Old Habits Die Hard: Rio Tinto allegedly bribed government officials in Guinea

Regular readers may recall that in Simandou Guinea has one of the richest iron ore deposits in the world; and that it is a development project that I have been following for a while.

You may also recall the infamous story of how Israeli tycoon Benny Steinmetz paid nothing for exploration rights in a half of Simandou, proceeded to invest about $160m in developing the mine, only to flip it a couple of years later for $2.5b. The Brazilian mining giant Vale was the unfortunate victim of Steinmetz’s scheme.

According to The Intercept:

An investigation by the current government of Guinea found that a shell company controlled by BSGR paid at least $2.4 million to Mamadie Touré, a wife of the former dictator [Lansana Conte], in return for her help in acquiring the rights to the mine for BSGR. Earlier this year the government annulled BSGR’s stake in the mine, saying the firm had obtained it through corruption.

Others on the payroll included then Minister for Mines, Mahmoud Thiam, who preferred to spend his earnings on a Lamborghini, an apartment in Manhattan (%1.5m), and an estate in Dutchess County ($3.75m). All paid for in cash. After the death of President Lansana Conte and the election of Alpha Conde, the government of Guinea successfully repossessed the mine from Vale and vowed to clean up the mining sector.

But old habits die hard.

It now emerges that President Alpha Conde, who successfully managed to get the illegally acquired half of Simandou, was himself allegedly paid about $10.5m in bribes to secure Rio Tinto’s rights to the other half.  May be I am too naive, but are these side payments enough to give away billions of dollars worth of value? It is sad enough that Conde may have taken the bribe. But it is doubly disappointing that his price was so low.

Why don’t people like Conde and Thiam think of setting up their own mining companies, or contractors to the global giants?

How does one begin the process of inculcating a sense of an encompassing interest in an otherwise rapacious elite?

Here is the story from the FT:

Rio Tinto’s lawyers uncovered more than a year ago internal emails about a questionable $10.5m payment to a consultant, but the mining company did not alert law enforcement authorities and investors about the matter until last week. The Anglo-Australian group said on November 9 that it had notified authorities after discovering emails from 2011 that referred to the payment to the consultant, who helped head off a threat to Rio’s claim to the giant Simandou iron ore project in Guinea.

In the emails, seen by the Financial Times, Alan Davies, the executive in charge of Simandou, discusses with Tom Albanese, then chief executive, and Sam Walsh, then head of iron ore, paying a $10.5m fee to François Polge de Combret, a former top French banker and classmate of Guinea’s president. Following an internal inquiry begun in August, Rio said last week that it had referred the matter to law enforcement authorities in the UK, the US and Australia. The company now faces years of scrutiny and the risk of large fines if it is found to have broken anti-corruption laws.

In another section:

The dispute over Simandou dates back to 2008, when the Guinean dictator of the day stripped Rio of the rights to the northern half of the project and handed them to BSG Resources, the mining arm of Israeli diamond tycoon Beny Steinmetz’s family conglomerate. BSGR went on to agree a $2.5bn deal to bring in Vale of Brazil as its partner.

In 2011, Rio secured its claim to the remaining half of Simandou with a $700m payment to the then new government of President Alpha Condé — a deal which, the emails indicate, Mr de Combret helped to facilitate. The ex-Lazard banker declined to comment.

Resource Dependence in Africa (with some thoughts on Mozambique)

Source: The World Bank

Source: The World Bank. Click on image to enlarge  

This map shows resource rents as a share of GDP for the period 2009-2013. Note that the colouring on the map is about to change, with the Indian Ocean east coast getting some of the hydrocarbon action that has hitherto been a preserve of the Atlantic coast and a couple of landlocked states like Chad, Sudan and South Sudan (The biggest change in West Africa will most likely be in Guinea once the mining of its high grade iron ore in the Simandou Mountains gets going. A few contractual and logistical hurdles still stand in the way of the mega mining project).

The eastern African states of Kenya, Uganda, Tanzania and Mozambique are about to get a shade or more redder. Kenya and Uganda will start producing oil between 2016-17. Tanzania and Mozambique have massive amounts of natural gas, with Mozambique having recently climbed to top four in the world with a capacity to meet total global demand for more than two years.

As you may have guessed Mozambique is by far the country to watch out for as far as the ongoing eastern African resource bonanza is concerned. The country will continue to see a rapid rise in coal production, ultimately producing an estimated 42 million tons in 2017. Mozambique’s Gold production is also expected to more than triple by 2017 relative to its 2011 level. Estimates suggest that based on the full capacity exploitation of coal and gas alone the Mozambican economy could rise to become SSA’s third or fourth largest (after Nigeria, South Africa and (or ahead of) Angola). Going by the 2012 GDP figures from the Bank, that would be a change from US$14 billion to about $114 billion.

Have you enrolled in Portuguese classes yet?

As Mozambique gets wealthier in the next five years at a vertiginous pace, it will be interesting to see if it will go the Angola way. Both are former Portuguese colonies that had drawn out civil wars. Both tried to have democratic elections but then the ruling parties managed to completely vanquish the opposition. And both continue to be ruled by overwhelmingly dominant parties that appear to have consolidated power.

My hunch is that Mozambique is different, as FRELIMO is less of a one man show than is the MPLA. Indeed FRELIMO just selected a successor to Guebuza, the Defense Minister Filipe Nyusi (Nyusi’s background in engineering and the railway sector should prove useful for the development of the country’s coal industry).

The Tanzanian model of dominant/hegemonic party with term limits appears to have spread south. And that is a good thing. The other African country that appears to be embracing this model is Ethiopia (I think I can now say that the Zenawi succession was smooth and that Desalegn, also an engineer, is credibly term limtied).

Kampala, Kigali and Yaounde should borrow a leaf from these guys (that is, as a second best strategy given that their respective leaders do not seem to be into the idea of competitive politics).

For more on the politics and management of natural resources in Africa see here, here and here.