17 January 2016

Liberia: Last Two Years of the Johnson-Sirleaf Administration

On the cusp of 2016, Liberian President Ellen Johnson-Sirleaf made it clear that the New Year is going to be tough as she urged Liberians to tighten their belts while acknowledging an unhealthy economy. With two years remaining on the Sirleaf presidency, the stakes have never been higher and the odds stacked against a deck of difficult and turbulent hurdles fueled by plummeting global prices of once-profiting sectors like iron ore and oil.

Domestically, the writings had been on the wall for quite some time. ArcelorMittal, which became the first major concessionaire signing for post-war Liberia in 2005, with the signing of a mineral development agreement, failed to honor an obligation to construct the Ganta-Yekepa highway, a crucial route used by the company to ship ore.

Uncertainty Over Mittal

Despite repeated denials compounded by assurances and pledges of commitment, the company failed to deliver, forcing the government to put up the first US$10 million for the work on the road to get started. The uncertainty over Mittal's commitment has put that project in a state of uncertainty. The deadly Ebola virus outbreak added to the misery as the company began the layoff workers and cutting down its operations.

In the past few months, numerous efforts have been in play to give the company tax breaks in a bid to keep its operations afloat in Liberia. But some financial analysts fear that even with a tax break, Mittal may be unable to salvage its operation in Liberia and it may only be a matter of time before it packs up and leave Liberia. Today, the company which once boasted a staff of more than 4,000 direct and indirect employees is withering away.

Last week, the company issued a statement acknowledging that because the mining industry is facing significant challenges as a result of low iron ore prices, which is putting pressure on mining producers to run their assets as efficiently as possible, it has been forced to layoff workers and implementing a new operating model which operates at a lower cost base. "This involves selling 3MT of DSO to the European market only, in order to reduce running costs," the company says.

In Buchanan, Grand Bassa County, the company has reduced its workforce by 167 jobs as a result of continuing unfavorable market conditions and changes to the company's operating model. That decision follows a statement issued by the company on 11 November, 2015 in which it announced its intention to reduce its workforce by up to 450 jobs related to the support infrastructure and operation, as well as some indirect contractor jobs associated with the mine. At the time the company said the size of the reduction was dependent on the outcome of negotiations with unions concerning changes to employment practices and the cost base of the operation. Following that announcement, the company reduced its expat workforce, repatriating 24 expat workers to their home countries. In 2014, alone the company shipped more than five million tons as it did the year before, making us one of the largest iron ore exporters in West Africa.

Russia's Putu Ends Operations

Like Mittal, other mining companies are also feeling the pinch and forcing them to abandon operations in Liberia. FrontPageAfrica reported last week that the Russian Iron Ore Company, Putu Mining, had shut down its activities in Liberia. Senator Alphonso Gaye (UP, Grand Gedeh County) told FrontPageAfrica that he had been informed by an official of the company that it had perpetually shut down operations due to the ongoing conflict between Ukraine and Russia, and also due to the drastic reduction in the price of Iron Ore on the world market. "As we speak, the company has perpetually closed," he said. "I met with the CEO and he spoke to me very clearly that Putu will no longer operate under the existing circumstances.

BHP: US$2 Billion Prospect Falls Short

The issues with Mittal and Putu are having similar effects on others. Last week, BHP Biliton, one of the world's biggest miners confirmed it has taken a huge hit in the U.S. with a "disappointing" $7.2 billion pre-tax write-down on its U.S. oil and gas assets, following a slump in prices. As a result, the Anglo-Australian mining company said it was reducing the number of rigs in its onshore U.S. business to five, from seven currently. Just a year ago it was operating 26 rigs in the U.S.

The company which in 2010 signed a $US3 billion a deal with Liberia to develop a large-scale iron ore project, failed to make any significant impact in the post-war nation. The mineral development agreement (MDA) - 18 months in the making would have allowed BHP Billiton to continue exploring for iron ore at Goe Fantro, Kintoma, St. John River South and the Tolo Range.

Four years later, in 2014, the company was on the move, selling its iron-ore interests to Cavalla Resources, a wholly-owned subsidiary of investment holding company Jonah Capital, a private company with a portfolio of assets primarily in the mineral resource sector in sub-Saharan Africa. Cavalla was granted the exclusive rights over the four exploration areas of Goe Fantro, Kitoma, St John River South and Toto, as Jonah Capital's exclusive iron-ore holding company.

A year earlier, ArcelorMittal acquired a 56.5% stake in Guinea's Mount Nimba iron ore project which is close to an existing ArcelorMittal mine, buying out shareholders BHP Billiton and Areva for an undisclosed sum. The deposit is high quality with 935 million tonnes of direct shipping ore (DSO) at an average grade of 63.5% iron content. BHP, the world's third largest iron ore miner, had been trying to offload Nimba for the better part of two years. Even China Union, the second largest mining company in Liberia with an investment portfolio of US$2.6 billion next to Arcelor Mittal located in Yekepa, Nimba County, has been forced to address claims and counter claims that has gone bankrupt.

This follows a 2014 report by the Sustainable Development Institute (SDI) which highlighted China Union's slowness in living up to provisions of its agreement with the Government of Liberia, pointing to widespread dissatisfaction in Fuamah District, Bong County with the company's operations and its abusive treatment of Liberian workers. SDI called on the Government of Liberia to press China Union to ensure that it fully complies with the terms of its Mineral Development Agreement with Liberia and that allegations of violence against Liberian workers are addressed and violators are punished.

China Union has since dismissed reports of bankruptcy and insists that it is not shutting down its Liberia operations. Ironically, the company recently dismissed one of its employees who reportedly. Public Relations Manager Allen Fu said late last year that the company is still financially strong and viable and has not reached the stage of bankruptcy.

Like Mittal and others, China Union is shifting the blame on global meltdown. Fu said due to fluctuation in the price of iron on the world market between US$45 and US$50 per metric ton, the company is losing heavily on every ton produced. He explained that on each ton produced by China Union, it sustains a loss of US$27, noting that this was seriously affecting its mining operations. Fu disclosed that this has led the company to readjust its production from 90 thousand tons per month to as low as 30 thousand tons to prevent it from continuing to sustain the losses it has been experiencing.

Despite the company's denial, it raised eyebrows when it suspended a local staffer in November 2015 over a memo the company sent out outlining three different options including the laying off of 82 employees, reduction of every employee's salary by 30% or a compulsory two weeks stay home without pay.

Economists Baffled Over Plunge

With earnings continuing to decline for companies which made profits in oil and mineral resources, many economists are baffled over the plunge of the price of oil and iron ore. In recent past, prices have recovered but remain convinced that the latest global meltdown will take years to recover.

For Liberia and the remaining years of the Sirleaf presidency, this could spell doom for the economic outlook with many suggesting the government reinventing the economic wheel toward the agriculture sector especially in the wake of the collapse of the National Oil Company of Liberia and companies reluctance to harbor interest in Wologisi, the last remaining major Liberia concession on the table.

While many agree with Sirleaf's "times will be tough" speech last November, critics are pounding on the reality that nearly all the Investment Concessions the administration entered into since coming to office ten years ago, are either laying off employees at an astronomical rate or folding out of Liberia: The likes of Mittal, China Union, Buchanan Renewable, BHB Billiton, Chevron, African Petroleum and Putu Mining continue to dampen hopes of those still holding out for light at the end of the tunnel.

The bottom line for many is that oil prices are at an all-time low and billions of dollars in mining concessions have hit a snag .The departure of Putu Iron Ore; the imminent departure of Chevron; bankruptcy fears for China Union; the loosening presence of ArcelorMittal coupled with financial troubles for BHP Biliton is setting up 2016 to be a rather difficult year for Liberia.


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