In a jolt to cash-strapped Pakistan, an international arbitration court has imposed a whopping $5.976 billion penalty - one of the biggest in its history - on Islamabad for the unlawful denial of a mining lease to a company for the Reko Diq project in 2011.

The Tethyan Copper Company (TCC) - a joint venture between Chilean mining company Antofagasta and Canada's Barrick Gold Corporation - had filed claims for international arbitration before the World Bank's International Centre for Settlement of Investment Disputes (ICSID) in 2012 after the Balochistan government rejected a leasing request from the company.

In its 700-page ruling against Pak­istan, the tribunal on July 12 awarded a $4.08 billion penalty and $1.87 billion in interests, Dawn reported.

The company had claimed $11.43 billion in damages. The case between the Pakistan government and the company continued for seven years.

Reko Diq, which means sandy peak in the Balochi language, is a small town in Chagai district in Balochis­tan, close to the border with Iran and Afgha­nistan. The Reko Diq mine is famous for its vast gold and copper reserves and is believed to have the world's fifth largest gold deposit.

The TCC completed an extensive and detailed bankable feasibility study establishing the basis for mine development at Reko Diq during August 2010 and submitted a mining lease application in February 2011, along with an environmental and social impact assessment report, the paper said.

The project stopped in November 2011, when the Balochistan government summarily rejected the application by the TCC's local operating subsidiary for a mining lease in respect of Reko Diq.

The then Supreme Court chief justice Iftikhar Muhammad Chaudhry had in January 2013 declared the Reko Diq agreement void and in conflict with the country's laws.

The ICSID's ruling is major setback for Pakistan, which is at a "critical juncture" where it needs an ambitious and bold set of reforms, according to the Washington-based International Monetary Fund (IMF) which agreed to give a $6 billion bailout package to the cash-strapped country.

Prime Minister Imran Khan on Sunday issued orders for the formation of a commission to investigate and fix responsibility for the massive loss borne by Pakistan in the Reko Diq case, the Express Tribune reported.

"The prime minister has directed formation of a commission to investigate into the reasons as to how Pakistan ended up in this predicament; who were responsible for making the country suffer such a loss and what are the lessons learnt, so that mistakes made are not repeated in the future,” said a statement issued by the attorney general's office on Sunday.

A thorough internal review of this long-standing arbitration shall also be conducted in the due course, it added.

"This [attorney general's] office and other stakeholders, particularly the provincial Government of Balochistan, are studying the Award and reflecting upon its financial and legal implications," the statement added.

Cash-strapped Pakistan has so far received billions in financial aid packages from friendly countries like China, Saudi Arabia and the UAE during the current fiscal year. Last month, Pakistan secured a bailout package of $3 billion from oil-rich Qatar.