Wednesday, May 18, 2011

Guinea


Reforms by Guinea's first freely elected government are needed to clean up a mining sector in disarray after decades of political turmoil, but they risk scaring off investors if they go too far too fast.
The world's top bauxite supplier and a new frontier for iron ore, Guinea is rewriting its mining code, probing joint venture deals, and has dealt tough blows to major firms since the election of President Alpha Conde last November.
The poll in the country that depends on mining for 70 percent of revenues was heralded as its first free vote since independence from France in 1958, ending nearly two years of military rule and decades of authoritarian leadership.
"From one perspective, the government of Guinea is trying to clean up the books, which makes sense because Guinea is a country rich in resources but has not benefitted from them at all," said Samir Gadio, analyst at Standard Bank.
"But from a perception standpoint, it is a bit tricky. (These moves) might create a negative perception among investors, and Conde's government needs to take into account this tradeoff," he said.
Conde's government is drafting amendments to the mining code, the first changes since 1995, that include rules boosting state share in the industry to as high as a 35 percent and toughening up requirements for winning concessions.
An executive at one international firm operating in Guinea called the proposed changes "a step backward" and warned they could trim future investment after they are signed into law in the coming months.
But other industry players have said the new mining code could improve transparency on local terms of doing business, making it easier to judge investment options.
"It is the sovereign right of every state to define the rules of the game," said Mamoudou Diallo, president of the Guinean Chamber of Mines and also director of Guinean gold miner SEMAFO. "All we are asking for is that the rules are transparent and widely published from the start."
Top global mining firms Rio Tinto, Vale, and RUSAL are among Guinea's biggest investors.
DISPUTES, CANCELLATIONS
The mining reforms come alongside reviews of Guinea's recent joint venture deals -- which include those between Rio and Chinalco, and Vale and BSGR for development of the Simandou iron ore deposit -- and follow the scrapping of big contracts with two international firms.
Conde in March cancelled a deal with France's Getma International for the management of a container port in the capital Conakry, and handed the multi-million dollar deal to port group Bollore.
Getma has said it is seeking international arbitration, and has also filed corruption charges.
In April Conde also suspended an agreement with Vale to upgrade a 640-km railway, and this month the country briefly seized the local assets of telecoms firm MTN over a license fee dispute.
"I think all these moves are supposed to help things somehow. But instead they are bringing chaos into the system," said Sebastian Spio-Garbrah, analyst at DaMina Advisors.
"To a degree these developments could hamper investment. There are so many investigations and so many reform plans that investors may take a wait and see approach."
Another big mining country, Democratic Republic of Congo, launched its own mining review in 2007 on the back of an election and high commodities prices, deeply undermining business confidence in the country.
In a sign of more squabbles to come, a Guinea mines ministry official told Reuters last month that it was "moving toward a showdown" with Russian firm RUSAL, a company already facing allegations it paid too little for its Friguia alumina refinery and that it underpaid on taxes.
Rio said in April that it had agreed to pay Guinea $700 million to secure rights to blocks 3 and 4 of the Simandou iron ore project, which it believes is one of the world's biggest unexploited reserves.
Guinea had stripped Rio of its rights to blocks 1 and 2 under the rule of former president Lansana Conte, and last year warned Rio it could lose its remaining stakes.
"The situation is not good, even if the initial outlook seemed promising," a banking industry executive based in Guinea said on condition of anonymity, referring to hopes Guinea's election would attract more investment.
"Under the junta, money was circulating. But now things are slowing down," he said.

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