C O N F I D E N T I A L SECTION 01 OF 02 ACCRA 002205

SIPDIS

DEPT PASS COMMERCE FOR RASHIDA PETERSEN
TREASURY FOR ALEX SEVERENS
OPIC FOR CONAL DUFFY

E.O. 12958: DECL: 11/07/2009
TAGS: ECON EINV EMIN ENRG GH EXIM OPIC
SUBJECT: KAISER COMPLETES SALE OF VALCO TO THE GOVERNMENT
OF GHANA

REF: A. A. ACCRA 00651


B. B. ACCRA 02044

Classified By: EconChief Chris Landberg for reasons 1.5 B and D

Summary
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1. (U) Kaiser Aluminum has sold its 90-percent stake in the
Volta River Aluminum Company (Valco) to the Government of
Ghana (GoG)for USD 18.5 million. After Parliament ratified
the sale agreement on October 28 (septel), GoG and Kaiser
officials met in London on October 29 to complete the
official close of the sale. Both sides also agreed to
terminate the arbitration case (ref A), which had been
suspended since the May 2004 signing of the agreement.
Despite opposition party leaders' earlier threats to debate
the legality of the sale (ref B), the agreement passed with
little debate or difficulty. The GoG is already negotiating
a deal with several aluminum companies (including ALCOA) to
take over VALCO and mine Ghana's bauxite. End Summary.

Parliament Passes VAlCO Purchase Deal
--------------

2. (C) Ministry of Finance contacts told Econoffs that
Parliament's Finance and Energy Committees held two closed,
day-long joint sessions with the Attorney General to get the
agreement to the floor in time for a vote. There was little
of the promised debate from the opposition (ref C), and the
agreement passed with a vote of 120 to 1 on Thursday, October

28. Kaiser officials raced to close the deal before the end
of the week, insisting on a meeting in London on Friday. By
November 2, the entire USD 13.5 million held in escrow had
been disbursed. Just over half the money (USD 9.9 million)
paid severance packages for VALCO's 287 workers.


3. (SBU) There are, however, a few outstanding issues. The
Ghanaian Internal Revenue Service claims Kaiser owes back
taxes on dividend remittances. According to Kaiser, the sale

agreement contains a tax indemnity clause, which would
require the GoG to add the cost of any tax to the purchase
price. Kaiser feels this lays the issue to rest and sent a
letter to the GoG declaring the sale to be complete,
notwithstanding this last issue.

GoG Negotiations with International Aluminum Companies
-------------- --------------

4. (C) The GoG is anxious to attract an investor to mine and
process Ghana's bauxite reserves, using their stake in Valco
as equity in a partnership (ref C). According to Valco's
Resident Director, Dr. Charles Mensa, Rusal Aluminum, BHP
Billiton, and Alcoa have all submitted bids for projects that
would include bauxite mining, and an alumina refinery, in
addition to operating Valco. Alcoa representatives have
described their involvement to Econoffs as "very active,"
adding that the total investment could exceed USD 1 billion.


5. (C) Mensa told Econoff that he and a "team of experts"
were currently evaluating the bids for the GoG. He considers
Alcoa's and Billington's to be the strongest. Mensa hopes to
get a small portion of Valco up and running by the end of the
year and to have a deal in place with either Alcoa or
Billington by the end of January. Econoff's contact at Alcoa
says Mensa's timeline is unrealistic. Alcoa submitted a
draft MOU in August, outlining its proposals for VALCO and
bauxite mining and refining, but has yet to receive any
comments from Mensa and his team other than that the MOU was
"too specific" about power rates.

Note: Libya's Interest in Valco
--------------


6. (C) Media reports confirm that the GoG signed a Protocol
on Agricultural Trade with the Government of Libya last week.
A statement issued by the MFA in Ghana says the countries
also agreed to share information on the aluminum industry "to
study possible cooperation". Mensa was familiar with the
agreement and claimed the Libyans wanted Valco to become the
cornerstone of an "African Aluminum Industry". He says
President Kufuor does not consider Libyan overtures to be
realistic, adding that Libya has offered no money and even
less in the way of vialbe plans for Valco's future. End
Note.

Comment- Power is Key
--------------

7. (C) Power is the heart of any discussion of Valco.
Aluminum cannot be smelted profitably without heavy power
subsidies. Valco draws one-third of the total power Ghana is
capable of producing, and the addition of a mine and refinery
could triple the need. Currently, Ghana's thermal powerplant
in Takoradi is only run at 25 percent capacity for 6 hours
per day because the cost of crude oil makes operations
prohibitive. To compensate, the GoG imports power from Cote
d'Ivoire. Water levels in Lake Volta are high enough to
ensure that hydropower can be supplied for the next year, but
it is the only economic source for Valco. If the lake's
level falls and the supply from Cote d' Ivoire is interrupted
before the West Africa Gas Pipeline is completed the GoG
could be forced to keep Valco closed for some time. End
Comment.
YATES