Tethyan Copper Company Pty Limited v. Islamic Republic of Pakistan
ICSID · Investment (ICSID and treaty) · Pakistan · 12 Jul 2019
Why it matters
This is one of the largest ICSID awards in history, awarding over USD 4 billion in damages. The case set a precedent for valuing mining projects at the development stage using a modern discounted cash flow (DCF) method, and for rejecting host state defenses based on alleged technical infeasibility and corruption. It also clarified the standard of compensation for breaches of fair and equitable treatment and expropriation under the Australia-Pakistan BIT.
Summary
Tethyan Copper Company (TCC), an Australian company, invested in the Reko Diq copper-gold project in Balochistan, Pakistan, through a joint venture with the Government of Balochistan. After years of exploration and feasibility studies, TCC applied for a mining lease in 2011. The Government of Balochistan rejected the application in 2011, effectively expropriating TCC's investment. TCC initiated ICSID arbitration under the Australia-Pakistan BIT, claiming breaches of fair and equitable treatment, expropriation, and arbitrary measures. In 2017, the tribunal found Pakistan liable on all three counts. The quantum phase determined compensation. Pakistan argued the project was not feasible due to technical, security, environmental, and financial issues. The tribunal rejected these defenses, finding that TCC had established the project's feasibility and that Pakistan's actions were the cause of the loss. The tribunal valued TCC's investment at USD 4,087 million using a modern DCF approach, which accounted for systematic and asymmetric risks. The award included pre-award interest from 2011 and post-award interest at US Prime Rate plus 1%, compounded annually. Pakistan also bore the full costs of the arbitration and TCC's legal fees, totaling over USD 59 million. The award is notable for its size and the detailed analysis of project feasibility and valuation.
The detail
Parties: Tethyan Copper Company Pty Limited v. Islamic Republic of Pakistan
Case number: ICSID Case No. ARB/12/1
Outcome: Pakistan ordered to pay USD 4,087 million in compensation plus pre-award and post-award interest and costs to Tethyan Copper Company for breaches of the Australia-Pakistan BIT.
Quantum: USD 4,087 million
Applicable law: Agreement between Australia and the Islamic Republic of Pakistan on the Promotion and Protection of Investments (Australia-Pakistan BIT); ICSID Convention; ICSID Arbitration Rules
Issues in play: The case involved the fair and equitable treatment standard (Article 3(2)), expropriation (Article 7(1)), and arbitrary or discriminatory measures (Article 3(3)) under the BIT. The tribunal had to determine whether Pakistan's denial of a mining lease and subsequent actions breached these protections.
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