Heavy Mittal? A State within a State: The inequitable Mineral Development Agreement between the Government of Liberia and Mittal Steel Holdings NV A report by Global Witness October 2006 Front Cover Image: Steel Plant Photographer: Gerd Ludwig/Panos Pictures HEAVY MITTAL recommendations Recommendations THE GOVERNMENT OF LIBERIA SHOULD: THE INTERNATIONAL COMMUNITY SHOULD: • Ensure transparency in the awarding of concessions in natural resource related agreements which affect the • Ensure information exchange on issues of taxation public interest, and publish these agreements. between all banks, financial institutions and countries to tackle the negative impacts of tax avoidance. • Require full social and environmental impact assessments to be carried out prior to signing natural resource • Formulate a comprehensive multilateral regulatory concession related agreements. framework to prevent and counteract the harmful consequences of strategies such as capital flight, transfer • Ensure that a public consultation is held with the local pricing, tax avoidance, tax havens, off-shores, and tax communities affected by any natural resource concession reduction. award to provide them with full information on the likely economic, social, environmental and human rights • Encourage host countries, especially developing countries, implications and ensure that there is a mechanism to to consider the implications of their foreign investment address these concerns in any future agreement. policies on their long term sustainable development. • The Government of Liberia (GOL) should establish • Fully support the efforts of the Special Representative of whether the National Transitional Government of Liberia the United Nations (UN) Secretary-General on business (NTGL) had the authority to negotiate the Mineral and human rights. Development Agreement (MDA) and whether its • Promote transparency by continuing to support initiatives signatories had the authority to sign it. such as EITI. • Join and implement the Extractive Industries Transparency • Provide expertise to developing countries to ensure that Initiative (EITI). model agreements (in particular Mineral Development Agreements) balance the need to attract foreign MITTAL STEEL SHOULD: investment while guaranteeing the long term sustainable development of the country. • Review the current policies in order to adopt and implement clearer policy on human rights and the environment across the Mittal Group operations that reflects international human rights standards, including the Universal Declaration of Human Rights. • Guarantee the performance, obligations and liabilities of all its subsidiaries in their worldwide operations. Recommendations specific to the Mineral Development • Join and implement EITI. Agreement are included at the end of each section. 1 WWW.GLOBALWITNESS.ORG Contents Executive Summary 7 6. Private security forces and the threats they pose 38 Introduction 10 Recommendations 40 1. The MDA– what’s it worth 16 7. Transparency and good governance 41 1.1 Royalties & transfer pricing 16 7.1 Lack of public scrutiny 41 1.2 Taxation (Article XXII) 19 7.2 Confidentiality 43 1.2.1 We’re all going on a tax holiday… 20 7.3 Access to information 45 1.2.2 Mittal: a smooth operator 20 Recommendations 44 Recommendations 22 8 Environmental issues 46 2. Company Structure – Mittal’s Labyrinth 23 8.1 Inclusion of the East Nimba Nature Reserve in the concession area 46 2.1 Corporate structure of the Concessionaire and impacts on liability 23 8.2 Environmental protection and management 46 2.2 Capital structure of the 8.3 Right to additional minerals and Concessionaire: financing the project 25 natural resources with minimal restrictions 49 Recommendations 27 Recommendations 49 3. Asset-stripping the state: the transfer of 9. Curbing the powers of the government 50 the Buchanan port and railroad facilities 28 9.1 Restriction of the government's Recommendation 29 ability to monitor the Concessionaire 50 9.2 Limits on the government’s ability to 4. Liberia in a straightjacket: enforce permit conditions and issue the stabilisation clause 30 necessary authorisations 51 4.1 Indemnification, a “chilling effect” Recommendations 51 on the government 32 4.2 The creation of a hierarchy of rights 33 10. Corporate social responsibility 52 4.3 Equitable treatment: more of the same 34 11. Extensive rights of the Concessionaire 56 Recommendations 34 11.1 Extended terms 56 5. Threats to land rights 35 11.2 Termination 56 5.1 The need to respect the rights Recommendations 57 of those occupying land 36 5.1.1 The right to an effective remedy 37 Conclusion 58 Recommendations 37 References 59 2 HEAVY MITTAL contents 12° 11° 10° 9° 8° The boundaries and names shown and the designations used on this map do not imply official endorsement or acceptance Guéckédou by the United Nations. a n o GUINEA ak Mendekoma M Voinjama a Irié Kolahun ff SIERRA LEONE Kailahun Buedu Lo owi Mt. Pendembu g Wuteve e a g M Vahun n a a 8 i R w Zigida ° iz a g L lo o W e Kenema g Yella n GelahunLOFA a R Nzérékoré zi a o i Zorzor o r a g r y e M e on Mt. Gletohn o b a Mt. M G ff W o ia Yekepa Nuon-Fa L V i n a Nimba Range Belle Yella M Saniquellie Kongo nda o Wiesua ia Danané an N M Gbange Belefuanai Kahnple aul Gahnpa Bendaja GBARPOLU . 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J Careysburg ka St Brewerville ta Gboyi C GRAND avally Harbel Tobli Kola (Kola Town) Monrovia BASSA Guata MONTSERRADO Poabli Towabli Marshall G w (Towai Town) e Debli Hartford n Tchien o 6 b C ° RIVER CESS r (Zwedru) m e i e Babu Ta T Edina k Trade Ghapo GRAND GEDEH Drubo ) LIBERIA Buchanan Town s (Dubwe) C o st a Gonglee e Duabo Galio v (C a s l e Dube l es ( a International boundary C n g Pelokehn D Timbo h u Bokoa e n o w a b Sehnk e County boundary R ) River Cess Shabli tu Yakakahn Yibuke National capital Juazohn u P (Kaobli) County capital SINOE RIVER GEE Kopo o in Tiehnpo Fish Town Town, village Sehnkwehn S gbe Road u s D Tatuke s Tawake 5 Greenville o e b C ° Railroad Sinoe u ATLANTIC D d Bay n GRAND a M Kodeke Airport r AR Nana Kru KRU G Y Nyaak OCEAN LA N 020 40 60 80 km Barclayville D Sasstown Neme 0 10 20 30 40 50 mi Grand Cess Plibo C. Palmas 12° 11° 10° 9° 8° Harper Map No. 3775 Rev. 6 UNITED NATIONS Department of Peacekeeping Operations January 2004 Cartographic Section 3 WWW.GLOBALWITNESS.ORG Acronyms AFL Armed Forces of Liberia BTC Baku-Tbilisi-Ceyhan EITI Extractive Industries Transparency Initiative FIC Foreign Investment Contract FOB Free on Board GEMAP Governance and Economic Management Assistance Programme GIHL Global Infrastructure Holdings Limited GOL Government of Liberia ICCPR International Covenant on Civil and Political Rights ICESCR International Covenant on Economic, Social and Cultural Rights ILO International Labour Organisation IMF International Monetary Fund LAMCO Liberian-American-Swedish Minerals Company LIMCO/LIMINCO Liberia Mining Company LNP Liberian National Police LNTG Liberian National Transitional Government MDA Mineral Development Agreement NGO Non Governmental Organisation NTGL National Transitional Government of Liberia NTLA National Transitional Legislative Assembly OECD Organisation for Economic Co-operation and Development OTC Oriental Timber Company PPD Plant Protection Department PPF Plant Protection Force RUF Revolutionary United Front SPV Special purpose vehicle TNC Transnational corporation UK United Kingdom UN United Nations UNESCO United Nations Educational, Scientific and Cultural Organization UNMIL United Nations Mission in Liberia US United States VAT Value added tax 4 HEAVY MITTAL A case study for global change Mittal Steel: A case study for global change While this report aims at highlighting the unbalanced Some of the most widely used strategies are: nature of the MDA between Mittal Steel and the Off-the-shelf companies: a company formed Government of Liberia, it is also a case study of a without having a specific purpose in mind and well-established pattern of behaviour by transnational available for sale to anyone who might request it. corporations (TNCs)i around the world: to maximise Frequently used at short notice to facilitate profit by taking advantage of a regulatory void, which transactions in tax havens and often bearing allows TNCs to structure their trade and investment unusual names. Many have nominee directors, policies through capital flight and aggressive tax shareholders and a company secretary. avoidance or tax reduction strategies.1 Transnational corporations have emerged as Liability sheltering: the ability of a parent increasingly dominant players in the world. Of the company to protect itself from liability for the 100 largest economies in the world, 51 are debts incurred by its subsidiary company simply corporations while 49 are countries.2 Despite the by being its shareholder.The parent company offers increasing globalisation of markets and the prevailing no guarantee to its subsidiary to settle its debts role played by multinational corporations, there is no (which it is under no obligation to give).The result international legally binding regulatory regime that is that in large groups of companies, subsidiaries adequately controls their activities. Under can be allowed to go bankrupt whilst the group international law, the private sector is obliged to as a whole has the means to settle their liabilities. promote international human rights, development The loss then arises to the creditors of the failed and environmental standards.3 In practice,TNCs are subsidiary, not the shareholders of the parent only guided by voluntary codes and self-regulation company. and are only accountable to their shareholders.