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DE RUEHLC #0382/01 1591309
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P 081309Z JUN 06 ZDK
FM AMEMBASSY LIBREVILLE
TO RUEHC/SECSTATE WASHDC PRIORITY 9117
INFO RUEHBJ/AMEMBASSY BEIJING PRIORITY 0083
RUEHBR/AMEMBASSY BRASILIA PRIORITY 0031
RUEHFR/AMEMBASSY PARIS PRIORITY 0801
RUEHKI/AMEMBASSY KINSHASA PRIORITY 1284
RUEHYD/AMEMBASSY YAOUNDE PRIORITY 0667
RUEHLU/AMEMBASSY LUANDA PRIORITY 0910
RUEHNJ/AMEMBASSY NDJAMENA PRIORITY 0387
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY

C O N F I D E N T I A L LIBREVILLE 000382 
 
SIPDIS 
 
SIPDIS 
 
PARIS FOR AFRICA WATCHER 
 
E.O. 12958: DECL: 06/08/2016 
TAGS: EMIN EINV ECON PREL CH GB
SUBJECT: CHINESE BEAT OUT BRAZILIANS; GABONESE LOSE 
 
REF: A. 05 LIBREVILLE 911 
     ¶B. LIBREVILLE 20 
     ¶C. LIBREVILLE 127 
     ¶D. LIBREVILLE 301 
     ¶E. LIBREVILLE 337 
 
Classified By: Michael Garcia, Economic Officer, for reasons 
1.4B and D 
 
¶1. (C) Summary: After a nearly six-month battle over the 
rights to one of the largest untapped iron deposits in the 
world between Brazilian mining company CVRD and the Chinese 
engineering company CMEC, the GoG awarded the project to the 
Chinese.  Although most observers believed investment by CVRD 
would provide more benefits for Gabonese development, the 
Chinese victory was widely anticipated because Gabon finds it 
strangely difficult to say no to China.  This case provides 
additional evidence of a deteriorating investment climate in 
Gabon, at a time when the country should be preparing for a 
post-oil economy. 
 
----------- 
The Project 
----------- 
 
¶2. (C) The Belinga iron deposit is thought to hold as much as 
1 billion tons of reserves, and could provide 20 million tons 
of iron per year for 20-25 years.  Although this is one of 
the largest untapped iron deposits in the world, the site is 
so remote (some 300 miles east of Libreville in the Gabonese 
rainforest) that infrastructure costs have inhibited 
development.  Establishment of a mine at Belinga requires 
construction of a railway line, a new deep water port north 
of Libreville, and a hydro-electric dam to power the mine. 
Total development costs have been estimated anywhere from 
$600 million to $3 billion. 
 
¶3. (C) Growing demand for commodities, particularly from 
China, has changed the cost benefit analysis in favor of 
development of Belinga.  In April 2005, the Gabonese 
government awarded rights to develop Belinga to a consortium 
of companies, including Brazil's Vale de Rio Doce (CVRD) and 
China's National Machinery and Equipment Import and Export 
Company (CMEC).  CVRD (one of the leading iron producers in 
 
the world) was given exploration and production rights, while 
CMEC (an engineering contractor with no apparent mining 
experience) was awarded responsibility for infrastructure 
construction. 
 
--------------- 
The Competitors 
--------------- 
 
¶4. (C) The consortium deal, however, did not satisfy the 
Chinese.  In late 2005 CMEC went back to the GoG with a 
proposal to solely manage the Belinga project.  CVRD's 
Gabonese manager Paul Antaki told Econoff that the GoG 
requested a counter offer from the Brazilians, who then 
matched the Chinese proposal in every respect, including 
offering the GoG a 5% share in the project.  Both President 
Lula of Brazil and President Hu of China are thought to have 
actively lobbied Gabonese President Bongo on behalf of their 
companies. 
 
¶5. (C) The strongest selling point for the Brazilian proposal 
was CVRD's track record, which included responsible 
environmental stewardship as well as proven mining 
competency.  In addition, most outside observers believed 
Brazilian investment would better stimulate Gabonese economic 
growth, since CMEC was expected to import thousands of 
Chinese laborers and use few local suppliers.  Despite these 
arguments in favor of the Brazilians, however, China was 
widely considered the favorite to win, because it seems the 
Gabonese find it very difficult to say no to China. 
Political ties between China and Gabon are strong; President 
Bongo has met every Chinese leader since Mao Zedong. 
Although Gabonese Minister of Natural Resources Richard 
Onouviet was widely thought to favor CVRD, Minister of 
Foreign Affairs Jean Ping was generally thought to support 
the Chinese.  As the GoG procrastinated over its decision, it 
was thought unlikely that CVRD's technical superiority could 
defeat China's political strength. 
 
¶6. (C) Although France's commercial attache in Libreville 
claimed to support the CVRD bid (Ref D), some press reports 
indicate France acted otherwise.  These accounts suggest that 
French interest in selling Airbus planes and high speed 
trains to China led it to quietly support the Chinese bid. 
CVRD manager Antaki shared this view.  Antaki said Minister 
of Finance Paul Toungui (considered close to the French) 
favored CMEC for this reason.  According to Antaki, when 
asked about the implications of imported Chinese labor, 
Toungui replied, "who cares, Gabonese don't want to work 
anyway." 
 
-------------------- 
...and the Winner Is 
-------------------- 
 
¶7. (C) Finally in May, the GoG asked each side when they 
would begin infrastructure construction.  CVRD's Antaki told 
Econoff his company pledged to begin work in the third or 
fourth quarter of 2007, after completing further geological 
studies.  The Chinese committed to start construction before 
the end of 2006.  Antaki said he is curious about how the 
Chinese will accomplish this, since it is unclear how work 
can begin on the transportation infrastructure when the 
quantity and quality of the product is not yet known. 
 
¶8. (C) On June 1, 2006, Gabon's Council of Ministers awarded 
the Belinga mining project to the Chinese.  Antaki reports 
that CVRD is deciding how to proceed.  Since it was awarded 
the mining permit for Belinga in 2005, CVRD could pursue its 
claim to the mine through Gabon's legal system.  However, 
Ataki thinks it more likely the company will acquiesce and 
return the permit in exchange for other mining permits and 
more favorable financial terms on CVRD's existing manganese 
project in southwest Gabon. 
 
----------------------- 
Another Negative Signal 
------------------------ 
¶9. (C) Comment: In the face of falling oil production, the 
GoG has stated it seeks to diversify its economy and attract 
foreign investment.  Its recent record will make this 
difficult.  Three times in just the last nine months, the 
GoG's treatment of existing foreign investors has sent 
negative messages to potential new investors.  In November 
2005, cellular telephone companies were forced to renegotiate 
their contracts just before the presidential elections (Ref 
A).  In April 2006, Canadian aviation investors were forced 
out by alleged corruption and cronyism (Ref E).  Now CVRD is 
expected to give up the mining permit it was issued in 2005. 
With the exception of the Chinese and perhaps the French, 
investors who doubt that the GoG will keep its word will stay 
away from Gabon unless projects offer truly exceptional 
returns. 
 
------------------------- 
How Do the Chinese Do It? 
------------------------- 
 
¶10. (C)Comment continued: It is not readily apparent why Gabon 
grants China so much power.  Bongo, who has survived almost 
40 years in power by building coalitions and avoiding 
confrontation, undoubtedly urged the Chinese to share the 
project with CVRD.  That CMEC insisted on an all-or-nothing 
decision suggests the Chinese were supremely confident they 
would win.  China offers Gabon the symbols of respect with 
high level visits and provides the GoG cheap financial credit 
for public works projects constructed by Chinese companies. 
This hardly seems enough to convince the GoG to entrust a 
critically important project for Gabon's future development 
to a company with no apparent mining experience. 
WALKLEY