BULLDOZING ALONG THE MITTAL PATH

BULLDOZING ALONG THE MITTAL PATH

Mittal deal triggers Liberia divisions

By Dino Mahtani in Lagos, Financial Times

30th June 2006

In a country such as Liberia, recovering from a devastating civil war, the prospect of one of the world's biggest companies backing a $900m investment would ordinarily be a cause for celebration.

Instead, Liberia's deal with Mittal Steel, signed last year under an interim power-sharing government, has caused sharp divisions in the west African country and is now a subject of inquiries by police in the Netherlands, where Mittal is based.

Mittal Steel has categorically rejected any allegations of misconduct and says it won the mining deal fairly in a public tender process overseen by Liberian authorities and ratified according to local law.

Liberia is currently reviewing all contracts signed under its previous government. Senior government officials say the interim government, which gave way to an elected administration this year, did not have the mandate to sign away national assets.

In theory, the deal should be a suitable marriage of interests. Liberia desperately needs investment and Mittal Steel is hungry for in-house supplies of iron ore, the raw material for steel production. Iron ore prices have spiked in the last two years, with CVRD of Brazil, the UK's Rio Tinto and the Anglo-Australian BHP Billiton dominating production.

Iron ore deposits in Liberia and neighbouring Guinea are thought to be some of the richest in the world, and Mittal Steel has estimated it could exploit about 1bn tonnes from deposits in northern Liberia over the coming years.

In return, the company is set to rebuild a main port and the railway linked to the deposits. Iron ore used to be Liberia's principle mineral export before conflict started brewing in the northern county of Nimba in the 1980s. The infrastructure of the state-run iron ore company was used as a base for a death squad and, when war broke out in 1989, iron ore exports plummeted.

Last year, with the war over for two years, Liberia's unelected power-sharing government finally agreed to sign a deal with Mittal Steel that would initially give thegovernment a 30 per cent stake.

In 2004, ministerial officials had prepared to award the contract out to GIHL, a lesser known company run by Pramod Mittal, younger brother of Mittal Steel chairman Lakshmi. The Liberian government incorporated a joint venture with GIHL and was set to sign a mineral development agreement with GIHL in October 2004 after it trumped rival companies that had expressed interest.

The companies included BHP Billiton, Rio Tinto and LNM Holdings, a Mittal Steel company.

Behind the scenes, Mittal Steel was lobbying to get its foot in the door. In September 2004, Lou Schorsch, then president and chief executive of Ispat Inland, at the time Mittal Steel's main US-based company, wrote to John Blaney, US ambassador to Liberia.

Mr Schorsch asked Mr Blaney to facilitate discussions with the Liberian government and to back the bid from the Mittal group. He argued that access to Liberian iron ore could "safeguard in excess of 30,000 jobs in the Chicago area."

Just as GIHL was preparing to sign a contract in October 2004, Gyude Bryant, Liberia's interim president, instructed ministry officials to halt the deal and advertise it more widely. Some ministerial officials disregarded him and carried on dealing with GIHL.

In November 2004, Mr Blaney wrote to Mr Bryant saying the procedures for signing off concessions needed to be more transparent.

Mittal Steel engaged a law firm run by Varney Sherman, a high profile lawyer from Mr Bryant's political party, as a legal representative in Liberia. Mr Sherman was a presidential candidate in elections last year. By early 2005, Mittal Steel was benefiting from a commercial advocacy agreement with the US government, but ministerial officials had chosen to back GIHL again. In March 2005, Mr Blaney wrote again to Mr Bryant to complain about the bidding process for iron ore.

"Rumours are circulating that members of the review committee have been approached to sell their support," wrote Mr Blaney.There followed a series of sharp U-turns in the opposition to Mittal Steel over the coming months. GIHL, which had filed a writ at Liberia's supreme court and taken out legal action against Mittal in the US, suddenly withdrew its cases for "commercial reasons".

A report by a parliamentary committee on land, natural resources and the environment last year concluded that the government had "strayed from the legal process" in the way it handled the contract award. The legislature later ratified Mittal Steel's contract.

In September last year, a day before Mittal Steel obtained its mining licence, the chief clerk of the national assembly wrote to Mr Bryant on behalf of the acting speaker. The letter requested that the bill ratifying Mittal Steel's contract should be sent back to be reconsidered because of "several technical errors".

Three days later, the chief clerk wrote back to Mr Bryant withdrawing his original letter on the basis that a deal with Mittal Steel would "provide job opportunities for many Liberians." A separate motion for reconsideration was never debated.