and indeed all stakeholders, is to 1) agree on the core development
objectives for extracting natural resources (beyond direct revenue and job creation); and 2)
develop a strategy aimed at achieving those objectives. The Province of Balochistan, Pakistan is
seeking to leverage its private sector investments in mining from the outset, to which a resource
corridor approach is proposed to guide the long-term development of the mineral deposits in
western Balochistan.

This report is based on a series of policy dialogues with the Government of Balochistan as well as
consultations with government, community and civil society stakeholders on integration using a
resource corridor approach. The Chagai District of western Balochistan represents a starting
point for the consultations, acknowledging that province-wide policy and regulatory gaps have
historically enabled dissatisfaction within local communities over the distribution of benefits
from extractive industries.

The core justification for a resource corridor approach in Balochistan is the need for the Province
to catalyze expected contribution(s) of a single or group of mines towards broader economic
growth and diversification. If left unguided, there is a potential where one or more exploration
license holders might embark on development scenario that is (a) neither aligned with their
competitors; nor (b) aligned with the Provincial development strategy. Such an outcome would
add to the current uncoordinated situation and diminish the wider development impact. As such,
a large mining investment – when guided by sound principles of inclusive growth and integrated
spatial planning -- can be used as springboard for a cohesive, collaborative, coordinated approach
which ensures inclusion of all stakeholders, particularly the vulnerable.

Concurrent with its policy dialogue on resource corridors in Balochistan, the World Bank is
providing preliminary training and capacity building through the Extractive Industries –
Technical Advisory Facility (EI TAF) to which on-the-ground capacity building will be informed
by resource corridor analysis. Importantly, the EI TAF facilitates rapid-response advisory
services and capacity building for extractive industry resource policy frameworks and
transactions.

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One of the objectives of the EI-TAF is to frame effective partnership opportunities across the
provincial government, industry, and community; reinforced by non-governmental organizations
already disseminating information and building capacity locally. And so, the findings of this
dialogue paper are intended to inform additional dialogue and policy formulation; and the
members of future tripartite partnerships seeking to frame mine development through a resource
corridor approach in Balochistan.

The principal messages contained in this report include the following:

 New sector investments, if guided by sound policies to catalyze resource corridor

development, have the potential to abate poverty, provide economic growth and create jobs at
the district level in Balochistan.

 A “resource corridor” is a development process more than a geographic concept. It provides

a means to articulate and integrate a sequence of actions using one or more mine
developments. It is defined as “a sequence of investments and actions to leverage a large
extractive industry investment in infrastructure, goods and services, into viable economic
development and diversification along a specific geographic area”. The concept implicitly
has existed for some time within industrialized nations, and is increasingly being used to
guide the shift of resource production now coming from emerging economies. In recent
decades resource corridors have been developed in Chile, Mozambique, Zambia and
elsewhere.

 A resource corridor approach, as framed in this paper for Balochistan, reflects the need for
the Province to catalyze expected contribution(s) of a single or group of mines towards
broader economic growth and diversification. The paper has a cautionary note based on
global lessons learned that, if left unguided, there is a potential where one or more
exploration license holders might embark on development scenario that is (a) neither aligned
with their competitors; nor (b) aligned with the Provincial development strategy.

 Balochistan has been selected for illustration of the resource corridor approach given the
Provinces’ endowment of larger bulk commodity mineral deposits. This potential
throughout northern Balochistan, and in Chagai district in particular (copper-gold), could
become a suitable resource corridor to anchor broader opportunities for economic growth and
diversification within the immediate area, across Balochistan province and possibly even
nationwide;

 Communities and civil society, in particular, have expressed a strong interest in a resource
corridor approach to sustainable mineral sector development in Balochistan.

 Absent a Corridor Approach, industry is left to frame proposed developments describing the
benefits of a project using direct measures around employment, taxes, and royalties; and
while important do not speak to the leveraging of their investments towards broader
economic growth and development of the Province (i.e. 2-3 key indicators mapped to the
Provincial development strategy).

 For a resource corridor approach to be viable, there is a critical need for broader reforms
(institutional, policy, regulatory) in those areas relating to minerals sector (environmental,
H&S, Social, licensing, etc.) at both the federal government and the provincial levels, in

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 addition to a need for enhanced coordination and greater clarity around the role of the
province and the state in managing the sector;

 Finally, while Balochistan presently has considerable small scale and artisanal mining and
one large scale mining project, the Saindak project, there is a need for capacity building
among officials from the GoB around large-scale mining, in particular on the intricacies of
contract negotiations for large-scale mining projects.

2. DEFINITION AND ELEMENTS OF A RESOURCE CORRIDOR

Resource corridors represent a combination of efforts to leverage a large commercial extractive

industry investment and its need for infrastructure, goods and services to remain viable and
competitive, into economic development and diversification. However, this transformation will
not occur through market forces alone. Core to the approach is (a) the establishment of a viable
financial framework based on the expected increase of government revenues as a result of the EI
activity, and (b) the building of government, private sector and civil society capacities to develop
and implement agreed development plans. A resource corridor approach is based on inclusive
growth, with a focus on giving voice to the poorest, most disadvantaged and most vulnerable in
the impacted communities; those who typically do not share in the income or employment
benefits that EI brings but who shoulder a great many of the social, environmental and cultural
costs that EI can bring.

The approach largely mirrors the idea of shared value creation, a concept initially coined by
business strategist and Harvard Business School professor, Michael Porter. ‘Creating shared
value’ (CSV) is broadly defined as a those policies and practices that on-the-one-hand aim to
enhance the competitiveness of a company, while on-the-other-hand simultaneously advance the
economic and social conditions of the communities/province/country in which a company
operates. Examples relevant to the extractive industries include training and recruiting skilled
and unskilled worker from the local labor force or purchasing goods and equipment from the
local market. When a mining company agrees to build a power plant that provides electricity not
only to the mine but also to the community surrounding the mine, it’s because it makes good
business sense and allows the company to enhance its competitiveness. Companies can create
shared value through a number of specific means, including: 1) reconceiving products and
markets, 2) redefining productivity in the value chain, and 3) building supportive industry
clusters/corridors 1 . In short, this concept applies to resource corridors in that the approach
provides mining, oil and gas companies with the coordinating framework and relevant plans to
better direct their drive for competiveness towards meeting the specific social and economic
needs of the communities in which they operate. However, for a number of reasons, especially
in a low-income country, these linkages between mining and the rest of the community and
economy do not naturally occur through market forces. If the barriers to wider benefits are not
addressed and plans are not clearly articulated, the local economy is less able to take advantage of
the opportunities to supply goods and services to the mine or other resource-based investment, or
to take advantage its products and associated infrastructure.

1
Source: Creating Shared Value: How to reinvent capitalism – and unleash a wave of innovation and
growth, Michael E. Porter and Mark R. Kramer, Harvard Business Review, January/February 2011.

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Economic resource corridors are a means of reducing political and social risks associated with
large scale projects in jurisdictions perceived to be higher risk, encouraging investment and
lowering the cost of capital. Resource corridors provide an opportunity to spread benefits beyond
those directly involved in resources projects by stimulating broader, diversified, economic
development. By increasing the social and economic benefit side of the ledger, particularly with
local communities, support for large scale projects is more likely to be maintained over the long
term and the risks to the project associated by local disenchantment diminished.

The positive impact of EI related infrastructure and economic resource corridors is not
guaranteed: harnessing the capacity for growth and direct benefits for communities and the wider
public requires a concerted effort to adopt an inclusive “resource growth corridor approach”
which encompasses more than just consultation but extends to local capacity building,
SME/business incubation and local content development. A resource corridor approach captures
mining companies’ efforts to localize its inputs and thereby reduce high cost imports, but takes
this process further. Without this effort, mines are more likely to remain economic enclaves with
little impact on the wider economy, or, worse, may trigger negative growth.

As such, assistance to facilitate resource corridor development includes inter alia (a) removal of
information barriers that prevent inclusive planning, understanding that community structures and
dynamics create a significant local political economy, (b) strengthening capacity for social
mobilization, to better articulate local needs and objectives; and (c) providing education and skills
training to increase employment and induce enterprise development opportunities. Capacity
building at the local level is a great challenge, in that women and children typically make up the
vast majority of the poorest, most disadvantaged and most vulnerable in the impacted
communities. In this regard, civil society organizations are increasingly playing a key role in
providing capacity building at the local level, attuned to the cultural and political economy on
which the community operates. However, in addition to this, skills needed for private sector
development in the mining value chain are those of specialized professions, such as welders,
electricians, mechanics, other tradespeople, and at the tertiary level mechanical, electrical and IT
engineers, business managers, accountants, etc. Bring local technical education up to standards
where it can provide qualified staff both for the mining sector and other sectors will likely require
long-term systemic investments in technical education.

Key Topological Dimensions of a Resource Corridor

A) Spatial Dimensions

A resource corridor is a clearly defined geographic area in which the mine and associated
infrastructure imparts economic, social, and physical/environmental impact. Spatially, a
resource corridor can be delineated on a map, having boundaries that run the length of
infrastructure connecting the resource to end-use markets (i.e. road, water, power connections and
perhaps seaports). A new oil, gas or mining operation within an emerging resource corridor will
also establish important power and transmission systems, information communication
technology, and water systems. If properly structured through sound policies, the benefits of
these infrastructure contributions open the door to increased social mobilization and enterprise
development; the foundation of development and economic diversification locally. Additionally,
the inputs and outputs associated with the production of a mineral commodity (e.g., copper, iron,
bauxite, oil or gas), form an ‘anchor tenant’ to which a more diverse array of enterprises

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providing goods and services may emerge; more often beginning in the larger cities and slowly
migrating into the impacted areas.

It will be necessary to understand the existing socio-economic and environmental baseline

when developing a resource corridor. There are significant environmental limitations associated
with development of a resource corridor, as well as cultural concerns that will dictate absorptive
capacity at the local level. Finite natural inputs to production need to be assessed (i.e. water and
land), master plans created and priorities defined. Priorities and policies for resource allocation
will need to be defined, balancing trade-offs between natural resource development and
alternative land-uses. A resource corridor approach is based on diverse array of data layers
representing socio-economic data; institutional and financial management capacities;
environmental and industrial inputs / outputs associated with mineral production and alternative
land-uses; local capacity for social mobilization and enterprise development; and availability of
physical and social infrastructure.

Global experience indicates that critical infrastructure is being tied to enclave extractive
projects and shared use / open use opportunities are often being missed. The problem of
enclave development around extractives industries is a prime concern of developed and
developing countries alike. Left unguided by higher level policy, a license holder may default to
minimum capital expenditure and complete control of access to infrastructure in order to get
projects financed and commissioned. This is not necessarily in line with the interests of the host
government, and options for encouraging open access, shared use and excess capacity without
jeopardizing project development are needed. Such an assessment of the options for shared use
infrastructure should also include analysis of the demand of the proposed infrastructure on the
public-side, as sometimes public demand for infrastructure services may not be high enough to
justify additional investments.

Shared infrastructure development, therefore, is a strong determinant in defining a resource

corridor. Partnerships across the public and private sector must take into account the unique
local circumstances and the needs of commercial extractive industries. This public / private
dialogue often begins around the proposed development of physical infrastructure (water systems,
power, roads and less frequently rail and port) and social infrastructure (consultative systems,
local vocational training, community-based education). Moreover, administrative and
institutional structures for regulatory oversight are necessary to ensure sustained operation and
management, together with planned expansions on a timely basis.

B. Temporal Dimensions

A vibrant and dynamic resource corridor should be guided by flexible master plans that are
updated regularly. As noted above, a resource corridor has shifting emphasis and land-use
patterns according to (a) mineral resource production requirements (e.g. infrastructure), (b)
directly and indirectly induced goods and services, and (c) changing market dynamics. Early
industries, and the changes that they impose, will improve the chances for more viable subsequent
industries resulting from improved local capacities for social mobilization and enterprise
development, and the addition of infrastructure. Lastly, initial infrastructure choices will impact
and lock in certain technologies that have future sustainability and carbon footprint implications.
As such, initial footprint, water usage and land-use patterns carry significant weight in future
decision making.

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Inclusive, tripartite dialogue across government, industry and community requires
management and financial systems that move benefits to the local level. Public and private
sector development plans need to be brought together and integrated using agreed upon, shared
objectives (e.g. based on creating shared value), and requires adsorptive capacity at the local
level. Experience shows that linkages from the state to community level are often imperfect, thus
impeding the sharing of benefits and giving voice to those most impacted by resource
development. Key elements of an effective administrative system will include:
 An Overarching Development Fund formulates the inclusive growth agenda, working
through District Development Foundations to assess /approve and provide funding for the
programs and projects presented by the District Development Foundations. Moreover,
the Development Fund would mobilize and support a professional secretariat (see next
bullet) to ensure integrated and sustained development.
 A Professional Secretariat acts as the “integrator”, facilitating and integrating dialogue
which requires support of technical studies and the analysis of alternative development
options in order to create a shared vision of sustainable development across the corridor.
The secretariat would provide the required technical and managerial competencies to
ensure proper program / project implementation and future sustainability of the activity.
Moreover, the secretariat would evaluate / monitor program /project implementation
against key performance indicators.
 District (or clusters of Districts) Development Foundations collect and prepare
development plans, programs and projects at the community, district and clusters of
district levels for funding consideration by the Development Fund. The Foundations also
ensure that the formulation of these plans and projects are the outcome of a robust and
inclusive consultation process, especially at the community level to obtain consent and
buy-in. An emerging dimension at this level is the Community Development Agreement
(CDA) between the company and community— that may be undertaken by the
Foundation directly for those mines which are too small to warrant an individual CDA or
when mines are clustered together requiring a joint approach. District Development
Foundations also manage communications strategies to inform and facilitate ongoing
dialogue, manage expectations and report on progress, including monitoring and
reporting on finances and preparing independently audited financial reports. Lastly,
public-private dialogue through roundtable discussions at the local level on shared-use
infrastructure would be facilitated jointly by the Secretariat and District Development
Foundation.

Significant dependence on volatile and exhaustible natural resource revenues may call for special
institutional arrangements. These arrangements are usually created to (i) generate political
support for the expenditure of resource revenues to specific priorities and uses; (iii) provide a
consistent source of funding for expenditures that yield high social benefits yet do not get much
recognition in the budget preparation; and (iii) to ensure resource revenues are spent in a
sustainable way over the medium term. Many resource-producing countries have created resource
funds; however a major challenge for special fiscal institutions and funds in institutionally weak
settings has been their sustainability, including premature depletion. What is clear is that there is
tension arising from the community level for some funds to flow more directly to that level,
where the above noted problems of weak adsorptive capacity must be considered.

A resource corridor takes years to build and benefits from a gradual phased approach. This is
owing to both the phasing of mine development projects as well as those with all other forms of

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economic activity. Across the years as a mine moves from smaller to larger production,
commodity price volatility will influence economic activity, and enhancing domestic linkages
will require progressive skill building (including through vocational training and managerial
capacity), firm finance, and effective procurement modalities.

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 3. POTENTIAL RESOURCE CORRIDOR IN WESTERN BALOCHISTAN:
POLICY CONSIDERATIONS

Social and Economic Context2

Balochistan is one of the four provinces of Pakistan. It is the largest province by area,
constituting approximately 44% of Pakistan's total land mass, and the smallest in terms of
population size. Balochistan is bordered by Afghanistan to the north and north-west, Iran to the
south-west, the Arabian Sea to the south, Punjab and Sindh to the east, and Khyber Pakhtunkhwa
and Federally Administered Tribal Areas to the north-east. Quetta is the capital and largest city of
Balochistan.

Based on available data, Balochistan has the weakest growth performance over the last
decades and the lowest per capita income of all the provinces. Between 1972/73 and 2004/05,
Balochistan’s GDP is estimated to have grown at an average rate of 4.1 percent a year in real
terms. This rate was 0.7 percent lower than that of both KP and Sindh Province, and 1 percent
lower than that of the Punjab. The annual difference might appear small; however, a difference of
0.7 percent compounded annually over 32 years translates into a difference of 25 percent, while
an annual difference of 1 percent leads to a difference of almost 38 percent after 32 years.

On key health indicators, the province also scores poorly. Two in five infants do not receive full
immunization, which is the most cost-effective, equitable health intervention available. Two in
three women did not receive tetanus toxoid during their last pregnancy, exposing their babies to
the risk of infant mortality due to neonatal tetanus. The infant mortality rate in 2004 was 104 per
1000 live births, compared with an average for the other three provinces of about 80. A skilled
attendant is present at only 21 percent of deliveries—one-third the national average. The situation
is more acute in rural areas, where only 10 percent of deliveries are by a skilled birth attendant.
Poor water and sanitation contribute to unsatisfactory health outcomes. More than one in two
households relies on unprotected wells, rivers, canals and streams for drinking water. A large
urban-rural difference exists for access to piped water—nearly 90 percent of urban households
have access to piped water inside (74 percent) or outside (5 percent) the house, compared with
only 21 percent of rural households (15 percent inside and 3 percent outside the house. Two in
three families have no flush toilet.

Outcomes for education and labor force participation are considerably inferior to those of the
other provinces. Over two-thirds of persons above 10 years of age are illiterate, pointing to a low-
skilled workforce; 54 percent of primary school-age children are not in school. The situation is
worse in rural areas and for women. In Balochistan the female literacy rate (age 10 and above) is
19 percent compared with the national average of 46 percent. The gross primary enrolment rate
(age 6–10) is 54 percent for girls compared with 92 percent for boys. Three-fourths of women
over 10 years of age are illiterate. Sixty-three percent of the population aged 15 and above years
has never attended school; for women this figure rises to 85 percent. The shortage of female

2
The section is taken from the Balochistan Needs Assessment: Development Issues and Prospects; The
World Bank; January 2013.

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teachers is reflected in the student: teacher ratios—in primary schools, the average student:
teacher ratio is 1:10 in boys' schools and 1:17 in girls' schools. Female teachers comprise a very
low 30 percent of the total teaching force. The data disaggregated by district present an even
more dismal picture—in Dera Bugti, for example, only 11 percent of the teaching force is female.
This has a considerable impact on girls’ enrolment, especially in higher grades.

Education is marked by low access (less than two in five of children aged 5 to 9 are enrolled in
primary school); low efficiency (because of late enrolment and repetition, about 45 percent of
children in primary school are older than nine years); and high dependency on public schooling
(only one in 16 children attending primary school is enrolled in private schools). The public
schools are generally in a very poor condition: according to the 2010/11 education census 78
percent of schools had no electricity, 79 percent no latrine, 66 percent no boundary wall, and 28
percent no water.

Such poor educational outcomes in turn have an effect on labor force participation rates in the
province. The labor force participation rate, especially by women, remains very low. Males
comprised 66 percent of the total labor force and females the remaining 34 percent. The rate of
participation in the labor force was reported as 6 percent for women (compared with a national
average of 14.4 percent), and 68 percent for men (national average 70 percent). Nearly 67 percent
of employed persons in Balochistan were illiterate.

Current Status: Mineral Resource Development and Potential

Balochistan has a rich endowment of mineral and energy resources. It possesses deposits of
copper and gold, among other bulk minerals (lead, zinc, iron-ore), as well as construction
materials, dimensional stone and gemstones, coal, and hydrocarbons. Development of the
minerals sector has been identified as one of the most important levers to diversify the economy,
create employment and raise government revenues.

Chagai District in western Balochistan is on the Tethyan belt—a global geological trend
extending from Europe to Asia which is home to many copper, gold and allied mineral
developments. Within Pakistan, the Tethyan belt is best known where it passes through the
northern half of Balochistan. While the eastern-most portions of the belt are extensively explored
in Asia, the portion of the belt crossing Pakistan and neighboring Afghanistan is far less explored.
Indeed, the global investment community recognizes the potential in Pakistan, but cites limited
access to geological data available on which exploration can be centered. So, while the resource
potential is clearly understood, it is widely recognized that Pakistan has largely missed a
generation of modern prospecting, and that this represents an anomaly from a global exploration
perspective.

The Mines and Mineral Development Department of the Government of Balochistan is promoting
the resources of this area, responding to increased investor interest from high global commodity
prices. Exploration results over the past decade indicate the presence of world-class copper/gold
deposits and thus the potential for a resource corridor development approach.

Currently, two major copper-gold projects represent ‘anchor tenants’ of a potential resource
corridor in western Balochistan; however multiple projects may be necessary to make the
corridor viable. The Saindak project is the largest mining operation in Pakistan to date and has
been in production since 2001. The Reko Diq project has the potential to become the largest
mining investment in Pakistan’s history.

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 Potential Resource Corridor in Western Balochistan
Saindak & Reko Diq copper-gold projects

Source: Map recreated by the World Bank. 2012

Saindak. The copper-gold deposit at Saindak, located 678km west of Quetta near the Iranian
border, consists of three ore bodies: the South Ore Body, the East Ore Body and the North Ore
Body. Saindak Metals Limited runs an integrated non-ferrous production complex off the South
Ore Body with capacity for mining, concentration and smelting processesi. The mining capacity is
4.25 million tons of ore per annum, the concentration capacity is 12,500 tons per day and the
copper smelting capacity is 20,000 tons per annumii. The complex is producing 18,000 tons of
blister copper annually.

The complex was constructed on a turnkey basis by MCC of China (China Metallurgical Group
Corporation) in 1996 at a reported cost of Rs. 17bn (about $425m at the time). The Government
of Pakistan constructed infrastructure including a 37km water pipeline from a groundwater
pumping site, a 38-km rail track off the rail link from Quetta to Iran, a township for 1,200
persons, a 5.5MW temporary power supply during construction and 50MW diesel power station
for production, a school, a 50-bed hospital and dispensary, and a road link to the N-40 highway
which runs parallel to the rail link to Iraniii. Quetta is connected to the national rail network’s
backbone through a link to Rohri in northern Sindh. Quetta is also connected to Afghanistan by a
rail link through Chaman. A commercial airport is located 320km south-east of the Saindak
complex at Dalbandin.

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 Pakistan Rail Network

Source: Map recreated by the World Bank. 2012

In 2001, the Government of Pakistan awarded exclusive rights to the mining, production,
operations and management of the complex to MCC Resource Development Limited (MRDL, a
subsidiary of MCC). MRDL assumed control in October, 2002. This 10-year contract has recently
been extended for an additional five years. When the extension commences in October, 2012, the
Government of Pakistan’s 30% shares in Saindak Metals Ltd. (SML) will be transferred to the
Government of Balochistan (GOB) whose total share will become 55% (MCC will hold the
remaining 45%)iv. SML employs some 1,300 people of whom some 250 are Chinese and some
200 are reported to be members of the local community in temporary jobsv.

Reko Diq. Some 60km east of Saindak are the copper-gold deposits at Reko Diq. The deposit at
Reko Diq is a large, low-grade copper porphyry (a Chilean style copper deposit associated with
large scale plate tectonic boundaries), with total mineral resources of 5.9 billion tons of ore with
an average copper grade of 0.41% and gold grade of 0.22 g/tonvi.

The exploration license EL-5 at Reko Diq is held by a joint venture of Tethyan Copper Company
(75%) and the Government of Balochistan (25%). Tethyan Copper Company (TCC) is a 50-50
partnership of Barrick Gold of Canada and Antofagasta of Chile. TCC has submitted a feasibility
study to the Government of Balochistan and awaits the award of a mining license for EL5.

The feasibility study estimates that the economically mineable portion of the deposit is 2.2 billion
tons, with an average copper grade of 0.53% and gold grade of 0.30 g/ton. An open-pit, truck-
and-shovel operation with a capital cost of $3.3bn and a 56-year mine life is proposed with a

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mining capacity is 293,000 tons per day of ore and an annual production estimated at 200,000
tons of copper and 250,000 ounces of gold contained in 600,000 tons of concentratevii.

Potential Resource Corridor in Western Balochistan

Exploration Licenses: Saindak, TCC, Lake Resources & Benway

Source: Map recreated by the World Bank. 2012

TCC plans four components for the Reko Diq project’s development: (i) an open-pit mine, (ii) a
processing facility, (iii) a 682-km underground concentrate (slurry) pipeline with three booster
stations en route to transport the product from the mine site to the port of Gwadar to a dedicated
marine terminal facility at the port for de-watering, storage, and transfer to shipping vessels for
supply to smelters globally, and (iv) a project village for TCC employeesviii. A 189 MW power
plant is planned to be built at the site for electricity supply to the project, ancillaries and the
residential colony. The project village is to accommodate up to 10,000 persons during
construction and up to 3,000 during operations. The facilities will include: education and sports
facilities, mosque, clinic and library, public square, semi-private courtyards for after-hours
socializing, dining halls and retail outlets, bus shelters, etc.

Other developments. In addition to these major projects, exploration is ongoing on other blocks
in the area. For example, Lake Resources of Australia has been conducting exploration in three
exploration licenses: EL-71 at Amalaf north of the Saindak complex, EL-72 at Dasht-i-Gauran
situated between Saindak and Reko Diq, and EL-73 at Koh-i-Sultan north of Nok Kundiix. Lake
Resources reports encouraging results related to copper-gold deposits at Amalaf and Koh-i-
Sultan. Benway Corporation of the USA has licenses for two large blocks: EL-24, immediately
south of Reko Diq, and EL-23, east of Koh-i-Sultan. Benway reports three clusters of anomalous
copper mineralization in its block immediately south of Reko Diqx.

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Development of the Western Balochistan Resource Corridor. The concept of a resource corridor
lends itself well to the coordinated development of western Balochistan. The parallel
development of possibly many large-scale enclave projects could lead to inefficient investments,
failing to take advantage of the potential for common-use infrastructure. Moreover, when such
large-scale investments are envisaged in a relatively under-developed part of Balochistan, they
must be leveraged for local and district development, building on their productive and human
resource capacity.

While the costs of establishing major infrastructure links could be challenging for any one mining
operation alone, if a deposit of sufficient size (using Reko Diq as an example) is developed early
on, it encourages exploration that then has a positive knock-on effect on other mineral resources –
valorizing a greater percentage of Pakistan’s mineral endowment. In addition, when properly
planned and managed, these resource corridors can become anchors for further economic
diversification, growth and social stabilization in rural areas.

It is expected that Balochistan’s Reko Diq copper / gold mine will be the first of a class of large
mineral assets within Pakistan’s Tethyan belt to yield resource rent sufficient for development of
anchoring district (or clusters of district) infrastructure. In many ways, the private-sector led
development of Reko Diq is more than the establishment of a mine—if properly structured, a
large mine, such as Reko Diq, can assist in leveraging the financial resources of the private sector
in unlocking the economic development potential of Balochistan (and re-affirm the investment
climate for mega-projects within the country).

EI-TAF Balochistan Grant in Support of Resource Corridor Policy Formulation

In 2007 the Government of Balochistan (GoB) sought assistance from the World Bank to create a
transparent, competitive, non-discretionary minerals system with equitable distribution of benefits
and improved revenues management. That assistance was not realized given unresolved
provincial / federal agreement regarding implementation and obligations on repayment of the
IDA (International Development Association) Credit. Thus, no progress was realized on the
important policy space that would guide investors on how they would frame mine development
proposals within the broader growth and diversification strategy for the province (the Resource
Corridor policy space). In 2011 the Government of Balochistan returned to the Bank with a
request for more immediate time-bound assistance relating to development frameworks built
around “global norms” – the good practices that establish governance, support policy formulation,
and lead to strong mineral development agreements.

In April 2011, the World Bank approved the Extractive Industries – Technical Advisory Facility
(EI-TAF)Balochistan Mining Sector Assistance Project to provide support to the Government of
Balochistan on capacity building on international norms associated with large scale mining
development, specifically and the policy and technical issues commonly associated with large
scale mining. The EI-TAF grant was awarded on the understanding that it would build capacity
around an immediate transaction, but would not be a substitute for longer-term technical
assistance that had been stalled since 2009. The intended target audience for this capacity-
building would include provincial level staff in the relevant government agencies (Department of
Mines and Mineral Development - DMMD), federal counterparts at the Ministry of Petroleum
and Natural Resources (Director General of Mines), provincial parliamentarians, community
members, civil society, and other interested parties.

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EI TAF Grant Description and Components:

EI TAF assistance was designed around three components, broadly related to capacity building
around global norms in sector development and support to a series of activities including (i)
capacity building on policy and global norms on international “good practices” for mineral
development agreements – the component that principally captures formulation of a Resource
Corridor approach; (ii) capacity building on technical topics such as environmental and social
safeguards, community development for assessing feasibility studies; and (iii) workshops and
programmed study tours to review and learn from international best practices.

Given security concerns in Balochistan, it was agreed to structure grant implementation

around a launch workshop that would provide technology transfer to local champions
who would thereafter continue capacity building at the local-level. The initial workshop
was designed to include up to 10 Balochistan participants and five federal participants,
together with a compliment of civil society members.

The orientation workshop was held September 26 — October 3, 2011, in coordination

with the Government of Balochistan and federal government counterparts. The Bank
team carried out the first of a two-tier program of workshops to introduce global
norms of large-scale mineral development to a mix of policymakers, civil society
representatives, media persons and community leaders. The workshop was
facilitated by a team of international mining industry experts to provide key
stakeholders with information and experience regarding global mining norms related to:
(a) good governance; (b) sharing of benefits among stakeholders; (c) roles and
responsibilities of stakeholders; (d) laws and regulations; (e) attracting investment; (f)
environmental and social safeguards; (g) financial models and cash flows of
investments; (h) value chains from mines to markets; (i) outreach to parliamentarians
and community through consultations and information dissemination; (j) the resource
corridor approach for leveraging mining for economic development; and (k)
communications strategies related to mining development.

An abridged summary of the orientation workshop is presented here:

The workshop was successful in disseminating broad concepts that would frame a resource
corridor policy for the province and in disseminating global “good fit” practices. But
participation was much greater by the “demand side” represented by community and civil society.
These groups formed the majority of workshop participants and were the most active in seeking
additional information resources. The “supply side” government representatives were far fewer.

Information was uniformly transferred to government and civil society counterparts alike, with
electronic copies of the presentations from the workshop were made available to the participants.
Moreover, the presentations have since been being translated into Urdu and have been made
available. Based on an informal assessment carried out by the experts after the workshop,
discussions held during the workshop and the ongoing dialogue with the Federal and provincial
governments the main findings of the visit are presented below.

Long Term Potential Resource Corridor Development in Balochistan

The discussion highlighted that, in many cases, resource development focuses on single projects
rather than multiple projects with common needs. This has the potential in Balochistan to lead to
enclave or dedicated developments with few linkages to the host economy. The workshop
concluded that if the resource is developed with many mine projects (and the resource corridor

14
approach) in mind, investments for shared infrastructure as well as economic diversification
would result in superior outcomes. The resource corridor approach requires not only good
governance of the sector, but rather governance of the corridor as a whole must be the focus and
so (a) many agencies of the Provincial Government need to work collaboratively, and (b) for
effective resource corridor development there is need to balance the supply (government) and
demand (community) concerns by convening an inclusive, tripartite dialogue across government,
industry and community.

Based on consultations held during the workshop, the following core recommendations on
essential components of an overall Resource Corridor approach were made. Copper-gold,
and perhaps other mineral resources, in Chagai district could become a suitable resource corridor
to anchor broader opportunities for economic growth and diversification within the immediate
area, across Balochistan province and possibly even nationwide. As such, the copper-gold
resources represent a starting point for policy and strategic interventions to align government and
donor investments with those of the private sector mineral developers and communities. The
development of potential resource corridor(s) in Balochistan will require an initial tripartite
dialogue that includes government, communities and industry around challenges and
opportunities for inclusive growth and diversification inside resource corridors. To realize
Resource Corridor development, attention would need to be given to roles/responsibilities
associated with resource corridors development as well as federal, provincial and community
coordination. Detailed recommendations are as follows.

(a) Need for improved inter-government coordination and information sharing

It was suggested that:
 The federal government and provincial governments
o review the National Minerals Policy 1995 with respect to mining in Balochistan;
and
o establish a process to clarify their respective authorities and responsibilities in
order to avoid both potential gaps and unnecessary duplication.
 The Government of Balochistan develops a Balochistan Mining policy — through a
consultative process with civil society and industry stakeholders.

Establish a process for protocols be developed between the federal government and the provincial
government(s) regarding:
 the role of mineral development agreements (MDAs) (According to good international
practice, MDA should be used to address site specific issues that are not suitable for
inclusion in generally applicable law, while the mineral law should include those issues
not to be negotiated under individual contracts, such as the fiscal regime. );
 the respective roles and authorities of the provincial and federal governments in
negotiating and signing mining development agreements and addressing contract
disputes;
 information sharing and disclosure of mining-related documents between the two levels
of government; and
 exploration and mineral promotion activities.

Furthermore, it was suggested that the Geological Survey of Pakistan (GSP) be provided with the
resources necessary to undertake exploration and investment promotion activities regarding the
mineral potential of Pakistan in general and Balochistan in particular.

15
(b) Laws and Regulations; good governance of exploration and mining activities
The relevant frameworks that govern the mining sector in Balochistan are underdeveloped and
broadly include: policy, legal and regulatory, fiscal and commercial, institutional, environmental,
and stakeholder participation. In terms of the governance of exploration and mining activities the
following key issues should be addressed by the Government of Balochistan.
 Exploration programs and licensing;
 Assessing feasibility studies and mine plans;
 Operating regulations and monitoring.

On Exploration programs and licensing specifically, it was suggested that:

 Preparation of guidelines for exploration work plans and reporting would ensure that
adequate work programs are undertaken.
 Some type of reporting system will need to be developed to track exploration, activities
of commercial scale, as well as artisanal and small-scale mining.

Assessing feasibility studies

A series of capacity constraints within the GoB were identified, particularly around assessing
large project feasibility studies and in examining the adequacy of a proposed large scale mine
design in light of the available geological and infrastructure information. In this connection, it
was recommended that guidelines should be established to set-out those elements to be included
in pre-feasibility and feasibility studies, providing the basis for a review process in which a
technical committee can judge whether the company has considered those options that offer an
economic and technically satisfactory investment and capacity development, including adequate
operational health and safety, enable wider benefits from potential infrastructure development and
sharing, and address the potential for beneficiation processes. In addition, those officials
responsible for evaluating licensing applications should be given additional training on large scale
mine planning and design.

Operational Regulations and Monitoring- Review of Balochistan Mining Rules

The Balochistan Mining Rules (Concession and Others) are similar to those used by other
provinces and generally focus on tender and licensing requirements. More detail and additional
coverage of topic areas is required including technical guidelines and regulations for mine
operations, especially for large-scale mining operations but also for small and medium operations.
It is suggested that:
 A general review of these Rules be undertaken to identify gaps and recommend areas
where (re)drafting may be needed, in particular on: elaborated licensing procedures,
requirements and terms for the powers and responsibilities of government as licensing
authority and regulator and the rights and obligations of investors/ operators as license
holders including provisions for security of tenure, conversion of exploration to mining
licenses and criteria for and procedures for license revocation in the event of substantial
and uncorrected license violations.
 Identification of core areas where regulatory improvements are needed for mines
inspection, health and safety requirements including measures for enforcement, in
particular for large scale mining.

In parallel with the above assessments, it is suggested that preparatory work be initiated regarding
regulations on the following issues:
 occupational health and safety;
 workplace standards & operating machinery;
 waste disposal and containment control - especially tailings dam;

16
  storage and transport of minerals — especially hazardous materials;
 explosives and blasting — licensing and certification;
 open pit mining — drainage, erosion, slope stability etc.;
 underground mining — ventilation, emergency response etc.; and
 mine closure, plant removal, impoundment stability and long term protection, site
reclamation and, if needed, post closure monitoring and protection.

(c) Need for capacity building in Government of Balochistan

Balochistan presently has considerable small scale and artisanal mining and one large scale
mining project, the Saindak project. There was consensus among the participants and experts at
the workshop, and in subsequent meetings that there is a need for capacity building among
officials from the GoB around large-scale mining, in particular on the intricacies of contract
negotiations for a large-scale mining project including:
 benefit sharing, especially local employment and value added in Balochistan;
 financial modeling to understand the financial and fiscal implications of the project;
 development of a communications strategy for communities, media and civil society.

Mines and Minerals Development Department (MMDD) and Balochistan Mine Inspectorate
A focus is needed for the Mine Inspectorate which is reportedly overstaffed, under- tasked and
would benefit from improved capacity, specifically certification of inspectors, training and
capacity development to address large scale mining. It is also suggested that:
 A functional analysis of the Balochistan Mine Inspectorate's and MMDD's institutional
arrangements is undertaken, including a review of training and certification, staffing,
and other areas identified for restructuring/streamlining;
 Comparative information be obtained from other countries on inspectorate functions
relative to small, medium and large scale mining;
 Capacity building and training is organized to support the implementation and
enforcement at the mine site of mining and monitoring regulations. Such a plan could
include a "training of trainers" approach to build the capacity of mines inspectors;
 Bilateral donor funding is leveraged for a "pilot health and safety" program where
training and equipment as needed are provided to the Inspectorate, and equipment is
purchased and provided to miners through an extension scheme that includes training in
more productive and safer mining techniques.

(d) Environmental and Social Safeguards

The legislation in Pakistan relating to environmental protection in the mining sector is both
fragmented and outdated. Social safeguards for mining are not considered in overall Pakistan
legislation. There is a lack of a legal and enforceable set of social standards that address and
mitigate the key social challenges of mining operations including important issues such as:
mining-related resettlement, replacement livelihoods; influx of outsiders when a mining
development is announced and under construction, community safety and crime prevention,
cultural heritage and overall community and local development. The challenges here are twofold:
1. setting such standards with the core interests of the communities in mind —
communities with a heritage of social and economic exclusion and conflict; and
2. defining who will be the regulator, and then building the necessary monitoring and
enforcing capacity.

The preparation of three sets of regulations/guidelines/policies, in addition to associated

initiatives for both environmental and social safeguards need to be prepared in order to clarify

17
responsibilities and improve oversight capacity, thus it is suggested that the following be
defined/prepared:
 the scope and content of the Environmental and Social Impact Assessments (EIAs);
 sectoral guidelines for ESIAs including the mining sector;
 scope and content of Environmental and Social Audits in the mining sector;
 clarification of the roles, authorities and responsibilities of federal and provincial
environmental agencies and offices;
 an assessment of the present capabilities of environmental agencies to assess
environmental impact assessments and management plans and undertake environmental
monitoring and enforcement activities;
 clarification of which federal and/or provincial agencies and offices have responsibility
or authority regarding social issues in the mining sector;
 an assessment of the present capabilities of those agencies to assess social impact
assessments and management plans and undertake monitoring and enforcement activities
regarding mining related social impacts; and
 development of a plan to address capacity building needs on the social and environmental
safeguards, especially regarding large scale mining.

As an initial step, it is suggested that a Strategic Environmental and Social Assessment (SESA)
— including a Beneficiary Assessment — be undertaken by local experts, leaders and women to
(a) gather relevant data to understand actual and potential poverty-related impacts, risks, and
opportunities of large scale mining development; (b) set objectives and identify priorities for the
Balochistan population and its heterogeneous groups; (c) identify the mechanisms to achieve such
goals, negotiate potential conflicts, and (d) identify what policy changes and institutional
arrangements are needed.

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 4. MOVING TOWARDS A RESOURCE CORRIDOR APPROACH IN
BALOCHISTAN

Balochistan has many of the essential building blocks for a resource corridor approach. But what
is required is commitment by the Province to development of integrated/coordinated polices,
agreements and shared-use infrastructure. As part of the western Balochistan resource corridor
option, port improvements at Karachi and/or Gwadar and associated improvements to supporting
road/rail/power might also be considered. Some next steps for the Province of Balochistan to
consider are described in the following general outline:

Key Considerations – A resource corridor analysis begins with an assessment of existing

economic, geopolitical, socioeconomic and environmental conditions, as well as the management
capabilities and systems for collaborative dialogue across government, industry and community /
civil society. A principal deficiency is often related to creating collective, coordinated actions
from disparate community, district and corporate development plans. Where disparate plans can
be integrated, the task ahead is the building of core capacities within government and community
to realize early opportunities around strengthening of social mobilization and enterprise
development through the private sector. This dialogue and integration seldom happens in the
normal course of resource development, but when facilitated can yield economic development
and diversification.

A first phase analytical report should consider how the potential resource corridor in western
Balochistan would be developed. The analysis should seek to answer the following questions:

Human Capital Development / Capacity Building

(i) What lessons can be drawn regarding the building of adsorptive capacity within
government and community to facilitate inclusive planning, and provide education and training to
realize direct employment and indirect / induced enterprise development opportunities?
(ii) What types of partnerships between industry, government, community, and civil society
organizations can be effective in facilitating economic development and diversification?
(iii) What considerations should be given to the needs of the most vulnerable and most
impacted people around oil, gas and mining development within resource corridors?
Institutions
(iv) What national / sub-national institutions or development organizations can be used to
facilitate consultative, inclusive planning and implementation across industry, government and
community?
Financial Systems
(v) What financial management structures / systems (i.e. foundations, trusts, partnerships)
could be effective in ensuring inclusive planning and project implementation?
Infrastructure
(vi) What are the potential anchors for the development of the corridor: ie. deposit types,
existing infrastructure, existing financial and trade centers?
(vii) What models could be used for the development of shared-use infrastructure? (PPPs,
bilateral agreements, legislative etc.)
Economic Linkages and Enterprise Development
(viii) What is the potential for indirect and induced economic activities and benefits that could
emerged (by type (mining, forestry, tourism, manufacturing etc.) over time (immediate, medium
term, long term) and benefits (social mobilization and enterprise development.)
(ix) What is the potential role of Government (national and sub-national), industry
organizations, the private sector, parastatals (particularly utilities), civil society, international

19
organizations and the donor community in facilitating industry clusters?
What types of mechanisms can be established to promote private sector investment across the EI
Value Chain (i.e. SME financing and incubation frameworks)
Policy Space
(x) What policies could facilitate – initially, and over time, the increase economic linkages
and/or manage the impact of natural resource based development?
(xi) What were the key above ground factors that could contribute to (or impeding) the
development of the corridor: political economy, security, stakeholder management, terrain, high
density of anchors, robust economics etc.
(xii) What risks could affect the success of the resource corridor? (Not only in terms of the life
of a resource project but also in terms of (i) accessibility to infrastructure over the life of a project
(ii) government and/or joint venture parties maintaining their financial commitments; and (iii)
district stability.)

Developing the Institutional Arrangement, to which key actions would include:

Public Private Dialogue Space

 Define and build a tripartite dialogue space across government, industry and
community. Capacity building efforts at the local level will require a vibrant dialogue
space and facilitation of shared vision for corridor development across the area. At
present, there are a number of disparate interventions by the industry, civil society and
government to share information and engage on specific programs, to which a more
integrated approach supported by a professional secretariat is needed.

 Support institutional structures to build local adsorptive capacities to (a) increase the
flow of information around Balochistan on issues related to sector development and
facilitate inclusive planning, (b) strengthen local community capacity in social
mobilization in the principal impact areas, and (c) provide education and training to
realize direct employment and indirect / induced enterprise development opportunities.
An assessment is required of the activities of civil society groups, and the types of
institutional arrangements that have been created to support capacity building.

 Begin policy dialogue for shared-use infrastructure around core mining or gas
operations. Integrated infrastructure development (road, rail, power, water, ICT), through
public-private partnerships require a one-off approach specific to each operation.
Infrastructure development (in particular rail) requires a clustering of districts approach;

The Information Space

 Build an information management system describing the existing socio-economic and
environmental baseline. This includes mapping of existing mining operations and areas
having high prospectivity (where future discoveries should be expected subject to further
exploration), all existing land-use and commercial activities, household and livelihood
surveys, water and other natural resources, and existing and planned infrastructure.
Environmental and social aspects should be guided by the development of appropriate
management frameworks and safeguard policies (involvement of local communities, land
acquisition, resettlement, compensatory measures for affected communities, mitigation of
environment damages, preservation of archeological sites, etc.)
 Collect and assess private sector development plans for mines, infrastructure,
procurement and community engagement:

20
 o Around the mine: linkages with the national economy (value chain approach with
legal and regulatory measures, targeted investments and support to firms);
o Along the resource corridor: potential role for Industrial Parks and/or Special
Economic Zones, investment climate reforms, trade facilitation services, and
regional corridor management initiatives;
 Assess Employment creation and enterprise development opportunities where cross-
cutting issues, affecting infrastructure development, mining operations and private sector
development.

Components for Implementing a Resource Corridor Approach

Component
Collect and maintain socio-economic baseline
data within already identified resource corridor
Targeted capacity building
Objective
Catalog all development activities and
interventions planned by stakeholders in
potential resource corridor

Provide integrated and timely assessment of

Strategic/integrated planning and prioritization
for Resource Corridor, Public-Private
Partnerships
input/output activities for administrative
jurisdictions covering resource corridor
[provincial and district governments, etc.];
focus on key capacity building priorities
around vocational training, administration,
community education (literacy), integrated
planning
Create or enhance structures for local
coordination, prioritization, and gap filling to
nurture Resource Corridor development

Facilitate Public-Private Partnership Dialogue Facilitate public-private partnership dialogue

Specialized Partnership Unit for
Extractives/Infrastructure focused on Resource
Corridors
around shared-use, open-access infrastructure
Support an MMDD Resource Corridor
Authority to facilitate public-private financing
of key infrastructure around water systems,
power systems, ICT, roads and – subject to
further feasibility studies – rail.

Prepare financial risk mitigation instruments

offered bilaterally (e.g., OPIC) or through
MDB’s (e.g., World Bank partial risk
guarantees)

Facilitate eminent domain acceptable to World

Bank safeguard policies
Programmatic support unit Key elements
 Monitoring system (GIS based)
 Coordination Secretariat
 Rapid Gap Filling Mechanism
(Technical Assistance, policy

21
guidance)

22
i
MCC website.
ii
MCC website.
iii
GOP Brief on Saindak development (1995).
iv
‘Chinese firm gets rare extension in Saindak project’, Ahmad Ahmadani, The Nation (Islamabad), May
24, 2011
v MCCT Makes Strenuous Efforts in Technical Training for Saindak Project, MCC website.
vi Tethyan Copper Company website

(http://www.tethyan.com/TheRekoDiqProject/RekoDiqResource.aspx)
vii Tethyan Copper Company website

(http://www.tethyan.com/TheRekoDiqProject/RekoDiqResource.aspx)
viii Description of Tethyan Copper Company (TCC) plans are from the TCC website

(http://www.tethyan.com/TheRekoDiqProject/MiningProject.aspx)
ix Lake Resource (http://www.lakeresources.com.au/exploration.htm)
x Benway Corporation (http://benwaycorp.com/balochistan)

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