U.S. COMPANY PROMISES $5 BILLION OIL REFINERY

C O N F I D E N T I A L SECTION 01 OF 02 MAPUTO 000539 SIPDIS E.O. 12958: DECL: 06/08/2018 TAGS: EPET ENRG EINV ETRD EAID ECON EWWT PREL MZ SUBJECT: U.S. COMPANY PROMISES $5 BILLION OIL REFINERY INVESTMENT REF: MAPUTO 511 Classified By: Pol/Econ Chief Matthew P. Roth, Reasons 1.4 (b+d) ¶1. (C) SUMMARY: U.S. company Ayr Logistics recently announced the signature of design documents to build an oil refinery at Nacala-a-Velha, on the coast of the Northern province of Nampula. The development, valued at over USD $5 billion, would start operating within the next seven years, and contemplates projects including renovation of the Nacala airport, water purification, and other infrastructure investments. Ayr Logistics, a private company based in Dallas that appears to be relatively unknown in international business circles, has partnered with South Africa's Group Five, one of the largest construction companies in Africa, to build the refinery. In spite of our initial concerns about its legitimacy, all indications suggest that Ayr is serious about completing this project, which would become the largest single private investment in the country,s history, and could transform one of Mozambique's poorest regions. END SUMMARY. -------------- An Oil Refinery and Apparently Much More -------------- ¶2. (C) At a ceremony in mid-May that included the Minister of Energy, the Governor of Nampula province, and the Charge, Ayr Logistics announced the signature of design documents to build a petroleum refinery at Nacala-a-Velha, on Nampula's coast in what is one of the deepest natural harbors on eastern Africa. The project, valued at over USD $5 billion, would start operating within the next seven years, would have the capacity to produce 300,000 barrels a day, and would employ more than 1,000 people directly. Ayr Logistics CEO Phillip Harris told the Charge that at least initially, the crude oil would come from a confirmed Middle Eastern source (probably Abu Dhabi),and that a Chinese customer has already committed to purchasing refined product. ¶3. (C) Harris also indicated that beyond the refinery, Ayr intends to build in the Nacala region a medium-sized electricity generation plant, a water purification/desalinization facility, housing complexes, and warehousing spaces. Also, the company would finance upgrades of several key roads and an USD $80m rehabilitation of the Nacala airport to reopen it to commercial traffic, and is evaluating several nearby coastal areas for potential hotel and resort complexes. Harris has also indicated in a conversation with P/E chief in late May that the Energy Ministry continues to be extremely supportive of the proposal, and that, with a few exceptions, the GRM has not been an obstacle to moving the project forward. He also said that Ayr has been explicit from the onset that the company would not bow to any attempts at corruption by the government, and that so far there have been no problems in this area. -------------- Who Is Ayr Logistics? Who Are Their Partners? -------------- ¶4. (C) Ayr Logistics, a private company based in Dallas, appears to be relatively unknown in international business circles. Harris told the Charge that the company was created in 1997 by a group of seven very successful, now-retired U.S. executives from the defense and oil industries to serve as an investment fund for projects in developing countries that could have a significant positive impact on local communities. He indicated that the company, which is incorporated in Wyoming and Texas, has close relationships with banks (including HSBC, Standard, Rabobank, and Chase) that regularly issue letters of credit on Ayr's behalf. Harris indicated to the Charge that the company has multiple projects already in play around the world, including, inter alia, mining projects in Latin America, oil projects in the Middle East, tourism developments in Africa, and logistics initiatives in Asia. (Note: The Embassy's due diligence confirmed that these projects do indeed exist, though all are of a much smaller scale than the Nacala oil refinery. End Note). ¶5. (C) For the Nacala development, Ayr has partnered with South Africa's Group Five, one of the largest construction and infrastructure companies on the African continent. On June 3, the DCM of the South African High Commission in Maputo confirmed to P/E chief that Group Five is currently building soccer stadiums in Cape Town and Durban for the 2010 World Cup, and that the company was the lead construction MAPUTO 00000539 002 OF 002 developer of the $1.4 billion Mozal aluminium smelter just outside of Maputo, characterizing the company as serious when it comes to infrastructure projects. Group Five's executive director Willie Zeelie told the Charge recently that Ayr has already paid more than $11 million to Group Five related to initial startup costs. -------------- -------------- COMMENT: Initial Doubts, But a Transformational Project -------------- -------------- ¶6. (C) Considering that Nacala is one of the most poverty-stricken areas of Mozambique, a project of such a large scale has the potential to transform the region. Not surprisingly, expectations are high. With the significant amount of investment that Ayr Logistics claims to be considering and the company's status as a relative unknown, the Embassy was initially skeptical about the seriousness of this investment, and has been especially sensitive to maintaining the overall reputation of the USG and of other U.S. companies looking to invest here. We have made these concerns clear to Ayr, have undertaken due diligence, and have asked Ayr to provide us with USG commercial advocacy and FCPA forms before we undertake any further efforts on the company's behalf. Even so, this project, which would be the single largest private investment in Mozambique's history, looks increasingly legitimate, and the participation of a large company experienced with investing in Mozambique like Group Five suggests that serious, well-known, international investors view it the same way. Chapman