LIBERIA: GOVERNMENT RATIFIES AMENDED FIRESTONE CONCESSION

UNCLAS SECTION 01 OF 03 MONROVIA 000242

SIPDIS

DEPARTMENT FOR AF/W-PDAVIS, INR/AA-BGRAVES, AF/EPS, EB
AID FOR AFR/WA-SSWIFT
ACCRA AND DAKAR FOR FCS

SENSITIVE
SIPDIS

E.O.12958: N/A
TAGS: PGOV ECON EIND ETRD EINV LI
SUBJECT: LIBERIA: GOVERNMENT RATIFIES AMENDED FIRESTONE CONCESSION


1. (U) SUMMARY: The Liberian Legislature ratified March 27 the
Amended and Restated Concession Agreement signed by the Government
of Liberia (GOL) and Firestone Liberia on February 22. The new
Agreement concludes extended negotiations between the GOL and
Firestone to modify a concession extension the National Transitional
Government of Liberia (NTGL) awarded the firm in 2005. Under the
new agreement, which runs through 2041, Firestone commits to
continue replanting, complete a rubber-wood factory, increase its
support to small Liberian rubber farmers and undertake additional
social and educational projects. It also increases Firestone's
income tax rate from 25% to 30% and establishes new transfer pricing
provisions based on international indices. The GOL estimates the new
agreement will result in a retroactive increase in revenues for
2007-08 of nearly $2.5 million.


2. (U) SUMMARY CONTINUED: The amended Firestone agreement, like
the revised contract with ArcelorMittal in 2007, illustrates the
GOL's determination to negotiate and conclude detailed and
transparent concession agreements with current and potential
investors that maximize government revenue and promote social
investments. Although the renegotiation of valid concession
agreements runs the risk of establishing a precedent that future
governments might exploit for private gain, and while the
negotiations themselves were often protracted and vulnerable to
rent-seeking, the agreements are more in line with international
best practice and a break from the opaque and often imprudent
concessions of the past. END SUMMARY.


3. (U) Firestone negotiated its original 99-year concession with
the Liberian government in 1926. In 2005, Firestone concluded an
extension with the NTGL that granted the company an additional
86-year term up to 2091. The Contract and Concession Review
Committee established in 2006 under the Governance and Economic
Management Assistance Program (GEMAP) proposed that the government
renegotiate the NTGL agreement to remedy questionable provisions.
The amended and restated agreement of 2008 is valid for 36 years
(from 2005),until 2041. Additional changes from the 2005
concession agreement include:

Grant of Rights
--------------

-- Firestone Liberia acknowledges Government ownership of all rubber
trees and other non-moveable assets in its production area at
termination of the agreement;

-- Parent company Bridgestone Firestone Diversified Products, LLC
pledges that Firestone Liberia will remain a wholly-owned subsidiary
and the fixed assets of Firestone Liberia will not be transferred
without Government consent;

-- Firestone Liberia will maintain a debt to equity ratio of 2:1
(vice 4:1);

-- Firestone and Government will prepare a binding map to confirm
the total concession area of 118,900 acres.


Conduct of Operations
--------------

-- Export sales prices for transactions between Firestone Liberia
and an affiliate shall be determined by reference to available
international reference prices or indices rather than on a price
negotiated and set internally by Firestone and reviewed by
Government;

-- The purchase price for rubber offered to private Liberian rubber
farmers will be based on an international index rather than set by
Firestone;

-- Firestone Liberia commits to replant at least 50,000 acres (up
from 5,000) between 2005 to 2017 and to maintain 65,000 planted
acres during the term of the concession;

-- Firestone will give (an unspecified) preference to goods produced
in Liberia by Liberian citizens when purchasing goods and services
related to its activities;

-- Firestone commits to invest $10 million in a rubber wood facility
to start operations in 2008, employing at least 500 people (Note:
the factory is already near completion);

-- Firestone will provide 700,000 (vice 600,000) rubber saplings per
year and sell farm supplies at cost to qualified Liberian rubber
farmers.

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Public Health, Safety and Environment
--------------

-- Firestone shall develop a security plan that will be approved by
Government to ensure the Plant Protection Department adheres to the
rule of law and international human rights principles;

-- Firestone commits to construct 2,300 new houses by 2010, provide
one house per entitled employee by 2015, and ensure each household
has a sanitary latrine or bathroom by 2011;

-- Specific reference now obligates Firestone to adhere to Liberian
environmental laws, including the Environmental Protection
Management Law.


Education, Employment and Training
--------------

-- Firestone shall provide education through high school (vice ninth
grade) for all eligible dependents, donate $165,000 in financial
assistance per year for three years to the Harbel Multilateral High
School, and contribute $35,000 annually through 2015 to a
Government-administered adult education program.

-- All unskilled positions are now limited to Liberian citizens, and
50% of the ten senior management jobs must be held by Liberians
within 10 years;

-- Firestone shall provide $50,000 annually to the University of
Liberia's College of Agriculture, as well as $115,000 annually
through 2015 and $150,000 annually thereafter in scholarships for
Liberian citizens, a quarter of which will be reserved for Margibi
county students;

-- Firestone will support the Government's efforts to create a
Rubber Development Fund financed by rubber export fees, to support
the rehabilitation of the rubber sector through extension programs
and services to Liberian farmers;


Taxation and other Government Payments
--------------

-- Firestone to be taxed on its net taxable income at a rate of 30%
(vice 25%),computed in accordance with Liberian law (rather than
the specific terms of the 2005 Agreement) applied retroactively to
2007 income provided the agreement is ratified by the Legislature
and signed into law by the President by March 30, 2008;

-- Firestone no longer exempt from certain import duties and must
pay taxes on fuel, rice and other goods, albeit with a 50% reduction
on fuel duties and a ceiling of $1.10 per bag for rice during the
rehabilitation period (through 2015);

-- Firestone no longer exempt from certain taxes - now subject to
ECOWAS Trade Levy (1% on goods imported from non-ECOWAS states),
withholding taxes, real property taxes, and goods and services tax,
with a ceiling on the latter of 3.5% and an exemption on capital
goods;

-- Firestone's quarterly turnover tax rate increases from 1% to 2%
of gross income;

-- Annual rental fee for government land in the concession area of
$2.00 (vice 50 cents) per acre, adjusted for inflation every five
years;

-- Firestone no longer enjoys free access to broadcast and
communications frequencies and instead must pay prevailing rates;

-- Firestone no longer enjoys privileged use of airports, seaports
and other similar facilities owned by the Government and instead
must pay applicable rates, including inspection fees at prevailing
rates.


4. (U) The revised agreement was signed on February 22 by Firestone
and an inter-ministerial negotiation team. Minister of Agriculture
Dr. J. Christopher Toe, who led the negotiations on behalf of the
GOL, referred to the renegotiation of the Firestone concession as
"an embodiment of Government's goals to ensure that all existing
agreements equitably protect Liberian interests and are consistent
with principles that attract and sustain foreign investment in
Liberia." Dan Admontis, President of Firestone Natural Rubber

MONROVIA 00000242 003 OF 003


Company, emphasized that "the new agreement provides the right
framework for Firestone Liberia" to rebuild operations and
facilities in Liberia while supporting Liberia's recovery efforts.


5. (SBU) The proposed agreement then passed to the Legislature
where there were initial indications that some legislators might
seek to delay ratification. A Joint House Committee on Judiciary,
Agriculture and Concessions sought to raise the land rental fee and
to earmark such fees for the development of Montserrado and Margibi
counties, where Firestone is located. Representative Saah Gbollie
told PolCouns March 20 that he was seeking more local control over
tax revenues and scholarships. In the end, the legislators were
reminded that the government stood to receive $2.5m in retroactive
tax revenues from Firestone if the agreement was passed before March

30. The Senate passed the restated concession on March 20 and the
House did the same on March 27. The agreement was returned to the
President in time for her signature before March 30.


6. (SBU) COMMENT: Like the 2007 agreement with Mittal Steel,
conclusion of the Firestone agreement marks a break from the past
and sets a benchmark for future concession agreements. While
agreements concluded with the NTGL often granted significant tax
privileges with few investment or performance benchmarks, President
Johnson Sirleaf's administration has demonstrated a determination to
negotiate and conclude detailed and transparent concession
agreements with current and potential investors that maximize
government revenue and benefits for Liberians even if achieving such
an outcome requires protracted negotiations that delay urgently
needed investment and job creation. Thus far, the GOL has limited
the renegotiation of concessions to those concluded during the NTGL
or found to be improper by the Contract and Concessions Review
Committee in 2006, but there are fears that the GOL intends to
re-examine other concessions, establishing a contract revision
precedent that future governments might repeat for private gain, and
future investors might find off-putting. In addition, although the
process has been largely transparent, in the absence of standardized
investment incentives and approval procedures, these long
negotiations (or re-negotiations) involving multiple interests
provide opportunities for rent-seeking. The GOL walks a fine line
between breaking with "business as usual" while still remaining
"open for business." END COMMENT.

BOOTH