How Indian economy impacted by Sterilite Copper .. .. ever read of Reko Dig and Billion award against Pakistan !!

Today morning there is a full page advt in Times of India Chennai edition, perhaps in many other papers as also other editions .. .. on a factory closure and its impact on Indian economy – on how India became an importer in 20 years and how Pakistan has benefitted !!  .. .. sad plight !!!

 

One may not be reading about this small town Reko Dig in Chagai Dist, Balochistan, located in a desert area or about the Tethyan belt that stretches all the way from Turkey and Iran into Pakistan but for the Tribunal award against the State -  in a case agitated in UNCTAD  outlining rights under a joint venture agreement concluded with the Province of Balochistan for the development of a copper-gold mine.  The dispute value was USD 8500 Mln whilst the award was lower but still a whooping USD 4087 million.  The Tribunal in its order running to more than 650 pages decreed that the Pakistani Govt shall pay    USD 4,087 million as principal amount of compensation for the breaches, as determined in the Tribunal’s Decision on Jurisdiction and Liability dated 10 November 2017, + interest + costs.

Investment arbitration is a procedure to resolve disputes between foreign investors and host States (also called Investor-State Dispute Settlement or ISDS). The possibility for a foreign investor to sue a host State is a guarantee for the foreign investor that, in the case of a dispute, it will have access to independent and qualified arbitrators who will solve the dispute and render an enforceable award. This allows the foreign investor to bypass national jurisdictions that might be perceived to be biased or to lack independence, and to resolve the dispute in accordance to different protections afforded under international treaties.  The United Nations’ UNCTAD maintains a list of the vast majority of instruments providing for a host State’s consent to investment arbitration, which should be consulted at the outset of any potential dispute to see whether investment arbitration may be envisaged.

Moving away from this long prelude .. .. ..  Copper is a chemical element with the symbol Cu (from Latin: cuprum) and atomic number 29. It is a soft, malleable, and ductile metal with very high thermal and electrical conductivity. A freshly exposed surface of pure copper has a pinkish-orange color. Copper is used as a conductor of heat and electricity, as a building material, and as a constituent of various metal alloys, such as sterling silver used in jewelry, cupronickel used to make marine hardware and coins, and constantan used in strain gauges and thermocouples for temperature measurement.  

Globally, Copper prices  jumped  past $9,000 in the international market for the first time in almost 10 years on the expectation of an increase in demand for the metal. London copper crossed the $9,000 a tonne level after climbing as much as 3.1% to $9,187 a tonne on Monday for the first time since September 2011, extending its rally. The contract is now 10% away from the all-time high of $10,190 a tonne touched in February 2011.  The rally in copper prices has been driven mainly by an expectation of a pick-up in demand after the Chinese New Year, bets of an economic recovery and worldwide push for cleaner, greener energy.  

            According to Peter van der Krogt, a Dutch historian, the word "copper" has several roots, many of which come from the Latin word cuprum that was derived from the phrase Cyprium aes, which means "a metal from Cyprus," as much of the copper used at the time was mined in Cyprus. If all of the copper wiring in an average car were laid out, it would stretch 0.9 miles (1.5 km), according to the USGS.   Copper is one of the few metals that can occur in nature in a directly usable metallic form (native metals). This led to very early human use in several regions. In the Roman era, copper was principally mined on Cyprus.

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Now reverting back to that full paged advertisement, if we are to dispassionately read the facts, keeping away the politics that embroiled the closure of Sterilite industries – here is an article excerpted from ‘The Wire’ written by a Senior journalist.  .. .. dated 15.2.2020

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India’s refined copper imports more than doubled in 2018-19 to 92,290 tonnes ($605.20 million) from 44,245 tonnes ($294.95 million) in 2017-18. Export of refined copper, on the other hand, has substantially dropped to 47,971 tonnes ($302.27 million) in 2018-19 from 378,555 tonnes ($2,435.57 million) in 2017-18. So much so, the country has now become a net importer of refined copper.   Today, we are a net importer at 44,373 tonnes ($302.93 million) in 2018-19. This is a far cry from the situation in 2017-18 when India was a net exporter of refined copper at 334,310 tonnes ($2,140.62 million). During April-November this financial year, imports and exports stood at 109,324 tonnes ($684.02 million) and 18,300 tonnes ($106.35 million), respectively.

These are the numbers submitted to the Rajya Sabha by the Union Minister of Commerce and Industry, Piyush Goyal, while fielding an unstarred question on February 7. “The domestic production and exports have declined largely due to the closure, since May 2018, of the copper smelter plant of Vedanta Ltd. at Tuticorin in Tamil Nadu, which has an annual production capacity of four lakh tonnes,” the minister admitted.

The numbers indeed give a status report on the bleak copper situation. From a net exporter, India has quickly slipped to become a net importer. The story, however, has not been as simple and straightforward as the data indicates. For the uninitiated, the copper import-export story will pass just as one more instance of India’s inability to become self-sufficient.

For a discerning watcher of the economy, however, the trade disadvantage situation is plainly the handiwork of a thoughtless political leadership and governance across the spectrum in Tamil Nadu.The Sterlite project has been controversial ever since it was planted in Tutucorin over two decades ago. The project went from state to state before finally finding its home in Tamil Nadu. One can rightly question how the project managed to gain acceptance in Tamil Nadu when several others shunned it.  The fact is that successive political parties in the state allowed it to run for over two decades. Both state and central agencies played ball together in facilitating the progress of the project. Ultimately though, the numerous environment and pollution issues surrounding the plant, which always cropped up on and off over the years, could not be ignored. Sterlite was thus closed. That things took an ugly turn in the absence of a strong leadership –  local police mowed down 13 protestors with sniper fire in May 2018 – is definitely not lost on the long-time watchers of the  project

It must also be said that the whole imbroglio, even as it currently awaits a ruling from the Madras high court, has also caused immense damage to the national economy not just in terms of its impact on precious foreign exchange but also by putting to peril several downstream units.

Among the most used industrial metal, copper comes third after steel and aluminium in terms of quantities consumed. The country has limited copper ore reserves which constitute around 2% of the world copper reserves. And, the mining production, too, is just 0.2% of the global output. According to a report by CARE, the consumption of refined copper (including secondary consumption) has grown at a compounded annual growth rate of 4.2% during FY15-19. At the moment, there are only three major players who dominate the primary copper industry – Hindustan Copper Limited (HCL) in Public Sector, Hindalco Limited and Vedanta Industries Limited in private sector. According to a CARE report, the domestic production of refined copper had grown at a CAGR of 9.6% during FY14-18. Production, however, fell by 46.1% during FY19 due to the permanent closure of Sterlite factory in May 2018. The Tuticorin smelter accounts for 40% of the country’s copper smelting capacity.

“Now with the closure of the Tuticorin smelter, the drop in domestic production has led to the domino effect of increasing the country’s imports and decreasing its exports. India has become a net importer of refined copper after 18 years,” the CARE report said. Copper has a wider application in electrical and electronic industries, and touches the lives of very many across multiple trade and industry verticals.

Inaugurating the radial tyre factory of CEAT near Chennai recently, TN chief minister E Palaniswami, claimed that the state was fostering a friendly ecosystem to encourage business to set up production units and create job opportunities. He also went on to claim that Tamil Nadu had emerged as a leading destination for foreign investment in the entire Asian region. It is fine to roll out the red carpet to new industries. But the Sterlite imbroglio will still be at the back of their minds when foreign investors look at Tamil Nadu.

There are many questions to be asked of regulatory organisations and political parties. Could the environmental issues have not been detected and sorted out years before an extreme position had to be taken? Who is to blame? Caught in an intractable predicament of their own making, political parties often look up to courts to come to their rescue. Sterlite is a classic case in point.  The Sterlite episode must end, one way or the other, without any further delay. It has extracted an enormous cost for the economy and also stakeholders of big and small kinds. A sustainable solution for the future of copper production in this country must be found.

A thought-provoking article indeed, if only we care to know the facts apolitically.

The Reko Diq mine (referred in para 2) is located   in Chagai District, Baluchistan, Pakistan. It is one of the largest copper and gold mines in the world located in the south west part of Pakistan in Balochistan province.   USD 4087 million is award given against Pakistan in Investment arbitration.  Now it is stated that Pakistan is in talks with Tethyan Copper to settle  billion$ dispute  senior Pakistani officials told Reuters.   The order was in favour of  Tethyan Copper - a joint venture between Chile’s Antofagasta and Canada’s Barrick Gold - for blocking Tethyan from developing the asset after it had already sunk more than $220 million into the project.

Interesting ! 

With regards – S. Sampathkumar
22.2.2021

 

Biblio / references – various news reports on Copper;

https://thewire.in/business/sterlite-closure-india-net-importer-copper;

https://investmentpolicy.unctad.org/investment-dispute-settlement/cases/463/tethyan-copper-v-pakistan