GOL VOWS THAT FRIVOLOUS LAWSUIT AND DEFUNCT SAUDI LOAN WILL

UNCLAS SECTION 01 OF 02 MONROVIA 000533

SIPDIS

E.O.12958: N/A
TAGS: ECON EAID EWWT LI
SUBJECT: GOL VOWS THAT FRIVOLOUS LAWSUIT AND DEFUNCT SAUDI LOAN WILL
NOT DERAIL MONROVIA PORT CONCESSION

REF A) MONROVIA 469; B) MONROVIA 135


1. SUMMARY: The Government of Liberia (GOL) has chosen to move
forward with its search for a port management company to
rehabilitate and oversee the Freeport of Monrovia. Saudi Arabia's
withdrawal of a highly-concessional loan for port renovations (Ref
A),and the recent revelation of an outstanding $44 million judgment
(Ref B) against the port may constitute setbacks, but the Port
Sector Reform Secretariat (PSRP) believes such disappointments need
not translate into higher port fees or derail a concession process
that has been a model of international best practices. The USG
should continue to press the Saudis to renegotiate Liberia's
outstanding debt, because the concessional loan remains the least
expensive source of financing and would enable the GOL to
renegotiate a concession on more favorable terms. END SUMMARY.


2. Econoffs met July 15 with Executive Director of the Port Sector
Reform Secretariat Patrick Sendolo to discuss the concession
process. On July 1, PSRP issued its long-awaited request for
proposals for a 25-year contract to manage the Freeport of Monrovia
(Ref B). Three internationally-recognized bidders, APMT, Bollore
and ICTSI, passed a rigorous pre-screening process. Once bids are
submitted in September, Sendolo will appoint an Inter-ministerial
Concessions Committee, which will select a concessionaire based on
pre-determined technical requirements, lowest cost service, and the
most favorable profit-sharing. Sendolo expects the National Port
Authority (NPA) to yield port management to the winning bidder in
early 2010, and anticipates the concessionaire will need to invest
at least $30 million in port renovations in the first three years.


3. Despite the PSRP's best efforts to run a methodical and
transparent concession process, two unexpected hurdles appeared in
the last month: a previously unknown $44 million judgment against
the NPA, and the withdrawal of a promised $50 million loan from the
Saudi Development Fund for port renovations. Sendolo articulated
GOL's strategy to address these hurdles, and stressed his belief
that the PSRP is not in danger.

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What $44 million judgment?
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4. Rumors of corruption and questionable legality plagued the
Freeport of Monrovia management concession awarded to Global
Security Seals (GSS) under the National Transitional Government of
Liberia (NTGL) in August 2005. NTGL President Gyude Bryant cancelled
the contract in December 2005, writing in a letter to GSS that "the
justification for single-sourcing the contract was invalid and the
contract is financially disadvantageous for Liberia." GSS pursued
legal action against NPA claiming the contract was unjustly
cancelled; a U.K. arbitration court awarded a $44.3 million
settlement in May 2009 when the GOL failed to appear at a hearing in
London. GOL expressed surprise at the outstanding settlement and
maintained they had no knowledge of the suit until notified by the
Embassy on July 2 after DLA Piper, the firm representing the
plaintiff, contacted AF/W. (Note: Sendolo believes the fact that
DLA Piper contacted the State Department the day after the release
of the RFP is no coincidence. "They understand they have a weak
case and the odds of enforcing it are next to nil," so they
attempted to influence the port through sabotage of the concessions
process. However, Sendolo's cynicism may be unwarranted as the
damages had only been awarded on May 7. End Note.)



5. Sendolo, a U.S.-trained attorney, said he had reviewed the
arbitration documents, and was "not losing sleep"' over the matter.
Citing the Convention on the Recognition and Enforcement of Foreign
Arbitral Awards (the so-called New York Convention) he questioned
the award's legitimacy and enforceability for two reasons. First,
DLA Piper failed to begin enforcement proceedings in Liberia, as
required by the convention. Second, the convention does not
recognize the validity of contracts that are deemed contrary to
local law, as Liberia's Public Procurement Concessions Commission
determined the SSG contract to be.


6. Sendolo believes all three would-be concessionaires already are
aware of the outstanding lawsuit, but does not worry that it will
detract from their interest in the management contract. In fact, to
ease the concerns of the prospective concessionaires, Sendolo
suggested the NPA offer a letter indemnifying them against any
settlement. However, Vishal Gujadhur, advisor to Minister of
Finance Augustine Ngafuan, said the MOF opposes such a letter on the
grounds that it constitutes a contingent liability that could
conflict with Liberia's commitment to zero borrowing under the terms
of its Poverty Reduction and Growth Facility.


7. The President has tapped Commissioner of the Bureau of Maritime
Affairs, Binyah Kesselly, to oversee the GOL's resolution of the
lawsuit and mediate between the MOF and the NPA. The GOL also will
retain DC-based Hogan & Hartson as its legal counsel, according to
Gujadhur.

MONROVIA 00000533 002 OF 002



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Moving Ahead Without Saudi Financing
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8. Although Sendolo expressed disappointment in the withdrawal of
the Saudi Development Fund's $50 million concessional loan for port
renovations, he said the dilapidated Freeport could no longer wait
for funding that might never materialize (Ref A). He believes the
MOF's concern that high-quality concessionaires would lose interest
if they were expected to renovate the port themselves appear
unfounded; the three pre-qualifed companies continue to show
interest and are all well respected internationally. Additionally,
Sendolo said concerns that the would-be concessionaire would be
forced to increase port fees to recoup the large upfront investment
may be overstated. The Freeport of Monrovia imposes the lowest port
fees in West Africa. Even if the port management company passes
these construction costs directly to the consumer, he estimates that
costs per container will rise from $100 to $175, well below the
regional average of $300. He insisted the impact on the consumer
would be negligible, translating into less than a 20" (twenty U.S.
cents) increase per bag of rice. And if an efficient concessionaire
reduces the costs associated with the time goods currently languish
in port, then the effect on the local price level may in fact be
positive for consumers.


9. If the Saudi loan does materialize during the concessions
process, Sendolo is confident the PSRP could renegotiate the
concession. Given that the highly concessional loan would
constitute cheaper credit than any financing a private company could
attract, he suspects the contract could be renegotiated on terms
that would be appealing to both the GOL and the concessionaire.


10. COMMENT: To its credit, the GOL has buffered itself against
these potential setbacks by pursuing a methodical and transparent
concessions process that attracted only credible port management
companies (Ref B). The stringency of the process ensured only
high-caliber companies with a track record in the region would be
interested. As a result, the three finalists likely knew of the
lawsuit; however, the $44 million settlement will continue to loom
overhead despite GOL's insistence of its frivolous nature. GOL's
claim that the lawsuit was a surprise appears more a symptom of
internal disorder than deliberate concealment. Without the Saudi
loan, concessionaires will most likely be forced to increase port
fees, which could decrease port volume or lead to higher prices for
consumers. Although the Freeport of Monrovia offers the lowest
regional fees, the quality of service is also the lowest. An
increase in port fees must be coupled with an increase in services
to avoid a negative economic impact.

THOMAS- GREENFIELD