By Paul Columbus Collins
In a conversation with an ArcelorMittal contractor, I was told that ArcelorMittal has had to cut back on production and exportation of Liberian iron ore because of the fall of iron ore price on the world market. That took me off guard, because it simply just didn’t make sense. Why would Arcelor dare do such an unthinkable thing when it made more sense to pay a lower price for ones inputs (iron ore) into its steel production, especially when steel price was going UP. So I ask the question, what is Arcelor up to?
Maybe this is what Arcelor is saying in its reports to the Government — that it is slowing down on production and shipment of iron ore because of the low prices. But here are some facts, before we start to see the logic into the situation. Arcelor extracts ore from Liberia and ships the ore to a related (another ArcelorMittal) company in Europe and Asia. Arcelor does not sell iron ore. The iron ore from Liberia is used by ArcelorMittal to produce steel. If the ore price falls, the cost of steel production reduces, and the profit for Arcelor outside Liberia goes up. Meanwhile, the profit for Arcelor in Liberia that extracts and exports the ore reduces. For the Arcelor group therefore, they lower their cost of steel production, but make windfall profits on steel sales. They also lower their payments to the Liberian Government (royalty and tax on profit), which contribute to the “budget shortfall” of the Government. Arcelor benefits; Liberia doesn’t. Arcelor wins; Liberia loses.
So I placed a call to an expert at the Liberian Revenue Authority — a very senior official — to ask how they know what Arcelor is up to. I’m told LRA depends on Arcelor to tell LRA what Arcelor is up to. I then asked, “How do you know that Arcelor is telling the truth?” Response: “Arcelor pays BIVAC (before the Ebola outbreak it was SGS) to convince the Ministry of Finance and Development Planning that Arcelor is telling the truth.” If BIVAC is being paid by Arcelor, to convince the Government, then I worry about the objectivity and independence of BIVAC. In my mind, I have concluded that we really don’t know the quantity of ore being shipped. But my good friend at LRA assures me that very soon, the LRA will start collaborating with the receiving port of iron ore shipment that would detail, from the receiving port’s own independent evaluation and examination, the exact quantity and quality of iron ore from Liberia, that will then be used to corroborate the information from BIVAC and Arcelor. In Liberia we say “that’s futuristic, the dry meat conundrum.”
I wasn’t satisfied. I believed the Liberian authorities needed their own experts to confirm the quantity and quality of iron ore being shipped. They could not just depend on Arcelor and Arcelor’s paid agent (BIVAC) to tell us what Arcelor was up to. So I placed a call to another friend at the Ministry of Lands, Mines and Energy (LME). This official informed me also that LME only knows about Arcelor’s operations from what Arcelor reports to the Ministry every quarter. In fact, he didn’t even seem to remember if any of those quarterly reports were ever read and discussed by officials at the Ministry. Instead, the reports were simply received and shelved. This tells me that there is no counter-checking of the information provided by Arcelor and Bivac, in the form of a reconciliation. When I asked about the role our top Geologists at LME played in all of this, I came across a brick wall — zero.
I then decided that we as a country (Liberia) did not know exactly the quantity of iron ore that Arcelor was really shipping out of the country. If Arcelor were lying, we couldn’t checkmate them. At very low international market prices of iron ore on the world market, we were shipping objectively and independently unconfirmed and unverified quantities of iron ore to Arcelor’s steel producing plants abroad.
Next, my focus shifted to quality: quality of iron ore being extracted and shipped by ArcelorMittal. My LME resource chap made it very clear that Arcelor was mining the high grade ore in violation of the concession agreement. According to him, the agreement required Arcelor to build a beneficiating processing facility that would allow Arcelor to blend both the low grade ore and the high grade ore so that both grades would be exploited profitably. This I was told was a requirement of the mineral development agreement, which is consistent with global industry practice. The rationale is that if the low grade ore is not mined along with the high grade ore, the chances of the low grade ore ever reaching the market would be very low because of the unprofitability of the low grade ore.
My LRA expert also confirmed that Arcelor was mining and shipping the high grade ore only, and not the low grade ore. Where did Arcelor get the authority from to digress from the concession agreement and thus rip off the country? “Rip off the country”? Yes, rip off the country. Here’s the implication: if Arcelor only mines the high grade iron ore, Arcelor will deplete the stock of high grade iron ore in no time. As soon as Arcelor completes depleting the stock of high grade iron ore, Arcelor will pack off and leave Liberia because there will be no need for them to continue their operations in Liberia. The low grade iron ore is not profitable by itself, so there will be no need to continue operating in Liberia for low grade ore. Instead of the stipulated duration of their operation in the MDA, Arcelor will terminate the agreement in less than half the duration of the MDA and depart Liberia, leaving us with the low grade that is not profitable. Nimba mountain will then become Nimba holes, just like Bomi Hill has become Bomi Holes.
So we have a double whamming: we don’t know the exact quantity of iron ore being shipped; and Arcelor is shipping our best quality of iron ore in violation of the MDA. Worst still, our best iron ore is being shipped at a time when Arcelor is using very low and (still) falling international market prices for our high grade ore. Smart Arcelor; dumb Liberia! Profitable Arcelor; budget-shortfall Liberia!
I am still researching how Arcelor got the audacity to violate the MDA — who gave Arcelor the permission and authorization to mine only the high grade iron ore? Folks who were at LME say they most definitely did not grant such authorization. The MDA was never revised through the legislative process to grant that authorization. This, along with the exorbitant privileges enjoyed by Arcelor, warrants a John Magufuli (of Tanzania) type fine.
In Tanzania, President John Magufuli slapped a bill of $190bn fine on concessionaire Acacia as unpaid taxes. Liberia too needs to compute the monetary value of all exemptions, holidays and waivers of taxes, customs and other import levies that Arcelor enjoys. We also need to monetize the violations, opportunity cost and social cost of all privileges extended to Arcelor to determine the loss Liberia is incurring. We can then drag Arcelor to the negotiating table with this bill in hand. Otherwise, Arcelor could be out of here before we know it, since we really do not know what Arcelor is up to.
The author holds an MSc in International Business Economics and a PhD with emphasis in Economics. He is also a Liberian Certified Public Accountant, a Fellow of the Association of Chartered Certified Accountants (ACCA) of the UK, a Certified Internal Auditor of the USA, and a July 2018 candidate for the Master of Law (LLM) degree in International Commercial Law. He can be reached at [email protected] and +231(0) 886641187/776641184.