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.

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An Oil Refinery and Apparently Much More
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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.

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Who Is Ayr Logistics? Who Are Their Partners?
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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

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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.

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COMMENT: Initial Doubts, But a Transformational Project
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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