CNDD REVOKES RUSAL MINING CONCESSION

C O N F I D E N T I A L SECTION 01 OF 02 CONAKRY 000584

SIPDIS
SENSITIVE

E.O. 12958: DECL: 03/16/2019
TAGS: EMIN EINV ECON EIND PREL PGOV GV
SUBJECT: CNDD REVOKES RUSAL MINING CONCESSION

REF: CONAKRY 00475

Classified By: ECONOFF BRIANA WARNER FOR REASONS 1.4 (B) AND (D)


1. (U) Summary: After a tumultuous four months of threats and
conciliatory liaisons, the GOG revoked United Company Rusal's
(Rusal) controversial Friguia mine and refinery concession on
September 10. Arguing that the company unlawfully acquired
its contract in 2006, a Guinean court ruled that the refinery
is now exclusively owned by the GOG. With the nullification
of Rusal's contract, the CNDD is sending a clear message that
they are willing and able to cancel international investment
contracts that they consider flawed. END SUMMARY.

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TURMOIL IN FRIA
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2. (U) In April 2006, Rusal was granted full ownership of
the Friguia facility by Conte's regime. According to media
outlets and contacts within the mining industry, Rusal paid
$19 million USD for the acquisition, despite its estimated
value of nearly $247 million. Furthermore, the contract has
always been viewed with some suspicion because it was granted
directly by President Conte and was not validated by the
National Assembly as required by law. With the capacity to
produce 640,000 tons of alumina and 1.9 million tons of
bauxite annually, Friguia was a substantial asset for the
mining giant. The company also has two smaller mining
interests in the country including a management stake in
Compagnie des Bauxites de Kindia (CBK) and a share in
Companie Guineenne de Genie (CGG).



3. (U) Soon after seizing power in December 2008, the CNDD
questioned the validity of Rusal's Friguia contract, claiming
that the concession, negotiated under the former regime, was
obtained illegally due to its opaque ratification procedure.
They also argued that the disparity between Rusal's payment
and the contract's value indicated corruption within the
contract negotiation process.


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LEGAL PROCEEDINGS BEGIN
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4. (U) In April 2009, Dadis publicly demanded that the
Ministry of Justice consider legal action over Rusal's 2006
acquisition. At the time, Rusal argued that it "purchased
Friguia in full compliance with Guinean legislation and
considers it to be (our) legitimate property," but litigation
against the company proceeded in the Police Court of Kaloum.
(COMMENT: The litigation was ordered just as the Nigerian
government confronted Rusal about similar allegations in
Nigeria. The company also began negotiations for a massive,
company-wide debt restructuring program involving $7.3
billion USD in April. END COMMENT.)



5. (U) In July, Rusal decreased its production at its Friguia
mine from 52,000 to 24,000 tons a month. According to company
press releases, the decrease was related to plummeting
commodity prices and company budgeting issues. On August 5,
Rusal CEO Oleg Derpaska came to Conakry and apparently met
with several CNDD officials, including Dadis, to discuss the
company's holdings in Guinea. On August 15, Dadis asked the
Ministry of Justice to withdraw legal proceedings against the
company and production levels resumed at 54,000 tons a month.



6. (C) Despite supposed presidential support, the legal
proceedings against Rusal continued. On September 4, Rusal
announced that it would temporarily suspend production from
its Friguia mine. Reportedly, the government prohibited a
company ship carrying raw bauxite exports from leaving port
on September 3, due to nonpayment of an environmental tax.
Though Rusal claims that it stopped production at its mine as
a direct result of its export block, sources within the
mining sector told Econoff that the company was having
trouble meeting production bills. After a six day closure,
the company apparently paid the $500,000 USD tax, and
reopened their mine on September 9. That same day, the GOG
announced that it would launch an audit to assess the

CONAKRY 00000584 002 OF 002


operations of three mining companies in Guinea including
AngloGold Ashanti, Kenor, and UC Rusal.



7. (U) Just two days later, the court ruled that Rusal
obtained the contract illegally and that the property should
be returned to the Government of Guinea immediately. Rusal
was given ten days to appeal the decision, which it
ultimately did on September 20.


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COMMENT
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8. (C) Rusal's relations with the CNDD have been turbulent
since the December coup. Despite this, contacts within the
mining sector said that Rusal officials were very surprised
by the GOG's revocation of the Friguia mine. Apparently, many
Rusal executives believed that Dadis, meeting with Derpaska
had ensured better relations with the CNDD. Over the years,
Rusal was embroiled in multiple scandals in Guinea involving
workers riots, caustic soda spills, and accusations of
corruption. The fact that the CNDD would unilaterally cancel
a contract however, has sent shock waves through a mining
community already weary of CNDD interference in the sector.



9. (C) The future of the mine and thousands of workers is
currently in question, as the mine now belongs to the GOG.
The GOG claims that it will put the project up for a
transparent international bidding process, but it is likely
that the GOG will try to sell the mine quickly to supplement
their weak budgetary capacity. If the lack of transparency
with the CNDD's past bidding processes are any indication
(reftel),the contract will likely be sold to a close ally of
Dadis or whichever company is willing to pay the highest
bribe - a little ironic given the circumstances under which
the Rusal contract was granted. END COMMENT.
BROKENSHIRE