Selling of Liberia - Billions For Less: Investors Get Resources For Cheap?

- Rodney D. Sieh

Source: FrontPage Africa


Monrovia –

Since 2006, Richard Tolbert, head of Liberia’s National Investment Commission has been touting his successes in luring massive investment to the post-war nation. In 2006, for example, Tolbert was quoted as saying that there were $US15 million dollars in foreign investment. In 2007, Tolbert says, it went up to 130 million dollars and in 2008, the NIC boss says, Liberia had at least 200-300 million dollars direct foreign investment. “That is an enormous increase which has drastically helped my country. I am proud to be a part of that,” Tolbert told the World Investment News back in 2008.

Size of Initial Investment key

The riddle that comes resolved is while Mr. Tolbert shows off the size of the investment, most knowledgeable experts question the sheer magnitude due to Liberia’s lack of absorptive capacity, meaning the country’s economy cannot adequately accommodate the investment because it lacks the skills training, economic infrastructure and supportive environment. But even more, it is the disingenuity and dishonesty inherent in remarks which say that a company will invest billions over the “life” of the project. The statement does not indicate the initial investment size, and how many jobs will be created from it.

If a company initially invests 50 million dollars in a project and reinvests its profits over 30 years into the same project, which are billions of dollars, then the underlying assumption that a 50 million dollar investment raking in billions over time should reap more benefits for the country which gave out the concession in the first place. If the company will use free cash flows from the project to reinvest without additional equity contribution, you cannot say company X will invest billions. That is a bold faced lie and intended only to score political points.

In extractive industries such as gold, diamonds and iron ore, companies spend up front monies to explore to prove the reserves. After that, a bankable feasibility is prepared. It is only after a bankable feasibility that a company knows with a high degree of probability the projected size of its investments. Experts say most of the big name projects in Liberia have not conducted bankable feasibility studies and thus they cannot claim that they will invest billions. They cannot know how many jobs will be created and what social impact their operations will have on the environment and therefore any announcement of a major investment is pure speculation as the gestation time from exploration to mining in green-field projects is at least 7 to 10 years. Someone is not telling the truth.

Over the course of the post-war era, millions of dollars in investment packages have been announced in all shapes, forms and sizes but explaining the trickle-down effect or how those investments benefit the average Liberian has proven to be a daunting task for the post-war government and the NIC.

Jobs - Lost in translation

The translation for many of the concession deals has the capability to make the difference in a post-war environment nursing a high youth unemployment. Fourteen years of civil war kept many of today’s generation out of school and out of jobs making the employment challenges of the post-war government even more pressing. According to the UNDP, 55 % of Liberia’s population is under the age of 20, and 40 percent under the age of 15. Non-governmental organizations estimate the unemployment rate at 65 to ¬70 percent. Those with limited working experiences make very little incomes. Since coming to office in 2006, the post-war government has sought to address the issue of low wages with additions to wages in the annual budget but the results have still left many languishing at the bottom of the economic barrel.

As a result of the lack of unemployment, the post-war government, from the start set its sights on investment opportunities to improve the job market and create employment for stray youths.

In 2009, Liberia announced an $800 million palm and rubber deal with Malaysian firm, Sime Darby, touting that the deal would lead to the creation of 20,000 much needed jobs. "This agreement ... will create 20,000 jobs within 10 years," Tolbert told Reuters shortly after the deal was signed.

ArcelorMittal, the world's biggest steelmaker, is also developing a $1.5 billion iron project in Liberia. That deal was eclipsed last January when China Union said it would spend $2.6 billion over the next eight to 10 years on another iron ore project, even as other mining firms scale back on investment as demand for metals falls amid the global downturn. As well as buying the plantations on which to grow crops.

The mining deal between the world's largest steel company, Mittal Steel, and the Government of Liberia was later found to be unfair to Liberia and had to be renegotiated. The international watchdog group, Global Witness reported that the deal was heavily weighted against the interests of that war-torn and impoverished West African country and should be substantially re-negotiated. The group dissected the mineral development agreement (MDA) signed on 17 August 2005, five months before democratic elections in Liberia, which gives Mittal the right to extract iron ore from Liberia.

The China Union investment conglomerate promised to spend $2.6 billion on Liberia's main iron ore mine in one of the biggest investments that China has ever made in Africa. At the time, Tolbert declared that China Union company had promised that within 12 months it will have built a one million ton-a-year capacity refining factory at the Bong iron mines, about 150 km north of Monrovia. The investment it was reported would create 3,000 jobs within three years and jobs created indirectly in the long run could be as higher as 70,000. The jury is still out on the job creation aspect of the deal as many critics have pointed to the fact that Chinese firms have brought in mostly Chinese to do the work instead of Liberians.

Perhaps the biggest concerns for post-war Liberia investors have been that many have not been adequately vetted prior to the awarding of contracts.

Just last week, Singapore’s second-largest listed palm oil plantation firm Golden Agri-Resources declared that it was looking at investing in an unnamed firm that will control 220,000 hectares of land in Liberia. The company, which is part of Indonesia’s Sinar Mas Group, said it was planning to invest in private equity fund Verdant that is the sole shareholder of a Liberia-based firm in the process of being granted a government concession to develop 220,000 hectares for 20 years. Golden Agri did not give financial details of the possible transaction for the land, which is three times the size of Singapore, but said the initial development will commence with 15,000 hectares. The move comes after Indonesia announced plans to impose a two-year moratorium on new permits to clear forest for oil palm cultivation from 2011.

Interestingly, the Sime Darby deal covers 63-year lease on 220,000 hectares of land with an initial outlay close to $20 million for 10,000 hectares.

While the deals with Mittal and China Union came with high-profile backing, the one involving Buchanan Renewable came with a bust. The venture involves an agreement to establish a biomass power plant in Margibi to produce 35 megawatts of power to Monrovia. BRE has pledged to provide a 24-7 electricity project at an affordable price. The project is said to be on schedule and a plant is expected to be ready between January and March in 2011 producing 35 megawatts of power from Kakata. The company says its initial focus is on making use of non-producing rubber trees in Liberia to generate electricity domestically and for export markets. By clearing and replanting rubber farms on a 30 year cycle, Buchanan creates a renewable and sustainable supply of woodchips.

Despite its pledge to deliver, BRE initially encountered problems raising funds to get the project off the ground and had to be rescued by the McBain Foundation. BRE had earlier said its operations in Liberia was $150M, but was still selling shares after it had secured the deal and could not cough up the $150M capital for the deal.

Complicating matters, it was later revealed that Tolbert and the Finance ministry granted the company a 100 percent tax waiver. At the time of the controversy, Deputy Finance Minister Tarnue Marwolo differed with the lawmakers that signing the contract was in violation of the Investment Incentive Law. He said some aspects of the Revenue laws of Liberia and that of the Investment Incentive Code grants the National Investment Commission the right to award contracts below US$3.4 million; though this contract is above the US$3.4 million that he was alluding to in the tune of US$150 million.

Then this week, the deliberations in the National legislature have revealed that another concession deal involving BHP Billiton is full of flaws and in consistencies that if ratified could means nothing in terms of near terms revenue or income for the Government of Liberia and job for the jobless.

For example, the Mineral Development Agreement MDA) has no time frame as to when the company will begin mining operations in Liberia, creating a situation where the company could get the agreement and sit back when there are other potential companies that are willing and ready to invest in the mining industry of the country and help revive the economy. BHP Billiton has been given high privileges on taxes and duty free in the MDA which could make the company generate more and pay less to the Government of Liberia but officials of Government who negotiated the agreement ignored these issues.

According to the Mining Law of Liberia, agreement for mining rights can be signed for 25 years but a clause in section 5.8 of the agreement grants BHP Billiton the right to extend its contract. The 10% duty free carry by the Government of Liberia under the mining law was given out by the negotiating team of the contract

Deputy Finance Minister for Revenue, Elfreda Tamba confirmed during a public hearing on the BHP Billiton Mineral Development Agreement that the Government of Liberia stands to lose US$ 2 million in revenue due to reduction in fiscal terms to suit BHP Billiton.

While the company mineral development agreement is now before the National Legislature, investigation conducted by FrontPageAfrica indicates that the company has already began exploiting the resources of Liberia without due regard to ratification of the agreement.

BHP has accordingly been operating two exploration licenses (KITOMA and GOE-FANTRO RANGE) since May, 2005.

BHP Billiton also does not have a detailed exploration plan plus timeline for the proposed five years, detailed plans plus timeline that will lead to mining of each of the deposits, detailed infrastructure-transport and electricity facilities.

More recently, a bogus carbon deal which a British company allegedly offered bribe to officials of the Liberian Government to get carbon emission contract in River Cess County came to public with British police investigating a British national.

The series of cases brought the integrity of the Government of Liberia to international disrepute questioning the level of corruption in the country. To the President’s credit she appointed Counselor Negbalee Warner to investigate the entire carbon credit issue. The administration has confirmed that Counselor Warner was recently in London, UK to look into the matter and is expected to present his findings and recommendations to the President by month’s end.

Lack of Due Diligence, Screening Hurting Liberia

The post-war investment climate for now appears to still be grappling over how to control shady and most times incapable investors from slipping through the cracks. Liberia’s inability to properly screen potential investors has been the norm amid reports that most officials tend to look the other way in an era where a simple tool as a google-search could yield much information about potential investors. The Miinistry of Lands and Mines which is responsible for vetting potential mining firms has done very little to properly vet companies. More formidable firms who lost out to lesser-known firms have been left baffled and confused by the complexities of the Liberian bidding system.

For example, a bid by Broadway Inc. another relatively unknown venture became the first of the off-shore concession agreements to pass full ratification by the Upper House (Senate) in late 2006 and the Lower House (Representatives). Much of the details of the agreement were kept under wraps and in the absence of a full disclosure of the details of the agreement, the mystery surrounding the company continues to boggle watchers of the Broadway deal. Broadway’s web site : www.bc-plc.com, prior to signing the deal, had been under construction for months offering little to no information about their operations let alone their location. The website has since been updated. Prior to its venture in Liberia, Broadway Consolidated owning or operating any oil fields anywhere in the world, nor is there any record of them trading oil or having any kind affiliation to oil operations. The only reference to Broadway Consolidated on the web pertaining to oil is in reference to their activities in Liberia in procuring an oil block.

Although the company had never proven its financial capabilities (through Banking verifications) to substantiate their claims of investing US$15 Billion Dollars into Liberia’s oil program. FPA had previously uncovered that Broadway Consolidated was seeking to sell part of its Agreement with the GOL to an oil operator for an undisclosed sum that Government of Liberia has no participation in. However, the company’s managing director Gary Allsopp later explained to FPA it was not the case. Allsopp did however, revealed that his firm’s initial investment was around US$5 to US$6 million and not US$15 billion as was first announced by Liberia. “Obviously we got top staff from around the world working on oil. It’s basically working capital for the licenses including the geologists that we’ve had on the ground as well as the working programs,” Allsopp said at the time.

$’50M Investor

Another investor to raise a red flag was Leonard Kragness, an American investor, who unveiled what he said was an investment package of more than US$50 million for mining and oil exploration in Sinoe County, southeastern Liberia. Like Broadway and now BRE, Kragness’ firm’s website http://www.alluvialgold.com/index.html was temporarily down with no access to information about his company’s profile.

Kragness and his team were convicted by jury of conspiracy to distribute cocaine and other drugs, under the RICO anti-racketeering act. The five-week trial was described by the prosecution as the largest drug case in Minnesota history. Kragness, a former Alaskan gold miner, was at the center of the conspiracy, which prosecutors say, involved extensive smuggling from South America in private aircraft. As a result of the conviction, Kragness’ license to fly in U.S. airspace was revoked.

Kragness later admitted to FPA that he did make some mistakes in his life: “In the late ‘70s I made some mistakes… It was a period of my life where it was a big mistake. I went to Mexico on a vacation with a friend of mine. I was flying my airplane and he convinced me to haul back a small quantity of marijuana and we did it. He requested that I do it again and we did it like four times on a very small scale in the late ‘70s. In 1985, the Feds came knocking on my door. It was over, done, finished and they handed me an indictment with a lot of names on it. I didn’t even know a lot of the people. There were charges about cocaine, charges about all kinds of different things. They had a lot of various charges and they said I had to go to trial. So I went to trial.

Raising eyebrows

It can be recalled that a similar scheme unfolded during the transitional reign of Charles Gyude Bryant when a little-known James Yarclay, outbid more recognizable firms to win the rights to refurbish the Liberian Telecommunications Corporation. At the time, Yarclay said he was the owner of a company based in Dallas, Texas with US$170Million to invest. It turned out Yarclay, was a struggling businessman down on his luck, who had filed for bankruptcy. His multimillion empire was a one-room office space in Dallas, Texas, without a secretary or answering service, Most calls by a reporter to Yarclay’s Texas office were answered by an unnamed Nigerian partner. Similarly, Yarclay’s Universal Telecommunications Exchange website was also inactive at times and provided very little information or track record of its business dealings.

Also raising eyebrows was another famous deal which ignored red flags. In bid to sell ore in the Western Cluster of Liberia, the inter-ministerial committee awarded a contract to a lesser known South African Company, when steel Giant like Mittal were competing. It backfired. Former Planning Minister Togba Nah Tipoteh challenged deal. The President later agreed that the deal was signed and called for due diligence of the contract. Regrettably, the President made the pronouncement that the Western Cluster Deal was done and signed during her State of the Nation Speech in January 2008.

Even more troubling, Africa's oldest republic, known for an abundance of minerals and resources continue to languish at the top of the unemployment ladder and among the world's poorest nations while much of its resources are sold on the cheap to relatively unknown firms and individuals aiming for a big payday. For a post-war nation on the rebound, the realities of it all remains clear - that those at the bottom of the barrel continue to live in dire straits, pleading for help and hoping for a miracle that perhaps for once in their lifetime, those tasked with the responsibility of looking out for them will do so with the interest of the people above their own and free of all the complicated errors and explanations that even the poorest of the poor may find difficult to decipher or much more difficult to comprehend.