The Perspective
Atlanta, Georgia
October 13, 2021

                  

Liberia’s Minerals and Mining Law, adopted in April 2000, encourages foreign investment. It includes a requirement for a Mineral Development Agreement (MDA) between the government and an eligible applicant for a Class A mining license with concessions awarded for up to 25 years and renewable consecutively if evidence of mineral reserves is found. On 17 August 2005, the National Transitional Government of Liberia (NTGL) headed by Gyude Bryant entered into an MDA with the world’s largest steel company, ArcelorMittal (AML) to explore Liberia’s extensive reserves of iron ore, which could see, ArcelorMittal investing around US$900 million over the next 25 years.  ArcelorMittal agreed to an annual payment of US$3 million for communities that would be affected by  ArcelorMittal operations. A five-year renewable tax holiday was granted to the company as well as royalties and transfer pricing, the transference of the state assets, the stabilization clause, land rights, private security forces, rights to minerals, and confidentiality.

Following the signing of the deal, there were many allegations of bribery, coercion, and external pressure leading to the awarding and signing of the MDA with ArcelorMittal. Many critics and analysts considered the contract unfavorable to the new government and the people of Liberia. Global Witness’ 2006 report ‘Heavy Mittal?’ highlighted a number of these concerns. The Global Witness report revealed Liberia has ceded important sovereign powers and economic rights over a strategic nonrenewable resource to a foreign multinational – almost creating a state within a state. Mittal’s position provides a case study of how multinational corporations seek to maximize profit by using an international regulatory void to gain concessions and contracts which strongly favor the corporation over the host nation.

January 2006, Ellen Johnson Sirleaf was sworn in as Liberia’s president after winning the presidential election that took place the year before. One of the keys promises she made during the election campaign was to improve accountability and transparency in the management of Liberia’s extractive industry. Under Sirleaf’s administration, Liberia expressed its commitment to join the Extractive Industries Transparency Initiative (EITI) the same year, and the EITI was launched in 2007. Liberia made impressive progress in implementing the EITI by 2009 thereby achieving complaint status. As part of the measures to implement EITI, Liberia enacted the Liberia EITI Act of 2009 formally establishing the Liberia Extractive Industries Transparency Initiative (LEITI) as an independent state entity. In line with the requirement of the Act, all extractive contracts, concession agreements must be published and available on the LEITI website.

In 2006, the Ellen Johnson-Sirleaf-led government and ArcelorMittal agreed to re-negotiate the contract. During the re-negotiation, ArcelorMittal donated 100 Toyota Hilux DXD4 double cabin pickups to members of the 52nd National Legislature. President Sirleaf defended ArcelorMittal's vehicle donation to the national legislature saying the vehicle donated to the Liberian Legislators by ArcelorMittal was given upon her request to ease the transportation burden lawmakers face and facilitate travel to their various constituencies during their annual break. Following the Arcelor Mittal vehicle donation to the Liberian legislators, the new MDA was ratified by the Liberian Legislature in May of 2007. The MDA changed the terms of use of the state assets that were initially turned over to ArcelorMittal. The investment package was increased to US$1 billion and the tax holiday was abolished. Mittal Steel later increased the entire package to US$1.5 billion. According to the MDA, ArcelorMittal is obliged to provide approximately US$73 million over the 25 years of the agreement to support socio-economic development in Liberia via the County Social Development Fund (CSDF) – US$1 million in 2006 since the contract was being renegotiated and for the other 24 years, US$3 million on an annual basis to three counties most affected by company operations: Nimba, Bong, and Grand Bassa counties.

Between 2015 and 2016,  Arcelor Mittal cut up to 450 jobs and lower iron ore exports from Liberia. According to the company, this action was due to the constant drop in the price of iron on the world market. In 2018 and with mounting concerns of the layoff of employees, the national legislature constituted a joint committee to investigate ArcelorMittal’s operations in Liberia. The joint committee found the company liable for grossly violating the MDA and called upon ArcelorMittal to reinstall workers to their previous positions within four months. The Committee in its findings reported that ArcelorMittal failed to construct a processor or washing plant at the Gangra mines in Nimba County; something it should have done within two years of its operation as enshrined in the MDA to maximize the production of iron ore. The committee, among other things, called for a total review of the MDA between both parties, frequent monitoring of concessions by the government, the rehabilitation or construction of rails, roads, bridges, houses, hospitals as well as other vital structures (workshop, hand pumps, water treatment plant, and the power plant) to ensure appropriate accommodation with available safe drinking pipe bone water and effective power supply in all  ArcelorMittal’s operational communities (Nimba, Bong, and Bassa counties) within one year. It also called for a guaranteed agreement between the private landowners and ArcelorMittal within all of their areas of operations with the full involvement of their direct representatives from those electoral districts within three months.  So, what happened to the committee report? Has Arcelor Mittal adhered to the legislative committee findings?

On the 10th of September 2021,  ArcelorMittal signed an $800-million expansion agreement with George Weah’s administration. The firm said the expansion agreement is set to triple its production of iron ore in the country. The signing comes after, in 2019, ArcelorMittal threatened to freeze its Liberian investments over a murky dispute concerning a port concession in the country. During the signing ceremony, President George Weah said "I am told that with the signing of this Third Amendment to its Mineral Development Agreement, ArcelorMittal will invest an additional $800 million United States Dollars into its Phase II iron ore project, which will enable them to move from producing five (5) million metric tonnes of iron ore per year to fifteen (15) million metric tonnes per year within the next three years. I am further informed that the agreement contains several benefits that are important to the Liberian people. For example, to name a few, the government is to receive $55 million United States Dollars to reserve 15 million metric tonnes capacity for ArcelorMittal; and $10 million United States Dollars as signing bonus, for a total of $65 million United States Dollars. I am also informed that this extension and expansion will result in direct spending of about $200 million United States Dollars per year into the Liberian economy over the next several years. This should result in a significant increase in total government revenue coming from the activities resulting from this Amendment. I am told that the project will create at least 1,000 direct jobs, 2000 temporary construction-related jobs, and about 4,000 indirect jobs and that there will be an increase in the amount of money going to communities of impact in Nimba, Grand Bassa, and Bong counties. Another important benefit, I have also been informed, is that this agreement opens up a multi-user rail system for the transport of goods and iron ore on the rail system."

The World Bank Institute has documented more than 1,000 experiences of negotiation and renegotiation of contracts throughout the world and Liberia can learn from those experiences. Although mainly focusing on infrastructure concessions, most of the lessons learned from the review of these documents can be applied to other sectors such as mining. Aside from the direct negative effects of potential misappropriated rents, contract renegotiation imposes substantial additional costs when handling renegotiation petitions and cases. The report emphasizes the crucial importance of designing an optimal concession contract that carefully limits the opportunities for “opportunistic” negotiations. Weaknesses in the original concession design can result from hurried processes, vested interests (as evidenced in Liberia), and limited resources of governments in the concession design. The report stresses “the importance of granting negotiation/renegotiation in the strongest possible legal grounding; the potential impact of financial advisors and investment banks in influencing the concession transaction that should be taken into account; the need to strengthen institutions and credibility of regulatory frameworks prior to the negotiation/renegotiation process to ensure appropriate regulatory oversight and enforcement; the growing awareness of the need to establish a separate, autonomous and effective body or regulatory institution that oversees the allocation, renegotiation, and implementation of concession contracts. (This institution should be granted adequate resources and capacity, including well trained and compensated staff); the need to ensure that all processes, procedures, and decisions are made in the most transparent and participatory manner.”

According to former World Bank Chief Economist and a Nobel laureate in economics; and University Professor at Columbia University, Professor Joseph E. Stiglitz, with regards to concession agreement foreign companies will push back, emphasizing the sanctity of contracts, and threaten to leave. But the outcome is typically otherwise. A fair negotiation can be the basis of a better long-term relationship. The Roan Selection Trust investment in Botswana is one example of Professor Stiglitz's argument. The development plan for the mining called for a total investment of about  US$200 million: $121 million for the development of the mines, mill, and smelter; $7 million for working capital, $67million for townships, rail links, power supplies, dams, reservoirs, and water pipelines. The Shashi sector, as it was known, was considered to be the general development of the area.

The Botswana government encourages mining companies to enter into special agreements, in the case of major projects for sharing profits between the company and the state. Botswana's negotiations of contracts free of bribery, coercion, and external pressure leading laid the foundations of its remarkable growth for the last four decades which led to immense reduction of poverty. Moreover, it is not only developing countries, such as Botswana, Bolivia, and Venezuela, that negotiated expansion of bad contracts; developed countries such as Israel and Australia have done so as well. Even the United States has imposed a windfall-profits tax. South Africa, home to the greatest mineral wealth in the world, estimated to be worth $2.5 trillion, is considering imposing a swinging 50% windfall tax on mining “super profits” and a 50% capital-gains tax on the sale of prospecting rights. Those are among the proposals put forward by an independent panel of experts, set up by the ruling African National Congress (ANC) to study the possibility of greater state intervention in the mining sector. Ghana, Africa's second-biggest gold producer, recently announced a review and possible renegotiation of all mining contracts to ensure that mining profits are “maximized… [for] the good of the country”. It plans to raise taxes on mining companies, from 25% to 35%, and a windfall tax of 10% on “super-profits” in addition to existing royalties on output metal, to 6%. Guinea, home to the world's largest bauxite reserves as well as one of the world's biggest iron-ore deposits, is helping itself to a 15% stake in all mining projects and an option to buy a further 20%. In Guinea, mining companies are legally obliged to pay a tax to the owners of the land on which they mine. They are also required to support local development projects. Namibia has decided to transfer all new mining and exploration to a state-owned company. Algeria has become the latest African country to consider slapping windfall profit taxes on foreign oil companies. Ivory Coast’s government recently adopted a 19% tax on gold profits, seeking to capitalize on current high gold prices to help fund reconstruction following a decade-long political crisis. The new 19% windfall tax would yield some 40 billion CFA francs ($79.1 million) in additional income to the state annually. Zambia, for example, had hoped to impose windfall profit taxes on copper mining to finance an infrastructure fund.

Past regimes' inability to negotiate better rates on royalties and a higher percentage of state shares, in particular, account for Liberia's reliance on foreign aid to supplement its gimmick budget. Some of the concession agreements between foreign firms and the government of Liberian were negotiated from 2006 and are still ongoing. Madam Sirleaf’s government enticed investors by granting incentives such as extensive tax and royalty exemptions which led to the building of a highly centralized state through kleptocracy and amassing a large personal fortune through economic exploitation and corruption. The executive and legislative branches of Liberia are notorious for bribery & corruption.  High expectations of the communities combined with the low completion level of the projects had increased local distrust in the County Social Development Fund (CSDF).

The ArcelorMittal $800-million expansion should not represent a missed opportunity for Liberia as the previous MDAs with ArcelorMittal. The challenges of ArcelorMittal's $800-million expansion are how to ensure open, efficient, and transparent access to Liberian natural resources. The new ArcelorMittal $800million expansion should promote transparency,  full disclosure of contract information, environmental protection, adequate compensation to affected communities as well as creating opportunities for participation as well as involving civil society in negotiation and the implementation process. Natural resources are a public resource and the negotiations between Liberia and foreign companies should be transparent, accessible, and easily understandable by citizens. Communities should be given the opportunity to review contracts and find out how much revenue has been generated and what development projects the revenues have been spent on.  Poor negotiation of our natural resources results in No ECONOMIC GROWTH  and NO DEVELOPMENT. It is that simple.