MINISTRY OF MINES INSIDER REPORTS SHARP REVENUE

C O N F I D E N T I A L SECTION 01 OF 02 CONAKRY 000121

SIPDIS
SENSITIVE

E.O. 12958: DECL: 02/23/2019
TAGS: PGOV EMIN ECON EFIN GV
SUBJECT: MINISTRY OF MINES INSIDER REPORTS SHARP REVENUE
DECLINE

REF: CONAKRY 116

Classified By: ECONOFF T. SCOTT BROWN FOR REASONS 1.4 (B) AND (D)


1. (C) SUMMARY. A 23 February meeting with an insider at the
Ministry of Mines revealed that the president is continuing
to consolidate key ministries and revenue streams under his
direct control. Uncertainty over international contracts at
the Ministry of Mines, coupled with a chaotic merger with the
Ministry of Energy, has led to a significant amount of
disorganization in the ministry, and absenteeism among its
staff. The contact painted a startling picture of Guinea's
finances, claiming that state mining revenue has dropped
"substantially" in the past few months. Any drop in mining
revenue, which makes up the bulk of the GoG's revenue stream,
is likely to have far reaching consequences for the country.
END SUMMARY.


2. (C) On February 23, Econoff met with Saadou Nimaga
(protect),a legal advisor to the Minister of Mines, to
discuss the administration of government under the CNDD and
the impact the current economic climate is having on state
revenues. Nimaga is a new contact for the Embassy, and has
worked in at the ministry for several years.

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MINISTRY NOW ESSENTIALLY ATTACHED TO THE PRESIDENCY
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3. (C) Nimaga said that the Ministry of Mines now
unofficially reports directly to Moussa Dadis Camara,
President of the National Council for Democracy and
Development (CNDD). Though no formal declaration has been
made to remove Prime Minister Kabine Komara from the
bureaucratic hierarchy, Nimaga said that the PM has told the
Minister of Mines to report directly to Dadis on a number of
occasions. Nimaga noted that this arrangement became so
common that the Minister is now bypassing the PM altogether.

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MINING FUND REVENUE NOW GOES DIRECTLY TO DADIS
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4. (C) The most substantive change since the CNDD's ascent to
power, Nimaga noted, was the relocation of the Mining Fund
(Fonds Minier),an investment fund used for geological
surveys and staff training, from the Ministry to the
Presidency. The Fund is replenished monthly by rents earned
from CBG (Bauxite Company of Guinea) in the port city of
Kamsar, which pays to use the government-owned railroad,
mining equipment, and other infrastructure. Nimaga said that
without access to the Fund, certain staff allowances and
other expenditures must come out of the Ministry's small
budget, which it might not now be able to afford.

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FUSION WITH MINISTRY OF ENERGY CAUSES SOME DISRUPTION
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5. (C) When asked how the Ministry was functioning on a
day-to-day basis, Nimaga said that the fusion with the
Ministry of Energy had caused a moderate amount of
disorganization within the two ministries. He said that the
bureaucratic hierarchies had not yet been consolidated, which
in turn caused delays in the decision-making process.
Further, since the two ministries are not located in the same
area, Nimaga said that many files and directives have to be
hand-carried through Conakry's congested downtown area for
ministerial signature.

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ABSENTEEISM HIGH AMONG LOWER-LEVEL STAFF
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6. (C) With these major changes at the Ministry, Nimaga said
that many staff members are "taking a wait-and-see" attitude.
As an example, Nimaga cited the fact that many directors and
section chiefs are delaying implementation of approved
projects, fearing that the new Minister might cancel them.
Because of these delays, many lower-level staff members have
no work to do, and Nimaga claimed that many of them currently
do not show up for work. He noted, however, that almost all
of the upper-level cadre of officials continue to report to
their jobs on time each morning.


CONAKRY 00000121 002 OF 002


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EXISTING CONTRACTS MAY BE "RECALIBRATED"
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7. (C) Sharing insights into the intention of the military
junta to revise existing mining contracts, Nimaga said that
when the CNDD took power, they intended to thoroughly revise
all existing concession agreements. However, Nimaga said
that the new Minister spoke with Dadis shortly after being
appointed and convinced him that this approach would shake
international confidence in Guinea. Nimaga said that the
Minister eventually convinced Dadis to allow him only to
audit the contracts for compliance. In this way, Nimaga said,
"the Ministry can sit across the table from foreign investors
and 'recalibrate' certain clauses that both parties agree are
not correct." Nimaga stated that one such contract that
needed "recalibration" was the one with RUSAL, the Russian
bauxite mining giant, and its alumina-producing subsidiary,
Friguia.

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REVENUES DROP AS ECONOMIC CRISIS TAKES TOLL
--------------


8. (C) Nimaga said that mining revenues have dropped
significantly since November of 2008, and cited the global
economic crisis as the primary reason. He said that the
world market price for aluminum was currently at historic
lows, a fact which has driven down Guinea's exports of
bauxite, the mineral used to produce aluminum. (NOTE: On 24
February 2009, aluminum prices reached a six-year low on
international markets. END NOTE.)


9. (C) Further, Nimaga asserted that the constricted credit
market had essentially halted the development of several
major mining operations. For example, he said that Global
Alumina Corporation's alumina refinery project in northwest
Guinea near the port city of Kamsar has recently been put on
hold, as the company no longer has access to credit for
project financing.


10. (C) As a result of this revenue loss, Nimaga said that
the military junta is now turning to other streams to bridge
the financing gap in their general budget. He said that the
CNDD is now actively trying to collect outstanding debt, back
taxes, licensing fees, and any other available revenue or
property from a variety of individuals and companies. (NOTE:
Separate reports from RSO recently noted that the junta was
reoccupying properties that the GoG once owned. The tenants
of several government villas and office buildings have
recently been evicted to make way for CNDD operations there.
END NOTE.)

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COMMENT
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11. (C) In past years, mining revenues have reportedly
accounted for between 60% and 80% of the Guinean government's
overall receipts. A dramatic decline in mining royalties,
fees, and taxes, combined with the significant drop in tariff
duty collection at the Port of Conakry (reftel) seem to
indicate that state finances may soon enter a crisis period.
Any budgetary constriction is likely to have a significant
impact in key areas, including military and civil servant
salaries, international debt repayment, health and education
projects, and election financing. END COMMENT.

RASPOLIC