Guinea: a good news story
The west African country’s new mining code increases government royalties while promoting clarity and transparency
In most of the developing world, and particularly in Africa, corruption is so en- trenched that sometimes it feels insurmountable. Often the forces of accountability and transparency appear powerless against that potent combination of need, greed and gravy.
Every now and then, however, a story surfaces that illustrates why corruption is not an irreversible force—and offers lessons in how to stop it.
This particular example comes from Guinea, the west African republic that sits atop what is considered one of the world’s largest untapped iron-ore deposits, not to mention its lucrative bauxite reserves.
Its natural resources could and should make Guinea an enormously wealthy country. There is an almost insatiable global demand for iron ore, which becomes steel when processed. But generations of Guinean leaders have squandered this natural re- source through mismanagement or corruption. In some cases, the technical expertise required to mine the iron ore, coupled with the billions of dollars in infrastructure necessary to make the project viable, was simply too daunting for government and mining companies alike.
“In the country’s south-east highlands, far from any city or major roads, the Simandou Mountains stretch for 70 miles [113km], looming over the jungle floor like a giant dinosaur spine,” wrote Patrick Radden Keefe in his much-heralded account of the dodgy dealings that underpinned Guinea’s last major iron-ore deal, published in the New Yorker in July 2013. The iron ore is buried under these remote, inaccessible mountains. Lots of it, maybe as much as $50 billion worth, according to media reports. It is also of unusual purity.
Although extraction remains difficult and capital-intensive, the rising price of steel makes it a worthwhile investment for large mining companies, that have been sniffing around Simandou for the better part of two decades. Rio Tinto, the British-Australian behemoth, was first on the scene, acquiring all four Simandou blocks in 1997. By 2002 it had confirmed the richness of the deposit, but failed to develop it. By 2008 a frustrated Guinean government—at the time under dictator Lansana Conte—stripped Rio Tinto of half its exploration rights, telling the company to use or lose it.
That was the official line. Unofficially, something fishy was going on. Mr Keefe detailed how Simandou exploration Blocks 1 and 2, which had been confiscated from Rio Tinto, were awarded in December 2008 to BSG Resources, the mining arm of Israeli billionaire Beny Steinmetz. But BSGR had no previous experience in iron ore and obtained the exploration licences for a relative pittance: a vague promise of $200m. This was accompanied, as Mr Keefe exposed, by gifts of cash and diamond-encrusted wristwatches to senior officials, among other circumstantial evidence of corruption. (Frédéric Cilins, a senior BSGR contractor, pleaded guilty in March to obstructing a US grand jury investigation into this alleged corruption.)
Two years later BSGR sold 51% of its Guinean assets to Vale, a Brazilian mining giant. The shares were valued at $2.5 billion, with BSGR receiving $500m upfront. The rest would be paid later, according to the Financial Times. Already, BSGR had profited handsomely and without having to build a single road or extract a single gram of iron ore.
Meanwhile turbulence was rattling Guinean politics. After 24 years in office, Mr Conte died in December 2008, prompting a military coup. A junta ruled for a year, until an assassination attempt forced military ruler Captain Moussa Dadis Camara into exile, signalling the end of military rule. In November 2010 Alpha Condé, the veteran opposition politician, was elected president after a run-off race.
Mr Condé’s government was determined to act differently. After just a few months in office, it launched a comprehensive review of previous mining contracts. Lamine Fofana, the mining minister, promised to “remove unconscionable provisions in certain contracts and ensure we have balance and fairness”.
Before long the government overturned another shadowy deal which granted the China International Fund, a Chinese investment firm, “the rights to all Guinea’s un- exploited resources” for a $7 billion fee, according to Reuters.
The BSGR agreement also came under the spotlight. A government investigation found “precise and consistent evidence establishing with sufficient certainty the existence of corrupt practic- es” in BSGR’s acquisition of the two Simandou licences, according to several media reports. It recommended rescinding the permits. On April 9th 2014, President Condé did precisely that.
At the same time, Mr Fofana revamped Guinea’s mining code—the rules and regulations governing the operations of foreign mining companies. Ultimately this is more significant than the revision of individual contracts because it will determine the future of Guinea’s mining sector and, perhaps, the country as a whole.
The first draft was passed in 2011, with significant amendments made in 2013. Investors and international civil society organisations such as London-based consultancy Africa Practice and the New York-based Natural Resource Governance Institute (NRGI) have hailed the new law as a model of transparency and good governance.
The new code increases the government’s royalties from natural resources while lowering taxes. It requires the government to publish all mining contracts. It compels companies to sign a code of good conduct, which commits them to abstain from corrupt practices. It obliges companies to guarantee more on-site jobs for uneducated Guineans and to train Guinean staff for management positions. It also provides far more detail on how the regulations should be implemented and interpreted, giving investors a little more certainty about their projects.
The code, written with input from the George Soros-funded NRGI, strikes a delicate balance between getting a good deal for Guinea while keeping Guinean mining an attractive investment opportunity. After all, the country does not have the resources to go it alone. The 2011 code went too far in Guinea’s favour, scaring off some investors, but the 2013 amendments appear to have satisfied everyone.
“It is a win-win code,” said Mohamed Kourouma, first secretary of the Guinean Embassy in South Africa, in an interview with Af- rica in Fact. “You have the interests of the multinationals, but also the interests of Guineans. It is a code that will determine the future of Guinea. Imagine, one of the direct products of the code was the contract that was just signed.”
Mr Kourouma was referring to a mas- sive $20 billion investment deal signed in May 2014 with Rio Tinto, the Aluminium Corpo- ration of China and the International Finance Corporation, the World Bank’s private sector arm. The deal complements Rio Tinto’s ex- isting Simandou holdings. The consortium will build a deep-water port on Guinea’s At- lantic Coast and a 650km railway linking Simandou to the harbour. The investment will be recouped through tariffs charged on goods transported via the new infrastructure.
While Rio Tinto is getting on with the business of exploiting its remaining concessions, Blocks 1 and 2 of the Simandou deposit remain up for grabs. They will be assigned to a favourable bidder, but only after legal disputes involving BSGR and Vale are resolved, Mr Kourouma said. Unsurprisingly both companies, unhappy with losing their licences, are seeking legal recourse in various jurisdictions.
Already the signs are good that Guinea is gearing up to enforce its new mining law. “Implementation is a big challenge in many jurisdictions,” said Thomas Lassourd, an economic analyst at the NRGI, who was part of the team that helped Guinea to draft the legislation. “Having good laws is difficult enough, but implementing them is an even bigger challenge where capacity is limited,” he said. “But so far in Guinea we have seen the government taking some key steps.”
One good example of this is the open tender process followed so far in the alloca- tion of three bauxite-mining blocks in western Guinea. The blocks’ details and the con- ditions for participation are outlined in a government website, www.projetboffa.com.
By any measure, what Guinea has accomplished in its mining sector over the last few years is a major achievement. It offers convincing proof that when governments want to, they can clean up their act.
“The big lesson for other African countries is that with the right political will, you can find the expertise that you need to help you do a thorough review of the extractive sector in order to reach your goals and get a better deal out of your resources,” Mr Lassourd concluded. “The way to do this is not by bullying companies. It’s generally by improving the business environment through a higher standard of governance, because then you make it easier for serious investors to do business, and these are the ones more likely to give you a better deal.”
[author] [author_image timthumb=’on’][/author_image] [author_info]Simon Allison is the Africa correspondent for the Daily Maverick, based in Johannesburg. He has previously reported from Egypt, Palestine and Somalia for the Asia Times Online and Agence France Presse. [/author_info] [/author]
