Liberia: ArcelorMittal's US$1.6B Investment Questioned

AML emblem.

Global steel giant ArcelorMittal’s claim of investing US$1.6 billion in Liberia over the last sixteen years has been questioned by the government, at a time when the required refurbishment of the existing infrastructure, such as the railway, port, hospital, and power plant, among others, is yet to be completed by the company.

AML, in a letter dated April 22 and addressed to Ministers Gesler Murray, Samuel Tweah, and Frank Musah Dean,  reminded the government that, as a company that has invested more than “US1.6 billion in Liberia for nearly two decades” — it will longer accept “encroachment on AM’s rights under the mineral development agreement” — and the government should desist from taking any further steps that may jeopardize the company’s rights.

But the government, in response, asserted that they have doubts over the validity of AML’s claim that it has invested more than US$1.6 billion when the company's current run of mine (ore in its natural, and unprocessed state) production is less than 5Mtpa on average, based on export figures.

“We acknowledge the level of investment AML has made to evacuate nearly 40 million tons of iron ore for nearly two decades now, and we are certainly sure you are aware that the investments made were components of the capital expenditure and operational expenditure required to exploit the iron ore from Liberia,” Mines and Energy Minister, Gesler Murray said in a May 23 letter sent to Sapan Gupta, Vice President and Group General Counsel, ArcelorMittal Limited.

“There are doubts over the validity of the claims that AML has invested more than US$1.6 billion, given that the current run of mine production is less than 5Mtpa on average based on export figures, and given that the required refurbishment of the existing infrastructure, such as the railway, port, hospital, and power plant, among others, [has] not yet been fully refurbished,” Murray added.


Failure to maintain railroad

Meanwhile, Min. Murray has informed AML that it is in breach of Article IX Section 3(d) of the mineral development agreement (MDA), which requires AML, among other things, to invest in the rehabilitation and maintenance of the Railroad “in accordance with standard industry practices during the term of the Agreement.”

But Murray said that based on an inspection of the railroad conducted by an independent expert in May 2019, AML has not complied with this standard. 

“The expert found, among other things, that between 20-30% of the timber sleepers were suffering from rot and the design number of spikes in each baseplate have not been used in most instances,” Min. Murray said on behalf of the government.  “Because of the rotting condition of the timbers, this risks a shift in the rails that could lead to accidents. In addition, the expert found that the maintenance staff is much smaller than is customary for a railroad of this size, which means that the necessary visual inspections cannot be made. These conditions are not consistent with standard industry practices.”

The Minister's revelations come a month after one of the AML locomotives, marked 1505, on April 12, had an accident in Bong County about 170 kilometers from the Port of Buchanan. The locomotive was en route to Buchanan from Mount Tokadeh, carrying 45 wagons loaded with iron ore, but no one was hurt. The bloodiest of all was in January 2022, killing two maintenance crew, injuring several, and leaving the management to fly those injured out of the country for treatment.

The deaths of the two maintenance crew exposed discrepancies among the workers and ordinary people, blaming the management for failing to put safety mechanisms in place. This incident comes after a series of locomotive accidents in 2021, two of which were bloody. In May last year, two locomotives collided, severely injuring the two operators as well as passengers. 

AML Letter 

The AML letter, which Murray is responding to, was prompted by the government's decision to sign an updated framework agreement with High Power Exploration (HPX), a company that intends to use the Yekepa to Buchanan railroad and Port of Buchanan to export ore from Guinea.

The HPX framework agreement was signed to reaffirm the government’s principles of non-discriminatory access to Liberia’s rail and port infrastructure and to identify the company’s requirements for the future evacuation of ore from the Guinean Nimba Iron Ore Project.  The company also took issue with the government’s decision to grant Solway a mining license near ArcelorMittal’s mining area. 

However, Minister Murray noted that the government categorically and unequivocally debunked “all of the unsubstantiated assertions by the company that the government has violated certain terms and provisions of the MDA.” 

“All actions taken by the Government of Liberia conform with relevant (laws).The decisions were made in the best interest of the Liberian people to improve their socio-economic well-being under the President's flagship development framework, the Pro-Poor Agenda for Prosperity and Development (PAPD).

Production schedule

According to Min. Murray’s response, AML is also in breach of Article V, Section 1 of the MDA which provides that, “Subject to the availability of economically mineable Iron Ore reserves, the CONCESSIONAIRE shall, during the operating period, extract at least as much iron ore per year from the production areas as the amount listed across from the relevant year set forth on Schedule A hereto.” 

Schedule A sets out the following production schedule (with commercial operations year 1 being 2011-12):

CommercialOperations YearRun of Mine ProductionMetric tonnes in millions
4 to 69
7 and above18
Source: Government of Liberia.

The Minister noted that based on the Government's records, AML has failed to meet the run of mine production levels in every commercial operations year -- constituting a serious and prolonged breach of AML’s material obligations under Article V of the MDA, which has resulted in a significant loss of revenues to the Government and will continue to result in losses until this breach is cured.

“The production schedule in the MDA was premised on AML constructing two concentrators — one at Tokadeh and the other at Buchanan — capable of processing 9 Mtpa of crude iron ore beginning in 2015 and approximately 18 Mtpa of crude iron ore beginning in 2018, as shown in the Schedule A of the MDA,” Murray argued. “To date, AML has not constructed any concentrator and, accordingly, is only able to ship DSO, which is almost exhausted. Without one or more concentrators capable of processing significant volumes of crude iron ore, production will soon stop at the mines, which will cause serious harm to the Government and the affected communities.” 

He added: “Article VIII of the MDA requires that, ‘subject to Articles V and VI, the CONCESSIONAIRE shall commence and continue construction: acquisition and installation of facilities and equipment, and otherwise shall produce iron ore products, substantially in accordance with the feasibility report, unless such Production becomes uneconomical, in which event the CONCESSIONAIRE may exercise the rights provided in the last sentence of Article XXXIII, Section 10.’”

‘Debt to equity ratio’

Also, Minister Murray wrote that AML has breached Article XVI Section 3 of the MDA, which talks about the debt-equity ratio.’  Murray noted that based on information regarding the unaudited balance sheet of AML as of December 31, 2020, provided by AML to the Government, “the Equity as of that date was US$259 million and debt was US$1,515 million. 

“This results in a ratio of Debt to Equity in excess of 5.8:1 or almost two times the permitted ratio. This is a serious and prolonged breach of AML’s material obligations under Article XVI of the MDA,” Min. Murray added. 

“These failures constitute serious and prolonged breaches of a material obligation of AML under Article IX Section 3 of the MDA. The foregoing serious and prolonged breaches of material obligations of AML under the MDA constitute events of default under Article XXIX Section 2(d) of the MDA. In accordance with Article XXIX Section 3 of the MDA, the Government hereby offers AML and the principal the opportunity to consult regarding how to resolve the matters described above. 

“If the Government reasonably determines that one or more of the foregoing matters cannot be resolved by further consultation, the Government may send a further notice terminating the consultation period relating to such matters and demanding that AML cure such breaches within 60 days or such longer period as may be reasonably required to cure the breaches,” Min. Murray said.