VZCZCXYZ0000
RR RUEHWEB

DE RUEHAR #1071/01 2811611
ZNR UUUUU ZZH
R 081611Z OCT 09
FM AMEMBASSY ACCRA
TO RUEHC/SECSTATE WASHDC 8357
INFO RUEHPC/AMEMBASSY LOME 2243
RHEHAAA/WHITE HOUSE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC 0708

UNCLAS ACCRA 001071 
 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EMIN ECON EINV SENV EFIS GH
SUBJECT: GHANA: EXTRACTIVE INDUSTRIES AND ENVIRONMENTAL HIGHLIGHTS, 
SEPTEMBER - OCTOBER 2009 
 
¶1. SUMMARY: 
 
¶A. (U) The mining industry faces challenges caused by Ghana's 
current economic woes.  Rising input costs, political pressures, and 
labor issues cause concerns despite sustained high commodity prices 
for gold. 
 
¶B. (SBU) Despite the various challenges it faces in Ghana, U.S. firm 
Newmont Mining contemplates doubling their investment in Ghana, in 
the range of up to an additional USD 800 million. 
 
¶C. (SBU) Ghana's Ministry of Food and Agriculture stated it will not 
renew any pair trawling licenses, due to the rapid depletion of 
marine resources and potential long-term consequences for Ghana's 
fishing industry.  However, Ghana's fuel subsidies are here to stay; 
they continue to incentivize further depletion of dwindling fishing 
stocks.  USAID has begun coastal management assistance in impacted 
communities in the Western Region. 
 
 
------------------------- 
¶A. TOUGH TIMES FOR MINING 
------------------------- 
 
¶2.  (U) Mining companies report that their operating costs rise at a 
greater rate than revenue growth; resulting in lower net 
profitability.  COMMENT: This is likely a function of high domestic 
inflation rates. END COMMENT. 
 
¶3. (U) Given Ghana's high inflation rates, mining companies have 
struggled to meet worker expectations.   Earlier in the year, mine 
workers went on strike demanding better wages.  The mine workers 
demanded a 24.5 percent increase, which given 20 percent average 
inflation rates for 2009 alone is akin to a real increase of 4.5 
percent.  Sector specific reports indicate that for the mining 
sector in Ghana, input costs have risen by 40 percent in the past 
two years. 
 
¶4. (SBU) Rhetoric from GOG officials fans negative public 
perceptions that the mining industry has not delivered sufficient 
economic benefits to Ghana, and particularly the host communities. 
In discussing the future of the upstream oil and gas industry, GOG 
officials cite the mining sector as a negative example, a 'lesson to 
be learned' about the exploitation of Ghana by foreign companies who 
don't do enough for the local communities. 
 
---------------------------------------- 
¶B. NEWMONT: DESPITE RISKS, LONG ON GHANA 
---------------------------------------- 
 
¶5. (SBU) Newmont Mining represents the largest single U.S. 
investment in Ghana.  Capital investment at Newmont's Ahafo mine is 
valued at USD 650 million, and the company employs approximately 
three thousand Ghanaians.  Newmont has invested considerable time 
and effort in corporate social responsibility (CSR) programs, 
including support for the Extractive Industries Transparency 
Initiative.  In a recent meeting with ECONOFFs, Newmont 
representatives detailed their interest in expanding their 
operations to another mine site, in Akyem.  If approved, the Akyem 
investment of USD 700 Million and 3300 new employees would double 
Newmont's investment and employment figures in Ghana. 
 
¶7. (SBU) Newmont reports that four elements impact their expansion 
decision in Ghana.  First is the fundamental issue of securing a new 
mining permit for Akyem, needed for expansion to another site. 
While previous government officers were willing to issue a mining 
permit literally in its last day in office, Newmont chose to wait 
for the new government to seek official permission for opening a new 
mine. 
 
¶8. (SBU) Based on its original investment agreement, Newmont claims 
exemption from the new 'stability levy,' a tax instituted by the new 
government in mid 2009 on a range of industries, including telecom, 
mining, and breweries.  The government is in dialogue with Newmont 
regarding the interpretation of its original investment agreement as 
exempting it from this new tax.  (COMMENT: Although not a huge tax 
burden, the larger question is the sanctity of contracts and 
investment agreements in Ghana.  END COMMENT.) 
 
¶9. (SBU) In 2008, Newmont and other gold mining operations were 
faced with a concerted GOG attempt to dramatically raise their power 
prices.  Although a more modest rate increase acceptable to Newmont 
was finally agreed to, power pricing is an ongoing concern.  Mining 
operations have high power requirements than other industries. 
Finally, Newmont continues to face bureaucratic delays and 
challenges in securing the needed visas and work permits for its 
foreign workers. 
 
--------------------------------------------- --------- 
¶C. FISHING: PAIR TRAWLING BANNED, FUEL SUBSIDIES A PROBLEM 
--------------------------------------------- --------- 
¶10. The GOG has banned pair trawling in Ghana's waters.  What began 
as a job done by small trawlers and vessels is now being done by 
larger trawlers which significantly disrupt marine ecosystems. 
Given potential squabbles over regulating only certain sizes of 
vessels, the GOG moved to ban the entire practice of pair trawling. 
 
¶11.  USAID Ghana has recently begun a new program working with 
fishing communities on management of their coastal resources.  Fish 
are a critical source of nutrition for many Ghanaians.  Given their 
proximity to Ghana's offshore oil deposits and the West Africa gas 
pipeline, fishing communities need long-term sustainable economic 
opportunities, so they do not become marginalized 'spoilers' 
compromising the development of Ghana's oil and gas sector. 
 
¶12. The GOG's heavy subsidization of 'pre-mix' fuel (motor oil and 
gasoline) for outboard motors used by fishermen has perverse 
consequences.  The large subsidy encourages too many fishermen to 
chase dwindling marine stocks.  Pre-mix fuel is also reputed to be 
siphoned off along the supply chain, to be sold illegally as normal 
gasoline.  COMMENT: Given political support of fishing communities 
in electing the current government, the likelihood of the government 
rolling back these inefficient subsidies is limited.  END COMMENT. 
 
FURUTA-TOY