Mittal Steel came under fire this week for creating a “state within a state” in impoverished Liberia, according to a newly released report by human rights group Global Witness.
In a report entitled Heavy Mittal? Global Witness said the steel company’s $900-million deal to exploit iron-ore reserves should be substantially renegotiated. The agreement was signed in August last year, by a transitional government, five months before democratic elections in Liberia.
Events around the deal have given rise to rumours of impropriety, with Liberian newspaper The Analyst reporting rival company, Global Investment Holdings Limited, was initially favoured for the deal. The company is run by Pramod Mittal, younger brother of Mittal owner Lakshmi Mittal. Mittal Steel was the eventual winner, allegedly after the company lobbied the United States government to intervene.
The agreement was expected to create 3 000 jobs, according to the Liberian Times. But in a letter to the US ambassador to Liberia, quoted by Indian website Rediff.com, a US-based subsidiary of Mittal claimed that securing cheap iron reserves in Liberia would safeguard 30 000 jobs in the Chicago area.
Liberian President Ellen Johnson-Sirleaf is renegotiating parts of the contract, along with all contracts signed by her predecessors. According to Dow Jones Newswires and Associated Press, a Liberian government committee has found the agreement “unconscionable” and questioned its legality, as it “did not conform to the prevailing law of the time”.
“The agreement is heavily weighted against the Liberian government, ceding important sovereign and economic rights to Mittal — almost creating a state within a state,” Patrick Alley, a Global Witness director, told media on Monday. He added that it placed the rights of Liberian citizens at risk, with no real guarantee of economic benefits for the country.
According to The Guardian, Mittal insists it “secured its investment through an open and transparent tender process … in the best economic interests of the country”. It has denied any impropriety.
Global Witness acknowledged that while the deal could bring jobs and a major economic boost to Liberia, there were major concerns with the agreement as it stands. These include:
- Mittal can control the amount of royalties paid to government because the agreement doesn’t specify a price mechanism for ore and leaves the basis for intra-company pricing open. This means there is a strong incentive for Mittal to sell the ore below market value to an affiliate, thus reducing the royalties. Mittal told The Guardian that all pricing mechanisms will remain open.
- Mittal has a five-year extendable tax holiday in Liberia. Once this is over, it can repatriate profits to low tax regimes in Cyprus and Switzerland, thus potentially denying Liberia significant tax revenues. But, the company said, most developing countries offer such incentives to attract investment.
- Two major public assets, a railway and a port, are transferred to Mittal. The Liberian people may only use these facilities if there is spare capacity. Mittal told The Guardian it will rebuild the railway.
- Laws will be freezed in the concession area. This could undermine Liberia’s right to regulate areas such as human rights, the environment and taxation. It also jeopardises Liberia’s ability to fulfil constitutional obligations and commitments under international law.
- Mittal is able to take possession of public and private land without providing adequate compensation or the means to seek effective redress.
- Mittal is able to establish a private security force, but the contract fails to adequately establish the limits of its authority. Global Witness says this could be particularly harmful given the historic involvement of Liberian private security forces in human rights abuses.
- here is a lack of transparency. The agreement commits the government and Mittal to very stringent provisions of confidentiality and non-disclosure of information, Global Witness said. There was also a lack of public scrutiny before the agreement was ratified. Mittal told The Guardian it was exploring ways to improve disclosure.