LIBERIA: AMBASSADOR TOURS RECOVERING LIBERIA PETROLEUM

UNCLAS SECTION 01 OF 02 MONROVIA 000186 SENSITIVE SIPDIS E.O.12958: N/A TAGS: EPET EWWT ECON EINV PGOV LI SUBJECT: LIBERIA: AMBASSADOR TOURS RECOVERING LIBERIA PETROLEUM REFINING COMPANY ¶1. (U) SUMMARY: Liberia Petroleum Refining Company (LPRC) Managing Director Harry Greaves outlined an ambitious strategic development plan during the Ambassador's tour of LPRC facilities on February 23. The state-owned petroleum import and storage monopoly has undergone impressive financial and operational improvements under Greaves' leadership since 2006. At present, LPRC operations are limited by decayed infrastructure and HIPC restrictions on debt financing for any improvements, but Greaves hopes to move quickly on $25 million in facility upgrades and eventually privatize LPRC to raise enough capital to build a 50,000 barrels-per-day (bpd) refining facility in Buchanan. END SUMMARY. ¶2. (U) The Liberia Petroleum Refining Company (LPRC) is a state-owned enterprise (SOE) responsible for the importation, storage and marketing of petroleum products to Liberia (Note: LPRC has not operated as a refinery for over 20 years.) The Managing Director is appointed by a Board of Directors and approved by the President. LPRC's monopoly profits have provided prior governments with an irresistible source of funds for off-budget (and often private) projects. But responsible financial management (supported by GEMAP) since 2005 has reduced the leakages and resulted in a dramatic increase in cash holdings; LPRC now has over $8 million in the bank. ¶3. (U) However, after two decades of civil conflict, mismanagement and neglect, LPRC facilities are in a serious state of disrepair. The oil jetty that serves as the country's sole petroleum lifeline is corroded and exposed; leaky and obsolete infrastructure leads to high losses and environmental hazards; storage capacity is limited to a few dangerous and dilapidated tanks; and fire fighting and security capability is inadequate. LPRC contracted Canadian petroleum consultants William G. Matthews Associates in 2006 to conduct an assessment of terminal facilities, perform a market study to determine storage needs through 2013, and estimate costs to build new storage and rehabilitate necessary facilities. Based on the assessment, LPRC conducted a competitive tender for the estimated $25 million rehabilitation project and selected Polish firm Zachem as the winner in early 2009. ¶4. (U) In order to move forward, however, LPRC must find a way to fund the repair contract that does not violate HIPC prohibitions on debt financing. LPRC is circulating a proposal under which a new "terminal rehabilitation fee" of USD 0.15 per gallon would be collected from fuel importers and deposited directly into an escrow account used solely as a source of funding for the product storage terminal rehabilitation. (Note: the current USD 0.20 per gallon storage charge would concurrently decrease by USD 0.05 to USD 0.15 per gallon resulting in a net USD 0.10 increase to end users. End note.) An independent expert to be retained by LPRC to monitor the rehabilitation program would review, evaluate and approve all escrow account disbursements. Greaves explained that this "Contributions in Aid of Construction" scheme allows for the financing to be reflected as a reduction in receivables rather than as a liability on its balance sheet. ¶5. (U) Beyond the urgent upgrades needed to bring the LPRC up to minimum storage capability, Greaves also has a longer-term proposal to scrap the 15,000 barrels per day (bpd) Gardnersville refinery (defunct since 1983) and build a new 50,000 bpd refinery in Buchanan that would retain 80% output capacity for export. Greaves told the Ambassador this refinery would increase fuel security, prepare for potential offshore production, and establish Liberia as a petroleum transshipment point. In order to raise the estimated $500 million for the project, Greaves is suggesting that LPRC sell shares to strategic partners and eventually carry out an initial public offering to enable institutions and individuals to acquire stake in national asset and thereby transform LPRC from a state-owned enterprise into a corporation owned by the Liberian public. BACKGROUND -------------- ¶6. (U) In 1968 the Liberian Refinery Company (LRC),jointly owned by Dynalectron Corporation (now Dyncorps) and Sun Oil Company (now Sunoco),completed the construction of a refinery in Gardnersville. In 1978 Sun Oil and Dynalectron relinquished their equity stake and the GOL formed the LPRC as a state-owned limited liability company to acquire the assets of the LRC (Note: President Sirleaf, then-Deputy Minister of Finance for Revenue, led the incorporation of LPRC into the GOL. End note.) In 1983 a consortium of banks withdrew their line of credit which caused LPRC to cease refining operations and forced the GOL to begin importing all refined petroleum products through the port of Monrovia. In 1989, an Act of Legislature gave LPRC monopoly rights over the importation and distribution of all petroleum products. In 1998 the Taylor government created an importation and distribution monopoly for Galaxy (later called West Oil Investments) and LPRC was relegated to MONROVIA 00000186 002 OF 002 the role of a storage terminal. In 2003, the National Transitional Government of Liberia (NTGL) required LPRC to issue import licenses to a minimum of three companies, but financial mismanagement prevented the GOL from realizing any of these efficiency gains. By Jan 2006, new Board and management took over and inherited debts of US$2.2 million and only $50,000 in bank. ¶7. (U) Under the Sirleaf administration and the leadership of Harry Greaves, LPRC was one of the first SOEs to carry out a rightsizing exercise, reducing staff from 650 to 235 and senior positions from 16 to 6. With assistance from the Governance and Economic Management Assistance Program (GEMAP),LPRC introduced new financial management controls, including the preparation of monthly financial statements for review by the Board of Directors and annual audits by a reputable international auditing firm. LPRC's financial position strengthened dramatically: annual net income rose from roughly $1.5 million in 2005 to over $5 million in 2008 and LPRC has almost $8 million in the bank in addition to payments of $2.5 million in dividends and taxes to the GOL since 2006. By 2008, the number of importers has risen to nine and as a result of the increased competition and improved financial management, petroleum prices in Liberia are amongst the lowest in the ECOWAS Region. BIOGRAPHY -------------- ¶8. (SBU) Harry Greaves was educated in England and the United States and later served as Vice President of Finance at the Dallas Morning News and as a Senior Finance Officer with the Washington Post. He has been an associate of President Sirleaf since the 1970s. He is reported to have been a planner of the failed coup attempt in 1985. He was a vocal member of the U.S.-based Association for Democratic Change in Liberia, a group that supported Taylor in his early efforts to take power, and a founding member of the Liberia People's Party (LPP). In 2003 he returned to Liberia and joined the Liberia Action Party (LAP) led by former president of the National Transitional Government Gyude Bryant. He was appointed by Bryant as an Economic Advisor, a position he resigned shortly before the election to join the Sirleaf campaign. His wife, Precious, owns and operates a popular U.S.-themed restaurant. COMMENT -------------- ¶9. (SBU) The LPRC is one of the few GOL agencies with management that thinks and plans strategically. While previous management teams have concentrated on squeezing LPRC for short term gains at the expense of longer term development, Greaves has strengthened the organization with an eye on future growth. Indeed, one of his biggest challenges at present is to protect LPRC's hard-won gains from pressure from the GOL to increase dividend payments. Greaves' tenure has not been without acrimony - he is often vilified in the press for his role in the NTGL and a murky contract between the LPRC and Nigerian firm Addax Ltd. related to an October 2006 concession between the GOL and GON for crude oil. Greaves' record of transparency has been strong, however, and the LPRC is one of the few SOEs that produces regular Annual Reports that are audited by independent accountants. As a result, LPRC is likely one of the top candidates for privatization by a government that looks favorably on public-private partnerships. THOMAS-GREENFIELD