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By Saeed Shah and Summer Said/Wall Street Journal
ISLAMABAD, August 10: Pakistan is negotiating with Gulf nations to bring in billions of dollars of investment, as Islamabad seeks the foreign currency it badly needs to stabilize its economy and the oil-rich monarchies move to diversify their economies and expand their influence.
The Saudis are in talks to buy into a giant copper mine, being developed at a cost of $7 billion by Canada’s Barrick Gold in western Pakistan, according to people familiar with the project. Separately, negotiations are at an advanced stage to set up a Saudi oil refinery in Pakistan, which could cost up to $14 billion, according to Islamabad and Gulf officials.
For the Gulf states, the deals represent a shift from when they provided loans or grants to poorer countries in the region, such as Pakistan or Egypt, to a new focus on acquiring assets for their sovereign-wealth funds.
Pakistan, a nuclear-armed nation of 240 million, has been racked by an economic crisis and political instability. It reached an agreement with the International Monetary Fund in June on another bailout.
Its powerful military, which has clamped down on political freedoms in recent months, is seeking to ease the path for investment by streamlining the deal-making process for Gulf investors, who had complained about red tape and political indecision in the past.
Mining, energy infrastructure, farmland and privatizations of Pakistani government businesses could all be part of the planned selloff to Saudi Arabia, the United Arab Emirates and Qatar, which are increasingly competing for assets in struggling political allies.
Islamabad established this summer the Special Investment Facilitation Council, which includes the army chief, to smooth the bureaucratic path for Gulf investment.
“Pakistan is strategically located, at the junction of the engines of growth in Asia, between south Asia, central Asia, China and the Middle East,” said Ahsan Iqbal, Pakistan’s outgoing planning minister, who also heads the executive committee of the Special Investment Facilitation Council. “There is a very big opportunity for investors to come here, as long as we can give them assurance that there will be continuity of policy for their investment.”
Both the Saudi deputy mining and foreign ministers visited Islamabad this month for talks about the investment initiative.
Pakistan Prime Minister Shehbaz Sharif said Wednesday that parliament would dissolve, ahead of elections that are likely to be delayed into next year. The installment of a nonpolitical caretaker government in Islamabad in the next few days, to oversee the period up to the next election, is expected to kick-start the deals. New powers have been given to the incoming caretaker administration, which will likely be under even greater influence of the military, to enable it to make major economic decisions.
The army is Pakistan’s dominant institution, a permanent power in a country where no prime minister has completed a term in office. The Gulf has long dealt directly with Pakistan’s army, the sixth largest in the world, which has provided a contingent of troops to Saudi Arabia for decades. The first overseas trip for Pakistan’s current army chief, Gen. Asim Munir, was to Saudi Arabia, where he met Crown Prince Mohammad bin Salman in January.
A splurge in Pakistan is expected to come from government-owned entities in the Gulf, which in recent years have invested in Egypt, a country also in the midst of an asset sale, as well as Ethiopia, Sudan and the Horn of Africa.
“For the Gulf, Pakistan and Egypt are a regional security priority,” said Karen E. Young, a researcher at Columbia University’s Center on Global Energy Policy. “They absolutely cannot afford to see a failed state in Egypt or Pakistan.”
Egypt and Pakistan offer big populations, large tracts of arable land and huge armies, all attributes lacking in the Gulf, said Faisal Aftab, founder of Pakistan-based Zayn Venture Capital.
“This is a last chance for Pakistan,” said Aftab. “It needs to leverage in investment.”
Iqbal, the planning minister, said Pakistan was hoping for deals worth around $25 billion, including in solar energy and information technology. Pakistan’s defense industries are also open for investment, and the country is prepared to offer uncultivated government land on long leases for agriculture.
The Gulf nations haven’t put figures in recent weeks on how much they might spend. In January this year, the Saudis said they were willing to invest $10 billion, after Pakistan’s army chief visited.
Economic crises in Egypt and Pakistan, which have been buffeted by higher fuel and food prices from the Russia-Ukraine war and seen their currencies plummet, mean that assets are potentially available on the cheap. But Riyadh has still balked at prices in Egypt, meaning fewer deals than anticipated have materialized so far. Pakistan will also have to manage competition between Gulf nations for assets, already being felt, especially between Saudi Arabia and U.A.E., which have strained relations.
Among the first contracts likely to attract interest, from both U.A.E. and Qatar, is a tender announced this week, by open bidding, to run terminal services at Islamabad airport. The two Gulf countries fiercely competed for the contract to run Kabul airport in Pakistan’s neighbor Afghanistan, a contest won last year by the U.A.E. Islamabad is also looking for investors to take on its national carrier, Pakistan International Airlines.
Musadik Malik, Pakistan’s outgoing petroleum minister, said that a deal for a Saudi refinery was “very close.” Saudi Aramco, the company named by Pakistani officials as its partner for the project, declined to comment. The refinery would likely be located at Gwadar, the port developed by China on the Arabian Sea, and the centerpiece of Beijing’s investment program in ally Pakistan. Riyadh is moving closer to Beijing, at the expense of its relationship with Washington.
Officials from both sides are aiming for a final deal on the refinery—which would be the country’s biggest—by the end of this year, with construction beginning early in 2024.
Malik said that he anticipated a series of mining deals that would be much bigger in value than even the refinery contract.
“We have enormous untapped resources just sitting there,” said Malik.
The obvious prize is copper, a key metal for the transition to cleaner energy. One of the world’s biggest new copper mines is expected to begin production in 2028. The Reko Diq mine is a joint venture between Barrick Gold and the government of Pakistan, in a remote part of the country hit by two violent insurgencies.
Talks are under way for the Saudis to buy into the Reko Diq mine. The Saudi sovereign-wealth fund, Public Investment Fund, would team up with Saudi mining company Ma’aden, to acquire part of the 50% stake in the mine owned by Pakistan, according to people involved. In addition, the Saudis could be given exploration rights in other parts of the copper-rich area.
Riyadh has ambitions to turn Ma’aden into a global company, but it is wary of the security risks at the Pakistani mine. In July, Saudi Arabia said it would buy a $2.5 billion stake in Brazilian mining company Vale, also through the same fund and Ma’aden.
For Islamabad, there are strategic advantages to tying Saudi Arabia in, while Barrick has joined with Saudi Arabia elsewhere too. Barrick and Ma’aden didn’t respond to requests for comment. The Public Investment Fund declined to comment.
The Saudis are the most interested in the mining opportunities, say officials and experts, while the U.A.E. is looking most keenly at agriculture, clean energy and logistics.
Just ahead of the launch of the Gulf initiative, the U.A.E. swooped in early, acquiring a 50-year lease in June to operate part of the container terminal at Karachi port. The financial terms weren’t disclosed for the deal, which was awarded without an open bidding process. Many coming transactions are also not expected to involve competitive bidding, Pakistani officials say. That approach could open the divestments up to domestic controversy.
–Rory Jones contributed to this article. –Write to Saeed Shah at saeed.shah@wsj.com and Summer Said at summer.said@wsj.com
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