Regulating The Mining Sector In Pakistan Amid The Global Resource Race

Introduction

Pakistan is endowed with substantial mineral resources, particularly in frontier provinces like Balochistan. Historically, issues such as regulatory uncertainty, sovereignty concerns, legal risks, and fiscal burdens have discouraged large-scale foreign investment in mining. In recent years, legislative reforms have attempted to address these challenges. Two of the most relevant pieces of legislation in this regard are:

1. The Foreign Investment (Promotion and Protection) Act, 2022 (FIPPA 2022), which aims to provide a more secure, incentive-based framework for large foreign investments in Pakistan; and
2. The Balochistan Mines & Minerals Act, 2025, which seeks to modernize mineral governance in Balochistan, define licensing regimes, institutional structures, and balance provincial autonomy with investment facilitation.

This article explains key provisions of FIPPA 2022, how these benefit mining investors, and how the Balochistan Mines & Minerals Act 2025 complements or clashes, with particular attention to legal risks, opportunities, and recommendations.

Key Provisions of FIPPA 2022

The FIPA 2022, is a federal law that aims to create an enabling environment for "qualified foreign investments" through incentives, guarantees, and legal protections. Although the Federal Government denies the direct link but fact remains that the FIPPA 2022 came into existence of the out of court settlement between the Government of Pakistan and Barrick Gold Corporation regarding the Reko Diq Project in Balochistan. The law however applies to not only Barrick Gold but all those who would qualify under this law.

Some of the legal provisions of the FIPPA 2022 relevant to the mining sector are as follows:

1. Qualified Investment & Threshold
   • Section 3 empowers the federal government to notify an investment, sector, industry, or project as a Qualified Investment which will benefit from special protections and incentives.
   • The law sets a threshold that generally no investment qualifies unless the amount (equity or debt) is USD 500 million or equivalent. However, the federal government may waive this threshold in writing for investments below it under certain conditions.
2. Protected Benefits and Incentives
   • FIPPA defines Investment Incentive broadly, including exemptions, reductions, or concessions in duties, taxes, levies, fees, etc., federal, provincial, or local.
   • Benefits granted under certain schedules (Second and Third Schedules) are designated as Protected Benefits, i.e., once granted, these cannot be withdrawn unilaterally. This provides stability and legal guarantee to investors.
3. Tax Exemptions and Fiscal Incentives
   • Under FIPPA, qualified investments are eligible for exemptions or special treatment regarding income tax (including capital gains), turnover tax, withholding taxes (interest, dividends), minimum or final taxes, etc.
   • For example, Section 44A was introduced in the Income Tax Ordinance in Finance Bill 2023 to give effect to certain exemptions under FIPPA.
4. Protection of Banking Transactions Confidentiality
   • The law provides that the banking transactions of qualified investors are to be kept secret by all banks and financial institutions.
5. Ease of Transfer and Repatriation
   • FIPPA ensures that investors in qualified investments have rights to transfer funds and repatriate profits, dividends etc., under the terms of the Act and as per international agreements. This mitigates currency risk and regulatory risk.
6. Stability and Legal Safeguards
   • Protected benefits cannot be removed or altered in a manner adverse to the investor. Also, the Act provides mechanisms for redress or grievance handling, reducing exposure to unpredictable legal or regulatory changes.
7. Special Schedules and Application to Reko Diq
   • Reko Diq is explicitly included among the qualified investments under FIPPA. Its inclusion demonstrates how mining investment projects of large scale are targeted by the law.
   • Some amendments were passed that clarify the act's scope, especially with reference to Balochistan, limiting it (at least for certain purposes) to the Reko Diq qualified investment in the province.

Benefits of FIPPA 2022 for Mining Sector Investors

1. Financial Incentives & Tax Benefits
   • Mining is capital-intensive: large upfront costs for exploration, infrastructure, extraction. Exemptions or reductions in income taxes, withholding taxes, etc., reduce operational costs and improve return-on-investment (ROI).
   • Protection against adverse changes in fiscal treatment (because of "protected benefits") gives greater predictability, a key factor in mining projects which often have long payback periods.
2. Lower Regulatory and Legal Risks
   • Confident legal protection under FIPPA can reduce the risk of arbitrary changes, expropriation, or imposition of additional burdens.
   • Confidentiality of banking transactions can help foreign investors concerned with cross‑border financial scrutiny or political risk.
3. Repatriation and Transfer Assurance
   • Investors can be assured they can transfer profits, dividends, returns in foreign currency; this is especially important in mining where revenue may be exported or reinvested.
4. Attraction of Large-Scale Projects
   • Because there is a high threshold (USD 500 million) for "qualified investments", the law targets large-scale projects. For mining, many projects (especially in Balochistan, e.g. Reko Diq) qualify. This gives such projects priority, clarity, and support.
5. Investment Confidence and International Commitments
   • Incorporation of international agreements (treaties, investment protection treaties) under the Act supports mining firms that depend on cross‑border contracts, foreign capital, or technical partnerships.
   • Potentially reduces delays, litigation, or unpredictable administrative/legal changes.

Overview of the Balochistan Mines & Minerals Act, 2025

The Balochistan Mines & Minerals Act, 2025 a provincial legislation was recently promulgated. The Act which from a regulatory point of view deals with licenses, mining leases, surface rights also aims to digitalizing processes, promote local employment, talks about environmental protection and promotes foreign investment, comes across more as a policy document than a legislation. The Balochistan Mineral Rules 2002 as opposed to the Act are more of a legislation and have stood the test of times. The Act appears to encroach more into the provincial autonomy and has the power of direct Federal involvement. This Federal involvement through this Act may very well start becoming evident with the advent of the recent mineral deal between Pakistan and the USA.

Interaction Between FIPPA 2022 and Balochistan Mines & Minerals Act 2025—Implications for Mining Investors

Below is how these two Acts interplay, and what that means for investors in mining in Balochistan or elsewhere.

Key Legal Risks & Concerns for Mining Investors

While there are many benefits, there are also several legal risks and grey zones which need attention.

1. Jurisdictional/Constitutional Conflict

The Constitution of Pakistan (post 18th Amendment) gives provinces jurisdiction over their minerals (excluding oil & gas, nuclear, etc.). Any law or practice that undermines that may face legal challenge. Reports indicate that some provisions of the Balochistan Act (Federal Mineral Wing, federal representatives in licensing etc.) may be contested.

2. Uncertainty in "Protected Benefit" Application

While FIPPA promises protection, the exact terms (duration, performance requirements, limitations) may be subject to negotiation or regulatory interpretation. Investors must ensure that their benefits are properly documented and protected in their agreements, and understand any exit or alteration clauses.

3. Changing Government Policies / Suspension of Law Implementation

The Balochistan Act 2025 has already been suspended, and a review process initiated due to political/public opposition. This suggests that even enacted laws may be subject to sudden suspension or amendment.

4. Ambiguity in New Institutions

The foreign investment body under the Act has specific powers, oversight, accountability, transparency are not yet fully clear. The presence of federal agencies or wings may lead to overlapping or conflicting authority. Investors might face delays or unpredictability if institutional roles are not well defined.

5. Thresholds and Conditions for Eligibility

The USD 500 million threshold (for "qualified investments" under FIPPA) excludes many smaller mining projects. Even for projects above threshold, other qualifying conditions, e.g. performance criteria, proof of capability, etc., may matter.

6. Local Community, Environmental, Social Obligations

Especially under the Balochistan Act, there may be mandates for local employment, skill transfer, community development, environmental impact assessments, etc. Failure to satisfy these could lead to legal, reputational, or regulatory costs.

7. Royalty, Lease Terms, and Duration Changes

The provincial law may alter lease durations, royalty rates, renewal rights etc., which could affect project viability. For example, reports suggest that lease durations could be reduced under the new Balochistan regime or stricter requirements for applicants (e.g. minimal financial history) may disadvantage smaller or new investors.

Practical Recommendations for Mining Investors

To make the most of the legal framework and mitigate risks, prospective foreign mining investors (or domestic investors seeking foreign partnership) should consider the following:

1. Ensure Qualification under FIPPA
   • Confirm that your planned project meets the "qualified investment" criteria (size, sector, etc.), and have documentation/notification to that effect.
   • Negotiate in the investment agreement the inclusion of your investment in the First Schedule, and ensure the incentives are "protected benefits".
2. Negotiate Investment Agreements Carefully
   • Include clauses that enshrine the tax/royalty/incentive regime as per FIPPA and any provincial laws, including dispute resolution, sovereign guarantee, stability, non‑discrimination.
   • If possible, base your agreement on bilateral investment treaties or international MOUs to add legal weight.
3. Legal Due Diligence of Provincial Law (Balochistan Act 2025)
   • Analyse the exact licensing process, and how authorities (MIFA, federal wings, provincial departments) share or divide responsibilities.
   • Assess what the current status is following the suspension and review—whether any amendments have been issued.
4. Community, Environmental, Social Compliance
   • Given the Balochistan Act's focus on local employment, environmental sustainability, obtaining buy‑in from local communities etc., build robust social and environmental impact plans.
   • Be ready to incur costs for EIA, local infrastructure, local skill training etc., which may be required by law or practice.
5. Anticipate Lease and Royalty Terms
   • Negotiate favourable lease duration (ideally long‑term, considering mining is long‑horizon), with renewal rights, rights to transportation/infrastructure, water usage etc.
   • Verify provincial royalty rates and whether there are sliding scales, whether they apply differently under FIPPA's "protected benefits" etc.
6. Monitor Political/Legal Risk
   • Given suspensions and reviews of the Balochistan Act, investors should maintain updates on legal challenges and possible changes.
   • Include in contracts safeguards (e.g. force majeure, stabilization clauses) to deal with changes in law, especially provincial laws that may be contested.

Case Example: Reko Diq and FIPPA

The Reko Diq copper‑gold mining project in Chagai district, Balochistan is the most prominent example where FIPPA and the provincial laws intersect in practice.

• Reko Diq is explicitly listed as a qualified investment under FIPPA.
• The passage of FIPPA, and the amendments limiting its scope in Balochistan to Reko Diq in some respects, clarified certain protections and made possible the revival of the project.
• For Reko Diq, incentives under FIPPA (tax exemptions, confidentiality, etc.) could reduce cost risk significantly. The provincial mines law reforms aim to simplify permitting/licensing, possibly improving timelines.

Conclusion:

The Foreign Investment (Promotion and Protection) Act, 2022 offers strong legal and fiscal incentives for large‑scale foreign investment projects in Pakistan, including mining, especially through its provisions for qualified investments, protected benefits, tax exemptions, ease of transfer and repatriation, and legal stability. Meanwhile, the Balochistan Mines & Minerals Act, 2025 seeks to modernize and provincialize the regulatory framework for minerals, enabling potentially faster licensing, institutional support via MIFA, and local obligations (employment, environmental/social safeguards).

For investors, the combined framework presents a more favourable landscape than in past decades. However, significant legal, constitutional, political and administrative risks and uncertainties remain. Well‑structured investment agreements, clear qualification under FIPPA, active engagement with provincial authorities, and legal strategies to manage risk are essential.

If properly calibrated and implemented, these reforms can unlock Pakistan's vast mineral potential, attract billions in foreign capital, promote development in remote areas, and deliver returns to both investors and the public. But for that, clarity, consistency, and respect for constitutional norms are key.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.