Commentary
By Lansana Gberie, Senior Researcher, ACPP, Addis Ababa.
Sierra Leone’s brutal 10-year civil war was partly blamed on the misuse or mismanagement of its rich mineral resources, in particular diamonds, by the country’s Truth and Reconciliation Commission (TRC) and the UN-backed Special Court trying the likes of Liberia’s Charles Taylor. So it is apposite that in its post-war governance trajectory, mineral resources would once again become a controversial central concern.
Though there were immediate problems in this regard at the war’s end in 2002, anxieties were heightened in 2007 when, on his election as President, Ernest Bai Koroma declared that he would rule the country as a business entity. He has a background in the insurance business, which is hardly a model of transparency in the country. But Koroma appears energetic and progressive, and went about courting foreign investors in a manner undreamt of under his aloof predecessor, Tejan Kabbah, a former UN civil servant. The prospect of job creation for the country’s large reserves of idle youth – a palpable national security as well as socio-economic issue – at last looked very promising indeed.
It is no fault of the President that in this important effort he has only been able to attract what in the global mining industry is called Bottom Feeders: small-scale enterprises scouring the corners of the globe to locate new mineral deposits, which they then partially develop, advertise, and sell to bigger more established companies. But he has to take responsibility for violating legislation and safeguards laid down in several policies enacted by the previous government and his own to bestow sweet deals on such enterprises.
This was certainly the case with London Mining, a penny-stock company trading on the Oslo Axess and London’s AIM, which acquired rights to exploit several primary ore deposits in Northern Sierra Leone. These included tailings left by a previous British giant (which closed down in the 1960s), estimated at 50 million tonnes of iron ore, in addition to an estimated 100 million tonnes of hard rock beneath the tailings. This makes it a highly significant deposit, made more valuable by the fact that demands for iron ore – an essential ingredient in making steel – have increased astronomically in recent years, with China emerging as one of the most significant consumers.
On 31 December 2009, the government signed a 25-year agreement with London Mining which bluntly violated key provisions of the recently-passed 2009 Mines and Minerals Act. The Agreement included an 80% reduction in income taxes for 10 years for the company, as well as 80% reduction in other major revenue streams from it for 25 years. London Mining is to pay a corporation tax of only 6% - instead of 30% set by the 2009 Act - on its investment; duty on its mining materials was pegged to 1% instead of the official rate of 5% which all other companies pay, and royalties were reduced for it to 3% instead of the official 4%. Worse yet, the agreement should remain in force for 25 years, and can only be changed if London mining wishes to.
The Agreement caused an immediate uproar, both among the country’s Civil Society and media, and its international partners. The campaign group Network Movement for Justice and Development (NMJD) condemned it in several press releases, and a group of consultants hired by the government to advise it on issues relating to mining contracts review – Louis T. Wells (Professor at Harvard Business School) and his colleagues Boris Dolgonos and Mathew Genasci – wrote a letter to the President expressing grave misgivings about the Agreement. In the 17 March 2010, the three wrote that the illegal fiscal incentives the Agreement gives to London Mining create a bad precedent for the government by violating its own law, making it difficult to apply any best practices in the future. They also noted that the negative effects of the Agreement on other subsequent mining agreements will far outstrip the benefits from any temporary employment that would be generated from London Mining’s operations.
But of far greater concern – because of the far higher stakes – has been the lack of transparency which has characterised the recent discovery of offshore oil in large commercial quantity in Pujehun, a politically problematic district in Southern Sierra Leone, and no support base of the President. It is believed that the finds are about equal to the Jubilee field in Ghana (discovered in 2007), which is set to fetch Ghana $1.2 billion annually for the next 20 years. The site of the find was immediately disputed between two international oil companies, the Nigerian-owned Oranto group, which has been persistently renewing its exploration licenses in the area without making any effort at actual exploration, and a newly-arrived and more robust American company, Anardako. Oranto Petroleum, owned by multi-millionaire Nigerian Chief Arthur Eze, had been granted the right over a 1,500 sq km 3D for seismic survey; the area is known as block SL-5. In fact the survey area was expected, once oil finds are guaranteed, to extend over nearby block SL-4, all covering an area of 4,022 sq km. The lease was granted to Oranto Petroleum on 20 August 2003, after Sierra Leone’s First Offshore Bid Round. The first exploration period, which ended on 19 August 2006, was extended by one year to 19 August 2007.
An additional extension was made by President Koroma’s government to end through 2009. In the meantime, the government granted Anadarko prospecting rights in the same area, and the American company in 2008 mobilised the Belford Dolphin drillship to explore the area. Anadarko completed drilling on their site by mid last year, which they call Venus, and found major oil deposits extending into block SL-5. The seismic data point to a 1 billion to 1.2 billion barrels prospect with as much (or more) in neighbouring channel complexes, mostly on Oranto’s block SL5 and mostly within the disputed area – the so-called SL6/7 carve-out which covers 10% of Block 5.
Oranto promptly hired a top London law firm to prepare background papers for arbitration against the government for the illegal removal of the carve-out area and arbitrary award to another group, an act without precedent in modern oil industry history. Last year, Oranto offered a compromise with the government to negotiate with the SL6 block. It further threatened to refer the matter to the US State Dept. in Washington for Foreign and Corrupt Practices, since Anadarko achieved its current position through non-transparent means.
The issue is now largely muted – sensing the probable legal difficulties Anadarko has relaxed its interest – but the government has now guaranteed further controversy by entering into negotiation with controversial Romanian businessman Frank Timis to exploit the fields. Having already acquired vast iron ore deposits – in no less controversial circumstances as that of the London Mining Agreement – through his company African Minerals, Timis has quickly set up African Petroleum to make a bid for the offshore oil find. By end of last year, however, the London Stock Exchange took the highly unusual step of preventing the listing of African Petroleum, prompting Timis to accuse the Exchange of ‘witch-hunt.’
Diamonds were said to be central to Sierra Leone’s troubles in the past, a dramatic example of what economists call the Resource Curse. It seems that the stakes are getting higher with the discovery of even more important minerals.
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