MADAGASCAR: JAPANESE TO RAISE MINING CONCERN AT G8

C O N F I D E N T I A L SECTION 01 OF 02 ANTANANARIVO 000503 SIPDIS STATE FOR AF/EPS AND AF/E - MBEYZEROV USDOC FOR BECKY ERKUL - DESK OFFICER TREASURY FOR FBOYE E.O. 12958: DECL: 07/07/2019 TAGS: ECON EMIN PREL MA SUBJECT: MADAGASCAR: JAPANESE TO RAISE MINING CONCERN AT G8 REF: ANTANANARIVO 431 Classified By: P/E CHIEF DOVIE HOLLAND FOR REASONS 1.4 B AND D. ¶1. (C) Summary: The HAT is threatening to alter the terms of investment for the USD 4.5 billion Ambatovy nickel mine. The Japanese, Canadian, and Korean investors involved are gearing up to defend their interests in arbitration if the HAT goes forward with its threat. The Japanese Prime Minister intends to raise this issue at the upcoming G8 summit to seek U.S. support. End summary. ¶2. (C) The Malagasy transition government (HAT) is threatening to alter the terms of investment for the USD 4.5 billion Ambatovy mining joint venture in Madagascar by Canadian firms Sherritt (40%) and SNC Lavalin (5%),Japanese firm Sumitomo (27.5%),and Korean firm Kores (27.5%). In a meeting on June 29 with Ambatovy manager Patrick Hickey, HAT President Rajoelina gave the company 15 days to respond to the HAT's request to give partial ownership of the project to the Malagasy government, increase Ambatovy's royalty payments, or give certain members of the HAT "signing bonuses". A fourth option of outright bribe payments was implied. If Ambatovy does not agree to one of these proposals, the HAT has threatened to issue a decree to eliminate Ambatovy's ability to operate under the terms of the large mining law, completely changing the terms of its business. ¶3. (C) The threat does not only involve the four partners, but also Ambatovy's multitude of international lenders, including the African Development Bank, the European Investment Bank, the Export Development Corporation of Canada, ING, and Japanese and Korean export banks, to whom Ambatovy owes over USD 2.5 billion. Ambatovy and its lenders do not accept the HAT's renegotiation attempts and plan to halt their investment (scheduled to begin production in early 2011) and bring the case to arbitration if the HAT goes through with its threat, which they now view as serious. ¶4. (C) Sherritt manager Juanita Montalvo told Emboff July 6 that this effort to squeeze Ambatovy appears to be driven by the French consulting firm Drake and Bart and by French attorney Ann-Phillippe de la Giraudiere of the firm La Giraudiere, Larroze, et Associes, working in conjunction with French-Malagasy businessman Patrick Leloup. According to Montalvo, de la Giraudiere had inaccurately argued to Rajoelina that Ambatovy would be unable to resort to arbitration if the large mining law no longer applied. Montalvo said that, in general, cooperation with the HAT on the working level had been positive, and believed that the push for renegotiation was only coming from these few actors. ¶5. (C) Montalvo and Hickey explained that the Japanese Prime Minister intended to raise the issue at the G8 summit in Italy July 8-10. Montalvo said that the Japanese are seeking to convince the Canadians to raise the issue and that they may do so as well. She also noted that the Japanese are requesting a meeting with HAT President Rajoelina and are pressing the Canadians and Koreans to join them for that. According to Corporate Council on Africa President Steve Hayes, who recently met with Japan's Africa adviser K. Komatsu in London, Sumitomo is facing risk of collapse due to the debt it has accrued for this project if it pulls out or if its terms of business are altered, and he confirmed that the Japanese government planned to pressure the HAT to rescind its ultimatum. As it is one of the "big six families", Sumitomo's collapse would have a large impact on the Japanese economy, Hayes explained. Japan would like closer cooperation with the U.S. on its Africa strategy, to counter China, and will pressure President Obama to intervene of its behalf at the G8. ¶6. (C) Comment: Ambatovy has made the largest investment in Madagascar's history and is the largest provider of foreign currency on the island. The company projects that it will pay USD 2.9 billion to the Government of Madagascar in royalties, taxes, duties, and fees over the thirty year life-span of the project. It currently employs around 10,000 ANTANANARI 00000503 002 OF 002 people. Its loss would deal a large blow to Madagascar and would send a strong negative signal to other potential investors. End comment. MARQUARDT