A $900 million mining deal between the world's largest steel company, Mittal Steel, and the Government of Liberia is heavily weighted against the interests of that war-torn and impoverished West African country and it should be substantially re-negotiated, according to an in-depth analysis of the contract published in a new report, ‘Heavy Mittal?’, released by Global Witness (1) today.
The report dissects the mineral development agreement (MDA) signed on 17 August 2005, five months before democratic elections in Liberia, which gives Mittal the right to extract iron ore from Liberia. “The agreement is heavily weighted against the Liberian government, ceding important sovereign and economic rights to Mittal - almost creating a state within a state, said Patrick Alley, Director, Global Witness.
‘Heavy Mittal?’ reveals that while Mittal's investment in Liberia could bring much-needed jobs and a major economic boost, the combination of both the "Mittal-friendly" and loose wording in the contract means that:
• Mittal Steel has control over the amount of royalties paid to the government because the MDA does not specify the mechanism to set the price of ore and leaves open the basis for intra-company pricing, creating a strong incentive for Mittal to sell the ore below the market value to an affiliate, which would reduce the actual royalties paid to the GOL.
• Mittal Steel enjoys a five-year extendable tax holiday in Liberia and, once this is over, has created an international tax regime that encourages repatriation of profits to low tax regimes in Cyprus and Switzerland, thereby potentially denying Liberia significant tax revenues.
• The company structure created by Mittal protects the parent company from guaranteeing or bearing the risk of the activities and liabilities of its subsidiary.
• Two major public assets of Liberia, a railway and the port of Buchanan, are transferred to Mittal Steel and the GOL will only be allowed to use these facilities if there is spare capacity.
• The stabilisation clause freezes the laws in the concession area, and has the potential to undermine Liberia’s right to regulate in important public policy areas such as human rights, the environment and taxation and could severely limit Liberia’s ability to fulfil its current and future obligations under the Liberian Constitution as well as its commitments under international law.
• The Concessionaire has far-reaching authority to possess public and private land without providing adequate compensation or the means to seek effective redress.
• The provisions for the maintenance of a security force by the Concessionaire fail to adequately establish the limits of its authority, which could be particularly harmful in Liberia, in view of the historic involvement of private security forces in human rights abuses.
“This MDA places the hard-won rights of Liberian citizens at risk, with no real guarantees of the economic benefits it can expect in return” says Patrick Alley, Director, Global Witness. “Mittal has a duty as the world's biggest steel company and a self-professed good corporate citizen to lead by example rather than utilise virtually every opportunity to maximize its profit at the expense of Liberia," added Patrick Alley.
The contract is currently being renegotiated, following President Sirleaf's pledge to review all contracts signed by her predecessors in Liberia's National Transitional Government (NTGL). Negotiations took place in New York in September between the Government of Liberia and representatives of Mittal Steel, but were inconclusive and should resume in mid October.
‘Heavy Mittal’ is also a case study of a well established pattern of behaviour by transnational corporations around the world, to maximise profit by taking advantage of a regulatory void that allows capital flight, aggressive tax avoidance and tax reduction strategies.
For further information, please contact:
Patrick Alley: + 44 207 561 6379 + 44 7921788897
Natalie Ashworth: +44 207 561 6369 + 44 7968160377
Sofia Goinhas: +44 207 561 6393
(1) Global Witness is an investigative non-governmental organisation that focuses on the links between natural resource exploitation and conflict and was co-nominated for the 2003 Nobel Peace Prize. For more information on Liberia, see other Global Witness reports and briefing documents, available at www.globalwitness.org
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