LIBERIA STUMBLES IN AUCTION OF TWO NEW IRON ORE

C O N F I D E N T I A L MONROVIA 000117

SIPDIS

SENSITIVE
SIPDIS

DEPARTMENT FOR AF/W PDAVIS, AF/EPS CTRIMBLE, EB/ESC
SSAARNIO, INR/AA BGRAVES

E.O. 12958: DECL: 02/08/2018
TAGS: ECON EINV EMIN PGOV LI
SUBJECT: LIBERIA STUMBLES IN AUCTION OF TWO NEW IRON ORE
CONCESSIONS

REF: A. 07 MONROVIA 1089

B. 07 MONROVIA 780

Classified By: Ambassador Donald Booth for reason 1.4 (d)


1. (SBU) SUMMARY: The Government of Liberia (GOL) has
struggled - if not stumbled - in efforts to award the first
two iron ore concessions tendered since the Contracts and
Concessions Review of 2006 and the arrival of the Sirleaf
administration. The President announced during her January
28 Annual Message to the Legislature that Delta Mining of
South Africa had won the tender for the "Western Cluster"
iron ore concession, despite the fact that the GOL had yet to
conduct due diligence on the bid. Delta is a relative
unknown in a field of mining heavyweights and both the press
and the other bidders have questioned the proposal evaluation
process employed by the Ministry of Lands, Mines and Energy
(MLME) and the Inter-Ministerial Mineral Technical Committee.
A second iron ore concession for the "Bong Range" deposits
has suffered numerous delays since Expressions of Interest
(EOIs) were submitted last summer. It remains unclear if the
delays and irregularities in the concessioning process are
simply the result of well-intentioned but inexperienced
gaffes or a deeper misunderstanding - if not undermining - of
what the GOL has promised would be more transparent and
accountable public concessioning procedures. END SUMMARY.

WESTERN CLUSTER BIDDING BUNGLED
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2. (U) The "Western Cluster" (estimated at 600 metric tons
of iron ore) is composed of several deposits covering about
200 square kilometers including the Mano River deposits of
the former National Iron Ore Company, the western portion of
the Bomi Hills deposits from the former Liberian Mining
Company (LMC),and the greenfield Bea Mountain deposits. The
concession is the first to be awarded by the Sirleaf
administration. The EOI was released in May and closed in
July, 2007. Of the fourteen firms that bid, the MLME
pre-qualified seven to submit full proposals: Delta Mining
Consolidated, Sino Steel Corporation, Xing Xing Group Ltd.,
Tata Steel, Companhia do Rio Doce South Africa, Mittal Steel
Liberia (MSL),and Bahlodi Africa. An Inter-Ministerial
Mineral Technical Committee (IMMTC) finalized its evaluation
on January 23 and the President announced January 28 that the
winning bidder was Delta Mining of South Africa based on a
technical evaluation score of 90.1. The MLME published a
full summary of the evaluation process including the
technical scores of the bidders on February 4. The top three
scorers (Delta plus Sino Steel at 83.9 and Tata Steel at
77.9) now move to the Inter-Ministerial Concession Committee
(IMCC) for a due diligence review. The IMCC has requested
assistance from the USG to perform due diligence on Delta,
and if Delta fails, the concession would pass to Sino Steel
(China) or Tata Steel (India).


3. (SBU) The Liberian press has criticized the MLME for
delays and irregularities in the concession bid evaluation
process. A month before the IMMTC finalized and signed its
recommendation, the press reported that Delta Mining had
already announced it had won the bid on its website. Later,
following the official announcement, the press in Liberia and
South Africa questioned the selection of Delta, a relatively
small and unknown firm in comparison with some of the largest
mining and steel companies in the world.


4. (C) Mittal's representative in Liberia, Joseph Matthews
(please protect),also highlighted several abnormalities
during the bidding phase, and hinted that some missteps
appeared intentional. Matthews told Econoff February 7 that
the letter notifying MSL of the deadline for proposal
submission never left the Ministry, and the evaluation
criteria used by the IMMTC were not the same as indicated in
the request for proposals. Matthews explained that a
technical ranking of bids without due diligence on
feasibility of investment plans was incompatible with
internationally accepted standards. MSL has not yet decided
if it will file a formal protest, but Matthews said
ArcelorMittal's President, Lakshmi Mittal, phoned President
Johnson Sirleaf the day of the announcement to register his
concerns.

BONG RANGE BIDS DELAYED
--------------



5. (U) The "Bong Range" deposit in Bong County includes the
entire 350 square kilometer Bong Mining Company (BMC)
deposits and residual assets. The EOI was released June 25,
2007 and closed August 8, 2007. The MLME received nine bids
and on January 25, 2008, shortlisted five firms to submit
detailed proposals by March 10: BSG Resources Ltd., China
Union Investment Co. Ltd., Belle Resources, Ltd., Rio Doce
S.A., and Vedanta Resources, PCL. Bids languished at the
MLME from August to January because of the lack of qualified
technical staff available to evaluate proposals at the IMMTC.
The MLME has acknowledged its inexperience and requested
additional assistance from donors for proposal evaluation.
The United Nations Development Program (UNDP) recently
contracted with an external advisor to assist the IMMTC for
the Bong Range evaluation.

CONCESSION PROCESS: TRANSPARENT BUT CHALLENGING
-------------- --


6. (U) According to the Public Procurement and Concessions
Act (PPCA) and the Mineral and Mining Law, all final
proposals are initially evaluated by the Inter-Ministerial
Mineral Technical Committee (IMMTC) composed of the MLME,
Central Bank, National Investment Commission, Ministry of
Labor, Ministry of Justice, Ministry of Planning and Economic
Affairs and Ministry of Finance. The IMMTC hands a ranked
shortlist of finalists to the Inter-Ministerial Concession
Committee (IMCC) which then certifies the result as having
been conducted according to law. The IMCC is then
responsible for performing a due diligence audit of the
winning bidder before entering into negotiations on the
details of a Mineral Development Agreement. The GOL's
decision to announce the "winner" before conducting due
diligence is not addressed by the PPCA, but it is
inconsistent with international best practices. If the
winner of the scored technical evaluation fails the
due-diligence audit, the IMCC moves to the second-ranked
bidder.

COMMENT
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7. (SBU) The mining sector is a cornerstone of Liberia's
economic recovery and the concessioning process is designed
to promote transparency and fair play. To its credit, the
MLME has consistently published status updates, evaluation
results and procedural explanations at each step of the
process. However, while the MLME has made public
pronouncements of progress, the Ministry and the IMMTC have
not adequately explained several procedural irregularities
noted by the press and the bidders themselves. A formal
audit of the evaluation process would be revealing and
instructional, but barring a formal protest from one of the
losing bidders, a review is unlikely given the pressure to
move forward quickly. The IMMTC has acknowledged its
inexperience, but some of the mistakes border on malfeasance.
The process is admittedly an improvement over the way
concessions had been awarded in the past, but continued
vigilance, oversight, and assistance is necessary to
reinforce the institutions and controls of this embryonic
practice.


8. (SBU) Although the U.S.-funded GEMAP advisor assists with
the development of evaluation criteria and attends scoring
meetings, he does not participate in the selection process
nor oversee due diligence. Members of the Deputy-Minister
level IMCC noted the body did not have the capacity to
conduct the required due diligence of the winner(s) and
intend to ask their principals to prepare a formal request
for U.S.-funded assistance to hire a private, independent due
diligence firm using GEMAP funding.
Booth