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World Bank Could Hit Pakistan With $11 Billion Fine

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Pakistan may have to pay a damages claim worth $11 billion after losing the infamous Reko Diq case to an Australian mining company

Pakistan’s economy is facing a potentially crippling jolt, with the International Centre for Settlement of Investment Disputes (ICSID) expected to levy a US$4 billion fine on Pakistan, with actual liabilities having the potential to stretch as high as $11.5 billion.

This comes after an Australian mineral exploration company filed a damages claim worth $11 billion against the cancellation of its contract for Reko Diq copper and gold mines in Balochistan.

The ICSID website confirmed that the tribunal decided on the admissibility of new evidence from the respondent as the case is still pending. The World Bank arbitration tribunal earlier in 2017 ruled in favor of the Tethyan Copper Company Private Limited (TCC), a conglomerate of Cuban and Canadian mining exploration companies registered in Australia. They had acquired a lease for copper and gold mines in Reko Diq, Balochistan from Australian company Broken Hill Proprietary (BHP).

Reko Diq mines are located in the sparsely populated Chagai district in northwestern Balochistan. Its annual production is estimated at 200,000 tons of copper and 250,000 ounces of gold from 600,000 tons of concentrate. According to TCC’s estimates, expected profits worked out at about $1.14 billion for copper and $2.5 billion for gold, totaling $3.64 billion annually. The TCC’s calculation puts the total profit over the 55-year life of the mine at $200 billion, far lower than independent estimates which put the profit at $500 billion.

The government of Balochistan rejected the company’s mining license application for the Reko Diq gold and copper project in 2011, saying that experts found the feasibility report submitted by TCC to be unsatisfactory. They alleged that the company did not mention anything in its report about the processing of precious metals, which was the main concern of the Balochistan government. The government, they claimed, would allocate substantial funds for the installation of its own refinery for the processing of gold and copper.

Following this, the Supreme Court in January 2013 declared the Chagai Hills Exploration Joint Venture Agreement void for being in conflict with the country’s laws. A three-member bench of the supreme court, headed by then chief justice Iftikhar Muhammad Chaudhry, annulled the agreement originally signed between the Balochistan government and Australian mining company BHP in 1993. BHP later sold its stake to TCC, which administered the mine until 2008 when legal proceedings contesting the agreement were launched.

While litigation was ongoing, TCC approached the ICSID in 2012 against Pakistan for loss of investment amounting to $400 million. The total damages claimed by the company runs into billions of dollars. Due to the ruling, Pakistan may face a penalty of $11.5 billion for not awarding the project to TCC in violation of the agreement signed with the mother company.

Ahmad Bilal Sufi, a leading Pakistani industrialist who has been part of the project for years and is and an expert on international law told Asia Times that, if Pakistan resists the ruling, collecting on the ICSID award would be a cumbersome and long-drawn-out process. However, “TCC could enforce the award through Pakistani courts and in the foreign courts in whose jurisdiction Pakistan owns assets,” he said.

The ICSID in 2015-16 rejected Pakistan federal and provincial government applications seeking admittance of new evidence allegedly showing TCC’s corrupt practices in Reko Diq affairs. TCC had argued that Pakistan abused its discretion and denied its mining rights without any legal grounds in 2011 after the company spent a substantial amount of money on mining exploration and feasibility studies over a period of around 10 years.

“I always favored an out-of-court settlement of disputes with the foreign investors, as they seldom want animosity with the host countries,” Sufi said. He further added that the foreign investors prefer to scale down their damages claims if the host agrees to an amicable settlement. Sufi claimed that the government achieved its strategic objective of retrieving the mines, and that now settlement with the foreign investors was the only available solution to this issue.

Last week, a Pakistani newspaper dropped a bombshell by carrying a report claiming that ICSID slapped a fine of over $4 billion on Pakistan in damages after the latter lost the famous Reko Diq case to an Australian company. The report cautioned that if Pakistan failed to pay the damages to the company, the flights of national flag carrier Pakistan International Airline (PIA) would not be allowed to touch down at 60 international airports all over the world.

The next day Pakistan Attorney General issued a denial saying ICSID had not issued any award against the country, as they will take five to eight months to impose financial penalties. The rebuttal revealed that the tribunal had initially ordered Pakistan to pay nearly $846 million in another claim filed by a Turkish energy firm, Karkey Karadeniz Elektrik Uretim (KKEU). Besides this, $78.6 million was partially imposed by the London Court of Arbitration (LCA) against Pakistan in a case brought forward by eleven independent power producers. Interestingly, the newspaper removed its bombshell story in a mysterious manner without any rejoinder or clarification.

Moreover, Asia Times has found that Dr Arsalan Iftikhar, son of the chief justice who cancelled the Reko Diq agreement in 2013, was appointed as vice chairman of the Board of Investment Balochistan (BIB), only months after his father’s dramatic ruling. The role assigned to Dr Arsalan, among other things, was to bring investors to the Reko Diq project.

The Public Accounts Committee (PAC) of Parliament had also observed in early January 2018 that Pakistan faced damages claims in the Reko Diq mining case due to “corrupt practices” and “inefficiencies” of successive governments of Balochistan. The PAC also raised serious questions over the manner in which the provincial governments allowed change of ownership from BHP to TCC despite the fact that there was no provision for such an event in the original Chagai Hills Joint Venture Exploration Agreement.

Naveed Qamar, a Pakistan People’s Party (PPP) senior parliamentarian and member of the National Assembly PAC told Asia Times: “We have approached the relevant ministries to send us the details of the Reko Diq and other such cases where arbitration tribunals issued awards against Pakistan. We asked them to provide the latest position and identify the individuals or institutions responsible for making erroneous decisions and causing huge financial losses to the government.”

According to Qamar, the government insisted that since these cases remain under appeal, responsibility cannot be fixed. “It’s a very serious issue and involved huge sums of money, the PAC would leave no stone unturned to get to the bottom of this issue and fix the responsibility on the person involved,” he added. “In our considered opinion (the) fault does not lie in the contracts or execution phases but the problem starts when the judiciary intervened and the Supreme Court declared the agreements void,” Qamar said. Atimes*


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Automaker Daimler AG to pay $1.5 billion to settle emissions cheating probes

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Daimler AG Chief Executive Officer Dieter Zetsche (C) speaks to the media after he unveiled the Mercedes-Benz Concept Style Coupe at Auto China 2012 in Beijing April 23, 2012. China's premium car market should grow 15-20 percent this year, Zetsche said on Monday, adding that Daimler's sales should at least match that rate. Zetsche also said he expects the company's Mercedes-Benz luxury brand to post a sales increase in Europe this year. REUTERS/Jason Lee

Automaker Daimler AG and subsidiary Mercedes-Benz USA have agreed to pay $1.5 billion to the U.S. government and California state regulators to resolve emissions cheating allegations, officials said Monday.

The U.S. Department of Justice, Environmental Protection Agency and the California attorney general’s office say Daimler violated environmental laws by using so-called “defeat device software” to circumvent emissions testing and sold about 250,000 cars and vans in the U.S. with diesel engines that didn’t comply with state and federal laws.

The settlement, which includes civil penalties, will also require Daimler to fix the vehicles, officials said. In addition, the company will pay $700 million to settle U.S. consumer lawsuits.

The Stuttgart, Germany-based automaker said on Aug. 13 that it had agreements with the Justice Department, Environmental Protection Agency, Customs and Border Protection, the California Air Resources Board and others over civil and environmental claims involving about 250,000 diesel cars and vans.

Environmental Protection Agency Administrator Andrew Wheeler said Daimler did not disclose all of its software, which included “devices designed to defeat emissions controls.”

In a statement, Daimler said it denies the allegations that it cheated and does not admit to any liability in the U.S. The settlements resolve civil proceedings without any determination that Mercedes and Daimler vehicles used defeat devices, the company said. Plus, Daimler said it did not receive a notice of violation of the Clean Air Act from the EPA or California regulators, which is common when defeat devices are used.

The company said it is not obligated to buy back the vehicles, as Volkswagen was, nor will it have an independent monitor to track its progress on the settlement. “By resolving these proceedings, Daimler avoids lengthy court actions with respective legal and financial risks,” the company said.

Daimler also said the emissions control system in the U.S. vehicles is different than models sold in Europe because of different regulatory and legal requirements.

Daimler AG said the settlement would bring costs of about $1.5 billion, while the civil settlement will bring a one-off charge of $875 million. It estimated that “further expenses of a mid three-digit-million” euros would be required to fulfill conditions of the settlements.

Daimler said it owners of model year 2009 through 2016 Mercedes cars and 2010 through 2016 Sprinter vans with “BlueTEC II” diesel engines will be notified of recalls to fix excessive vehicle emissions. Customers will be notified by mail starting late this year, and the company will set up a customer website, Daimler said in a statement.

Owners also will get mailed notices and a website with details of the civil lawsuit settlement including a claim form, Daimler said. The company also will pay attorneys fees of around $83 million.

Steve Berman, a lawyer involved in the class-action lawsuits against Daimler, said in a statement that current owners can get $3,290 or more, while former owners can get $822.50.

“Owners of Mercedes’ dirty diesel cars will finally be able to receive the compensation they deserve and repairs to ensure their vehicles are not emitting illegal levels of harmful pollutants,” Berman said.

Deputy Attorney General Jeffrey Rosen said the cost of the Daimler settlement is likely to send a message to deter other companies from engaging in similar conduct.

“We expect that this relief will also serve to deter any others who may be tempted to violate our nation’s pollution laws in the future,” Rosen said.

As part of the U.S. government settlement, Daimler will pay an $875 million civil penalty — about $3,500 for each vehicle that was sold in the U.S. The company will also be required to fix the vehicles and will need to replace some old locomotive engines with newer, low nitrogen oxide-emitting engines that should offset the illegal emissions from its vehicles, Rosen said. A Justice Department official said the company did not have to admit guilt as part of the settlement.

In addition, officials in California will receive $17.5 million for future environmental enforcement, as well as to support environmentally-beneficial projects in the state, officials said.

“Long term, cheating isn’t the smartest way to market your product. Daimler is finding that out today. But they’re not the first — nor likely the last — to try,” said California Attorney General Xavier Becerra.

Daimler’s pollution practices also are under investigation in Germany.

In April 2016, the Justice Department asked Daimler to conduct an internal probe into its exhaust emissions certification process. The request came as the EPA began checking all diesel engines after the Volkswagen cheating was revealed.

Volkswagen, ended up paying $2.8 billion to settle a criminal case due to emissions cheating. Fiat Chrysler also is being investigated for allegedly cheating on emissions.

VW admitted that it turned on pollution controls when vehicles were being tested in EPA labs, and turning them off when the diesel vehicles were on real roads. The company duped the EPA for years before being discovered by a nonprofit climate group and researchers at West Virginia University. In September 2019, federal prosecutors charged a Fiat Chrysler engineer with rigging pollution tests on more than 100,000 diesel pickup trucks and SUVs sold in the U.S., the first indictment since a wave of similar cases against Volkswagen and its managers.

The alleged scheme isn’t as large as the Volkswagen emissions scandal, which involved nearly 600,000 vehicles. But the charges showed that investigators are still on the case, even after Fiat Chrysler agreed to a $650 million civil settlement.

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Bitcoin’s ascent will be slow & steady: Bloomberg

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Megabulls such as PlanB are predicting parabolic short- to medium-term price moves for bitcoin, but Bloomberg analyst Mike McGlone believes the leading digital asset’s ascent to $100,000 will be a slow, steady and almost inexorable grind.

The senior commodity strategist at the financial news service believes bitcoin will steadily appreciate because of its fixed supply combined with a growing demand.

“I don’t see what [could] make it stop doing what [it’s] been doing for the last 10 years. And that’s going up,” he told Cointelegraph in a video interview.

McGlone thinks bitcoin could become a better store of value than gold, the traditional safe haven, because its supply is capped. Unlike gold, the total potential supply of which is unknown, bitcoin is inherently scarce; there will never be more than 21 million , and many of the ones already mined have been lost forever, thus increasing the potential value of those that remain accessible.

As demand for the digital asset grows, the price will inevitably go up, explained McGlone. He pointed out that the number of active bitcoin addresses is increasing rapidly and that more and more bitcoin is flowing into regulated exchanges, both of which are strong indications of increasing demand.

But he said investors shouldn’t expect bitcoin to soar to gobsmacking new highs on the short term as it has historically following its reward halvings – it climbed from around $1,000 to nearly $20,000 in the last bull run, before crashing hard in early 2018. Now that it is a mature asset, he said its price behaviour will be less dramatic.

When asked about Pantera Capital’s prediction that bitcoin will soar to $115,000 in just a year, McGlone said, “Bitcoin 10x? Maybe over 10 years, that makes a lot of sense.”

Read: Bitcoin is set to become digital gold: Bloomberg

Asia Times Financial is now live. Linking accurate news, insightful analysis and local knowledge with the ATF China Bond 50 Index, the world’s first benchmark cross sector Chinese Bond Indices. Read ATF now. 

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Investors offload risk after Fed gets real

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A man with a protective mask walks in the rain past an electronic stock board showing Japan's Nikkei. AP Photo/Eugene Hoshiko

Hong Kong: Financial markets in Asia retreated on Thursday over disappointment that the US central bank did not expand its asset purchase programme, although it did reiterate its ‘lower for longer’ message.

The Bank of Japan’s decision to keep rates unchanged was expected by the market but investors sold off stocks as a dovish Fed weakened the dollar against the yen, whose strength in turn hammered exporters’ prospects.

The Japanese yen strengthened 0.2% to 104.7 to the dollar.

“The yen currently sits at around ¥105 against the dollar – that’s a little stronger than in the summer but far weaker than what the current spread between JGBs and US Treasuries would usually point to,” Capital Economics analysts Tom Learmouth and Marcel Thieliant said, referring to the narrowing of the spread. “While we expect the yen to remain close to ¥105 the risks are tilted slightly towards a stronger yen.”

The drag from exporters pulled down Japan’s Nikkei 225 index which fell 0.67%, while Australia’s S&P ASX 200 slipped 1.22% as investors worried about a rollback of stimulus after data released showed a drop in the unemployment rate.

Hong Kong’s Hang Seng index also retreated 1.56% as investors prepared for a slew of IPOs including the world’s biggest – the Ant Financial $30-billion bonanza expected next month. At least three share offerings are expected next week as well, as issuers avoid a clash with Ant Financial’s mammoth offering. Delivery company ZTO Express, biotech company Zai Lab and online retailer Baozun are in a race for cash.

China’s CSI300 eased 0.53% as the region remained under pressure following disappointment over the US central bank’s unchanged asset purchase programme.

‘Congress must step up’

“And while risk assets might love the intravenous drip of monetary stimulus, it is time to focus on policies that the real economy needs, and for that, Powell is dead right, it’s time for Congress to step up to the plate,” Robert Carnell, ING Bank’s Regional Head of Research in the Asia-Pacific, said.

“Perhaps the market reaction here is more a realisation of this and the fact that any resolution to the current impasse is unlikely until the Presidential election outcome is determined.”

US Treasuries picked on the Fed’s ‘dot plot’, extending its gains with the 10-year yield declining 2 basis points to 0.68%.

The Federal Reserve’s dot plot, which the US central bank uses to signal its outlook for the path of interest rates, projects no change in policy this year and borrowing costs near zero through till 2023, based on median estimates. It said they must achieve maximum employment and inflation at a rate of 2% over the longer run.

“The Committee decided to keep the target range for the federal funds rate at 0 to 1/4% and expects it will be appropriate to maintain this target range until labor market conditions have reached levels consistent with the Committee’s assessments of maximum employment and inflation has risen to 2% and is on track to moderately exceed 2% for some time.”

Asia Stocks

· Japan’s Nikkei 225 index dropped 0.67%

· Australia’s S&P ASX 200 slipped 1.22%

· Hong Kong’s Hang Seng index retreated 1.56%

· China’s CSI300 eased 0.53%

· The MSCI Asia Pacific index fell 0.70%.

Stock of the day

Times China bonds rose and shares fell after it announced a plan to buy back its bonds due in 2021.

This report appeared initially on Asia Times Financial.

Asia Times Financial is now live. Linking accurate news, insightful analysis and local knowledge with the ATF China Bond 50 Index, the world’s first benchmark cross sector Chinese Bond Indices. Read ATF now. 

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