By John Helmer, Moscow
The text of the Guinean Government’s agreement with United Company Rusal for the prolongation of its Dian-Dian concession – one of the largest unmined bauxite deposits in the world – reveals an escape clause to enable Rusal to avoid the obligations the Guineans have been trying to enforce since the concession was first signed twelve years ago.
The new document, titled Annex No. 11 to the original July 21, 2001, Dian-Dian convention was signed on December 28, 2012. Signing for the government was the Guinean Minister of Mines and Geology, Mohammed Lamine Fofana; for Rusal, Vladislav Soloviev, first deputy chief executive. Three days later Rusal issued its summary of what had been agreed, revealing that it has extended the time required to meet its original obligations until 2019, and longer. The terms of the deal apparently ended threats by the government of President Alpha Conde, and predecessor governments over several years, to cancel the Dian-Dian concession because of Rusal’s failure to honour the original terms, invest and build a new bauxite mine, along with a refinery to convert the bauxite ore into alumina for smelting into aluminium.
The shadow of the old threat has been preserved in Article 4 of the new document, where it is agreed that “in case of serious violation of the undertakings of the Investor [Rusal] the Republic of Guinea has the full right to cancel the said Convention.”
What is new, and unnoticed to date, in the new deal is a condition the Guinean government has accepted to provide Rusal with the railway required to carry the proposed new mine’s bauxite to port for shipment abroad. This appears in Article 3 where the government agrees to give Rusal “the right to utilize the infrastructures of ANAIM (National Agency of Development of Mining Infrastructure) in the Boke region (railway, Kamsar port) for the full duration of the Convention”.
What this means, Guinean government sources explain, is that instead of being obliged to build a new railroad and port loading terminal for the new Dian-Dian mine, Rusal is being told it can use the existing facilities. However, as both sides knew when they initialled Article 3, the railroad is already operating at full capacity by Compagnie de s Bauxites de Guinee (CBG), the biggest bauxite producer in the country, based at Boke. CBG is a partnership between the government, Alcoa and Rio Tinto (formerly Alcan), and it is managed operationally by Alcoa.
One Guinean official says Article 3 is “a new blocking point which will give an excuse to Rusal not to realize the project, even in its reduced form.” Another is more emphatic. “The CBG rail is saturated. It would take five years of negotiations with Alcoa and large infrastructure improvement to accommodate the Dian Dian traffic. [Article 3] is thus seen as a trick to be allowed to freeze Dian Dian and never build a refinery.”
Alcoa was asked whether it is aware of Article 3 in the new Rusal agreement, and whether Alcoa agrees to share the track with Rusal in future. Christa Bowers, a spokesman at Alcoa headquarters in New York, responded that the company is not commenting.
A government source in Conakry also reports that President Conde is pushing the text of the Rusal deal through the National Transition Council (CNT), an unelected legislature currently acting for Conde because he cannot overcome the boycott of elections to parliament by opposition parties; they accuse Conde of rigging the votes. The source said that before ratification, the agreement with Rusal should have been submitted to the Committee of Revision of Contracts and Conventions, an expert body required by the Guinean mining code to review and approve the details before it goes to parliament for ratification.
Critics in the Mines Ministry and in the Guinean opposition parties claim Conde is showing favouritism, sending some mining agreements to the Committee, and putting others on a different track. This is “a first-class burial”, said another Guinean, of the new mining code which has been drafted to remove the corruption in past mining concession awards.
The ratification of Rusal’s new concession terms compounds the violation of the original 2001 concession, says a Guinean opposition leader. By avoiding the elected parliament, this can only last as long as Conde hangs on to power – and no parliamentary election is held. A detailed analysis of Conde’s abuses of the mining code, of election rules and of Guinean law was issued in January by a consortium of opposition groups. They accuse “President Condé, his son Mohamed and several of their close associates [of being] implicated in political and economic scandals, which have exposed the President’s premeditated plans to flip back mining assets in return for the support of his benefactors while gaining significant personal wealth in the process.”
Rusal, says the opposition report, has benefited from a close relationship Conde has with a family friend and business go-between, Aboubacar Sampil; reportedly he has an office in the presidential complex in Conakry without a government post, and has been involved in negotiations with Rusal and other international mining companies.
When Russian Foreign Minister Sergei Lavrov was in Guinea in February, he discussed Rusal’s terms with President Conde. According to Lavrov’s subsequent public comment, “our approaches regarding the need to guide oneself by the supremacy of law in all situations… are fully concurrent… The Russian party welcomed the agreements reached between Guinean authorities and Rusal in December 2012. The agreements are not a secret, they are submitted for approval to the Parliament of the Republic, and, I am convinced, reflect interests of the Guinean party and the Russian company quite well.” The parliament of the Republic isn’t what Conde intends, nor what Lavrov was referring to.
Rusal’s reluctance right now to spend money in Guinea is understandable. The company faces a global surplus of aluminium; it is running a bottom-line loss; and its share price has fallen through HK$3.90, an all-time low. With a market capitalization this week of HK$59.1 billion (US$7.6 billion), Rusal’s value is a fraction of its US$10.9 billion net debt.
Delaying the heavy bill for the undeveloped Dian-Dian concession was agreed with Conde in December; but that deal is now tied to his political future. What of Rusal’s operating bauxite and alumina concession at Friguia — can the company afford to pay $832 million in cash compensation for Friguia, as was reported by a Paris-based African newsletter last week?
The figure has appeared before – first in a 2009 report on Rusal’s violations at Friguia commissioned by the former Minister of Mines, Mahmoud Thiam; then ahead of Rusal’s listing on the Hong Kong Stock Exchange in January of 2010. It appeared again in the opposition parties’ report this past January. No official confirmation has materialized that Rusal can afford to pay the sum, or has found a partner or bank willing to advance the money to the Guinean Government on its behalf.
Rusal halted mining and refining at the Friguia complex in April 2012; the year-end production report from Rusal reveals that alumina and bauxite output from Friguia dropped by 74%, compared to the year earlier. So long as the global prospects for a recovery of aluminium demand and prices look bleak, Rusal has no incentive to resume production at Friguia. It has even less incentive to pay Conde and the Guinean Government compensation for a concession it says it has operated lawfully. “Rusal”, a company statement says in response to Guinean court threats to revoke the concession, “purchased Friguia in full compliance with Guinean legislation and we consider the plant to be our legitimate property.”
In its financial report for last year, issued on March 1, 2013, Rusal did not tell shareholders it might be planning to pay anything like the reported Friguia compensation amount. According to the note on provisions for legal claims in Rusal’s financial report, “the Group’s subsidiaries are subject to a variety of lawsuits and claims in the ordinary course of its business. As at 31 December 2012, there were several claims filed against the Group’s subsidiaries contesting breaches of contract terms and non-payment of existing obligations. Management has reviewed the circumstances and estimated that the amount of probable outflow related to these claims should not exceed USD23 million (31 December 2011: USD36 million). The amount of claims, where management assesses outflow as possible approximates USD213 million (31 December 2011: USD164 million). At each reporting date the Directors have assessed the provisions for litigation and claims and concluded that the provisions and disclosures are adequate.”
As for Friguia, Rusal’s accountants have announced a write-down. “Based on results of impairment testing, management has concluded that an impairment loss of USD167 million relating to property, plant and equipment should be recognised in these financial statements in respect of the Friguia cash generating unit.”