Identifier
Created
Classification
Origin
09MONROVIA73
2009-01-21 17:03:00
CONFIDENTIAL
Embassy Monrovia
Cable title:  

LIBERIA: CHINESE FIRM WINS BID TO DEVELOP BONG

Tags:  ECON EMIN PGOV LI 
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VZCZCXRO1689
RR RUEHPA
DE RUEHMV #0073/01 0211703
ZNY CCCCC ZZH
R 211703Z JAN 09
FM AMEMBASSY MONROVIA
TO RUEHC/SECSTATE WASHDC 0712
INFO RUEHZK/ECOWAS COLLECTIVE
RUEHBJ/AMEMBASSY BEIJING 0287
RUEHNE/AMEMBASSY NEW DELHI 0014
RUEHTV/AMEMBASSY TEL AVIV 0486
RHEHAAA/NSC WASH DC
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
C O N F I D E N T I A L SECTION 01 OF 02 MONROVIA 000073 

SIPDIS

E.O. 12958: DECL: 01/20/2019
TAGS: ECON EMIN PGOV LI
SUBJECT: LIBERIA: CHINESE FIRM WINS BID TO DEVELOP BONG
IRON ORE MINE

REF: 08 MONROVIA 744

Classified By: Ambassador Linda Thomas-Greenfield for reasons 1.4 (b) a
nd (d)

C O N F I D E N T I A L SECTION 01 OF 02 MONROVIA 000073

SIPDIS

E.O. 12958: DECL: 01/20/2019
TAGS: ECON EMIN PGOV LI
SUBJECT: LIBERIA: CHINESE FIRM WINS BID TO DEVELOP BONG
IRON ORE MINE

REF: 08 MONROVIA 744

Classified By: Ambassador Linda Thomas-Greenfield for reasons 1.4 (b) a
nd (d)


1. (C) SUMMARY: The China Union Investment Company has won
the bid to redevelop Liberia's Bong iron ore mining range.
The $2.6 billion concession agreement is the most lucrative
investment contract signed by the Sirleaf government and is
expected to create over 10,000 direct jobs and rehabilitate
rail, port and power infrastructure in an area ravaged by the
war and neglect. Delays in the bid evaluation process left
the GOL in a weak bargaining position and the intervening
financial crisis forced the GOL to accept terms that forego
considerable future revenues. The tender award was generally
fair and transparent, but the GOL's final rush to conclude
the deal is a result of new global market realities and the
administration's desperation to show results soon. END
SUMMARY.


2. (SBU) The Bong Mines concession covers a thirty square
mile area formerly mined by the German-Italian Bong Mining
Company from 1965-1990. The range includes an estimated 290m
tons of ore reserves at a relatively weak 35-45% iron
content. The concession area is 50 miles north of Monrovia
and is joined to the coast by a rail line that is still
(barely) intact. During a visit to the area January 10, the
Ambassador noted the complete destruction of the previous
processing plant and associated infrastructure. Revitalizing
the mining project will require billions of dollars in
investment and will take several years.


3. (C) China Union's proposal won both technical and
financial bidding rounds over close contender Vedanta
Resources (India),and more distant competitors Beleh
Resources (Liberia) and BSG Resources (Israel). According to
the bid criteria set by the special Inter-Ministerial
Concession Commission (IMCC) evaluation team for the Bong
concession, bidders were judged 50% on their technical
proposals, and 50% on their financial terms, of which an
initial "bullet payment" had an unusually high weighting.
China Union pledged to invest $2.6 billion over 25 years,
including construction of a million-ton refining factory, a
130MW hydroelectric power plant, and rehabilitation of the

existing rail line and port infrastructure. As with other
concession agreements, the contract also obligates China
Union to provide residential housing and social services
within its concession area. For its up-front bullet payment,
China Union pledged $20 million at signing and an additional
$20 million after 120 days, though they later renegotiated an
extra 90 days for each payment. (Note: a contact at the
Chinese Embassy in Monrovia told PolCouns that China Union
was a special-purpose private holding company that would rely
on private banks rather than state funds for finance. End
note).


4. (C) According to reports from a USG-funded consultant to
the Ministry of Lands, Mines and Energy (MLME) who advised
the GOL during the negotiations, the bid evaluation process
was fair and transparent and much improved over the debacle
of the Western Cluster iron ore concession in 2008 when a
lack of due diligence forced the GOL to cancel the award at
the last moment (reftel). For the Bong bid, the IMCC adopted
more rational bid criteria, outsourced due diligence to an
international accounting firm, and followed a very strict
checklist of new regulations derived from the Public
Procurement and Concessions Act.


5. (SBU) Unfortunately, the improved procedures and
performance followed many months of delays and false starts.
Expressions of Interest for the Bong Mine were originally
received in August 2007 but because the MLME and IMCC were
focused on the Western Cluster concession tender, evaluation
of the bids did not begin until May 2008 and did not conclude
until November 2008, by which time the crash in steel prices
had significantly altered the financial calculus for iron ore
bidders. Meanwhile, three years into her tenure, the
President has become increasingly anxious to conclude
concession agreements that have the potential to create jobs
and infrastructure.


6. (C) Those factors weakened the GOL negotiating position.
Under pressure from the President to expedite deals (a
position she has stated publicly),GOL negotiators ceded to
China Union's request for a significant reduction in fiscal

MONROVIA 00000073 002 OF 002


terms. Reports from inside the IMCC in January describe
rushed negotiations between the National Investment
Commission and Ministry of Finance (backed by the USG advisor
and pro-bono U.S. counsel) trying to hold onto long term
rents on one side and China Union (backed by Minister of
Lands, Mines and Energy Eugene Shannon) on the other side
arguing for financial concessions in light of the global
economic crisis. Ultimately, China Union prevailed and
secured terms the USG advisor described as "considerably more
favorable" than the original bid.


7. (C) In addition to improved financial terms, Minister
Shannon told the Ambassador January 7 that China Union sought
to increase the size of its concession after the award in
order to improve its return on investment. The USG
consultant told Econoff that the new concession reportedly
grants China Union a portion of the Wologisi iron ore deposit
as well, in exchange for a pledge from China Union to help
complete construction of a coastal road from Sierra Leone to
Cote d'Ivoire. However, contacts at the Chinese Embassy in
Monrovia were unable to confirm this and said that China
Union had not shared with them any details regarding the
concession agreement signed with the GOL, and in fact had not
even invited the Chinese Ambassador to the January 19 signing
ceremony.

--------------
COMMENT
--------------


8. (C) The Bong Mines concession agreement with China Union
is a huge economic milestone for Liberia: the largest
investment in the country's history and a major contribution
to the economic revitalization of the country. The deal also
reflects several noteworthy realities of the current
investment and political climate in Liberia:

-- Governance is improving. The process for evaluating bids
was more transparent, fair and responsible than in the
previous Western Cluster tender. With each successive
concession, some GOL ministries and agencies appear to be
learning from mistakes and improving with experience. This
trend should be reassuring for large, reputable investors.

-- Time is more important than money. The heavy weighting of
the initial bullet payment, the preference for technical
proposals with a fast start-up timeline, and bundling
concessions with unrelated infrastructure projects are all a
reflection of the high priority the GOL places on funding its
near-term Poverty Reduction Strategy (PRS) and showing clear
results during the President's term in office. Such
prioritization favors firms with an appetite for risk, deep
pockets, and ability to ramp-up quickly, at the expense,
potentially, of better long-term offers from more
conservative bidders. The President, while understanding the
value of a competitive bidding process for major projects may
have decided that the benefits of speed, experience, and
in-country equipment outweighed the disadvantages of a linked
deal.

-- The financial crisis will have a lasting impact on
Liberia. Delays (and missteps) in the award of the Western
Cluster and Bong Range have cost Liberia dearly. In addition
to the Nimba Range (awarded to ArcelorMittal in 2007),these
three known deposits represent the most lucrative economic
engines for Liberia's long-term economic growth. The GOL's
failure to conclude any award during the administration's
first three years has forced the GOL to accept less favorable
terms. A focus on short-term political and economic survival
is understandable under the circumstances, but the
consequences over the life of the concessions will be
expensive.

THOMAS-GREENFIELD