China's business ties to the loathed Camara junta could quickly backfire

Beijing's Foreign Ministry officials are energetically distancing themselves from a US$7 billion minerals deal announced on 9 October by the increasingly isolated military regime in Guinea with the Hong-Kong based China International Fund. Without some fast diplomatic footwork, China could again face excoriation for helping to finance a murderous regime, five years after an international campaign began pressuring Beijing over military and financial links to the Sudanese regime and massacres in Darfur.

Many observers are sceptical about the insistence by China's Foreign Ministry that the CIF has no formal ties or financing arrangements with the Beijing government. In Angola, state-owned oil giant Sinopec is the majority partner in a joint venture with the CIF's parent company, Dayuan International Development (see Organigram). Dayuan's directors are the financial beneficiaries of such multibillion dollar cooperation with African and Chinese state entities (see 'The faces behind the funds').

On 17 October, West African leaders imposed an arms embargo of Captain Moussa Dadis Camara's junta for the killing of at least 157 people when government troops fired on a demonstration on 28 September. The International Criminal Court said it would open investigations to determine whether the brutal attack amounted to crimes against humanity. This follows sanctions announced by the European Union and the United States, alongside United Nations Secretary General Ban Ki-moon's setting-up of independent inquiry into the killings in Conakry.

Faced with growing foreign and local pressure from rival military factions, Capt. Camara's ruling clique has gone on the offensive, putting up Mines Minister Mohamed Thiam to announce that the CIF was willing to invest $7-9 bn. on oil and mining projects in Guinea, together with road building, railway and other transport projects. Thiam called it the contract of the century. The point was clear: criticism from Europe and the USA does not matter because China would be replacing Western interests in Guinea.

That might have been a popular ploy a decade ago but now many Guineans are as sceptical about China's ambitions for their country as they are about Western intentions. Minister Thiam's announcement about the Chinese deal has fuelled local concerns: he said the government was creating a joint venture establishing a Guinean state-owned mining company, based out of Singapore, which will hold rights to all the country's mining and gas reserves, except those currently being exploited under established contracts. It is unclear how the the CIF deal would affect the many mining contracts that are being reviewed by the Camara regime.

Angola's state-owned oil company Sonangol and its joint venture with the CIF, China Sonangol International, are also to invest in the Guinea projects. Guinea's negotiators have accepted the CIF's demand that the agreement includes almost all unexploited mineral, oil and gas resources. Officials on all sides are reluctant to discuss the precise terms, particularly the provisions for short-term financing that the regime needs to survive in the face of sanctions.

According to a source close to the dossier, the deal with the CIF was proposed by Mamady Diaré, Conakry's Ambassador to Beijing, in June (AAC Vol 2 No 11). The core protocol seen by Africa-Asia Confidential says, 'the parties [CIF and Guinea] will subscribe to the capital stock of the company and will exercise their rights to vote and other powers of control in relation to the Société Sino-Guineenne de Développement', indicating that the initial capital share will be 15% controlled by Guinea and 75% by the CIF. The remaining 10% of the Guinean stake is to be paid for in advance by CIF, which can then be purchased by the government at the market rate to raise its share to 25%.

An official in the Ministry of Mines who opposes the deal said: 'It seeks to set up a big company called the Guinean Development Corporation (GDC) Mining, Oil and Gas, which will have a right of first refusal on resources that are not being exploited by mining companies. This national company will have subsidiaries (GDC Transport, etc.) which will deploy in each sector to develop infrastructure or to develop a business.'

The accord dated 12 June states that 'the parties agree not to engage during the period of exclusivity of the discussions in any negotiations or to conclude contracts or agreements with a third party on rival projects.' This clause, which implies an option of first refusal, infuriated some officials in the Mines Ministry. 'This agreement is shady! How can you give so much power to a supposed national company which is not really controlled by Guinea? Why was it decided to go to Singapore to sign a joint venture as if it was impossible to do this in Conakry?' asked one of our sources.

Mining Minster Thiam, who is a close friend of Captain Dadis, says that the contract was signed by himself, Deputy Minister for Construction Boubacar Barry, and Finance Minister Mamadou Sandé, who is also close to Dadis.

Thiam extolls the 'strategic partnership' between Guinea and the CIF. 'It is about creating a national mining company that will hold the state's interests in existing projects and which will develop new mining permits, like GEPetrol in Equatorial Guinea, Sonangol in Angola and Vale Doce at its origins in Brazil.'

The discussions started, Thiam said, on mining projects and the infrastructural work that they would require. 'The $7 bn. will be financed by the CIF through the same mechanisms used for the $11 bn. invested by the Chinese in Angola since 2005: a combination of their own funds, private and Chinese state banks' credit lines, and after by international banks upon their signature,' said Thiam.

After announcing the deal, the Camara junta promised the installation of an emergency 30 megawatt thermal power station, an overground metro service in Conakry and orders for aeroplanes to launch an airline called Air Guinea International.

The 12 June agreement includes a long shopping list:

a new thermal power station and rehabilitation of installations ($75 mn.);
water projects at Badi ($215 mn.) and low-cost housing ($250 mn.);
electricity improvements for Conakry, Tinkisso and Kinkon ($30 mn.);
construction of government offices at Koloma ($650 mn.);
construction of an industrial zone;
dams at Foumi ($350 mn.), Cogon ($350 mn.) and Kaléta ($290 mn.);
Air Guinea International ($216 mn.), urban bus and train services;
the Trans-Guinéen railway to evacuate ore from the Nimba Mountains and an integrated port development (costed at $4.1 bn. in 2003).

Other projects listed in the framework document include fishing, cotton, agro-processing, cement, tourism and telecoms companies. If the CIF project works, Chinese companies stand to control almost all productive sectors of the economy; to repay the loans of several billion dollars promised by the CIF, the GDC will have to develop its mining permits and Guinea's oil and gas potential.

Already there are financing delays: the 100 buses promised within 45 days of the 12 June accord signing and the aeroplanes within two months are yet to arrive. A source at the Extractive Industries Transparency Initiative told AAC that payments of $50 mn. from CIF to the Guinean state about two months ago were blocked by BNP Paribas and Citibank due to insufficient documentation.
Also, the luxury cars given by China for Guinea's celebration of 50 years of Independence now serve as a means of transport for the CIF management to run their errands around Conakry.

The managers of CIF and China Sonangol have turned their profitable business in Angola into a global business empire. An agreement for China Sonangol to buy 49% of Air Tanzania was announced by Tanzania in August 2008 (AAC Vol 1 No 10) but the plan does not seem to have moved forward since then.

There are also plans for China Sonangol to finance renovations at Julius Nyerere International Airport in Dar es Salaam. The Air Tanzania management wants China Sonangol to support a $508 mn. plan to buy nine new planes and to improve training and technology.

It seems that in exchange for the $21 mn. in finance for Air Tanzania to expand its fleet, China Sonangol was awarded three oil exploration licences, in contravention of established procedures. In January, the Tanzania Petroleum Development Corporation revealed that it had awarded three licences in Rukwa to China Sonangol as part of the company's budding relationship with President Jakaya Kikwete's government. TPDC officials said that these licenses dated back to an agreement in 2007. Presenting itself as a private company to the government, China Sonangol was participating in negotiations with the state-run policy bank, the China Development Bank, in order to finance the purchase of 49% of Air Tanzania, officials said in August 2008.

Côte d'Ivoire's national oil company Petroci has sought out Chinese investment in the oil and gas sector. In 2009, Petroci started talks with China Sonangol and state-owned oil company Sinopec about building a refinery and for joint exploration (AAC Vol 2 No 8). And in Nigeria, China Sonangol bought out oil company Devon's rights to deepwater block OPL 256 in 2008, but has not explored it yet.

CIF's parent company Dayuan International Development and Portuguese bank Escom formed a partnership with Congo-Brazzaville's national oil company, the Société Nationale des Pétroles du Congo, called SNPC Asia Holding in 2005 with the goal of trading the country's oil in China. It was managed by Lo Fong Hung, Veronica Fung and allies of President Denis Sassou-Nguesso, Denis Gokana and Blaise Elenga.

* This article was firts published in Africa-Asia Confidential Oct 2009: Vol. 2 No. 12