VZCZCXRO9991
RR RUEHMA RUEHPA
DE RUEHRY #0246/01 0590920
ZNR UUUUU ZZH
R 280920Z FEB 07
FM AMEMBASSY CONAKRY
TO RUEHC/SECSTATE WASHDC 0747
RUEHZK/ECOWAS COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHINGTON DC

UNCLAS SECTION 01 OF 02 CONAKRY 000246 
 
SIPDIS 
 
SIPDIS 
 
TREASURY FOR OFFICE OF AFRICAN NATIONS 
 
E.O. 12598:  N/A 
TAGS: ECON EFIN PGOV ELAB SOCI GV
SUBJECT: Guinea's Revenues Hard Hit 
 
Ref: Conakry 84 
 
SENSITIVE BUT UNCLASSIFIED. PROPRIETARY INFORMATION. NOT FOR POSTING 
ON INTERNET. 
 
¶1.  (SBU) SUMMARY.  Battered by more than six weeks of strike and a 
state of siege, Guinea's finances will present some of the new Prime 
Minister's most difficult challenges.  All sectors of the economy 
were impacted, but mining, especially Guinea's cash cow bauxite, 
posted some of the most severe losses.  In a blow to another revenue 
source, customs operations remained closed during most of the period 
January 10-February 27.  Ships previously scheduled to arrive in 
port were allowed to dock and unload, but goods sat uncleared and in 
storage.  In the meantime, commitments to the unions included some 
troubling economic measures that will further reduce revenues.  End 
Summary. 
 
------------------------- 
Mining Operations Stifled 
------------------------- 
 
¶2.  (SBU) Guinea's economy relies heavily on mining operations, 
which account for 32 percent of GDP.  All the major mining 
operations in Guinea -- bauxite, gold, and diamonds -- managed to 
operate at least part-time during the January-February troubles, but 
were forced to tap stockpiles and reserves.  Little new extraction 
took place. 
 
------------------------------------- 
Bauxite Operations Draw Down Reserves 
------------------------------------- 
 
¶3.  (SBU) Bauxite, the government's largest source of income, 
remains Guinea's most consistently profitable export.  Almost all 
large scale mining activity ceased, but companies tapped their 
reserves to post near normal output.  Nonetheless, the effects of 
the civil unrest here reverberated worldwide.  The price of raw 
bauxite, source material for aluminum, soared from 225 USD per 
metric ton in December, to nearly 375 USD per metric ton February 
¶26. 
 
¶4.  (SBU) To combat possible incidences of theft and violent 
demonstrations, all major mining operations paid for the services of 
military guards.  Fuel deliveries -- always vulnerable to pilferage 
but especially so during the state of siege -- were made in convoys 
with paid military escorts. 
 
¶5.  (SBU) Global Alumina (GAPCO) posted losses of about 25,000 USD 
per day.  Construction of their multi-billion dollar alumina 
refinery ceased completely.  The company evacuated many of its 
expatriate staff and focused on smaller scale environmental projects 
while its core staff of construction workers was unable to work. 
 
¶6.  (SBU) RUSAL, the world's largest alumina producer, nearly 
depleted its stockpiles of mined bauxite in order to produce and 
refine alumina during the state of siege.  To supplement its 
reserves, RUSAL began mining one of its secondary bauxite 
concessions near Kindia, a mine southwest of its primary mine and 
refinery site in Fria.  It did not have significant security 
incidents in Kindia and Fria during this period, but its two 
railways to the port of Conakry were vandalized, and few trains were 
able to operate. 
 
¶7.  (SBU) The Bauxite Company of Guinea (CBG) posted the most 
significant profit losses. (Note: US and Canadian companies Alcoa 
and Alcan share a 51 percent interest in CBG, and the government of 
Guinea holds the remaining 49 percent.)  Alcoa representatives told 
EconOff that each day of lost production by CBG amounts 
approximately 900,000 to 1,000,000 USD in lost revenue.  That figure 
includes wages and benefits, fees associated with port and rail 
usage, and actual bauxite exports lost because of suspended mining. 
The government of Guinea's losses averaged 90,000 to 100,000 USD per 
day in profits and lost tax revenue.  CBG did manage to continue 
minimal mining operations, functoning at about 20 percent 
capacity. 
 
-------------------------------- 
Gold - Struggling to Mee Targets 
--------------------------------- 
 
¶8. (SBU) The gold companies were generally able to continue work 
during the strike, but not during thestate of siege.  Production at 
AngloGold Ashantiwas about 70 percent of their normal 25,000 
ouncs-per-month output Febuary 12-23.  With current reerve 
stockpiles that can meet their full production needs for 3 to 4 
months, the company drew fromtheir reserves during the political 
unrest.  AngoGold Ashanti expects to meet profit projections fr 
this quarter even if there is further unrest i Guinea. 
 
¶9.  (SBU) Societe Miniere de Dinguiraye (SMD), ceased production 
 
CONAKRY 00000246  002 OF 002 
 
 
 
completely on February 17 because of mechanical problems with their 
sole crusher.  To meet profit targets for this quarter, SMD 
officials told us they have to return to at least strike-level 
production (45 to 50 percent normal production or 4200-4500 ounces 
of gold per month) by March 9.  The company told us that they expect 
they will be able to do so if they are able to repair their 
crusher. 
 
--------------------------------- 
No Diamonds, No Kimberley Process 
--------------------------------- 
 
¶10.  (SBU) According to one of Guinea's leading diamond exporters 
Hadja Balde, diamond production in the interior halted completely 
during the strike and state of siege.  Balde said transport was 
difficult because of fuel shortages, and the Central Bank, which 
administers the Kimberley process to certify non-conflict diamonds, 
was not functioning.  Balde estimates her diamond export business 
lost 60,000 USD during the state of siege.  During the upheaval, 
diamonds undoubtedly left Guinea, but without undergoing any 
certifying process. 
 
-------------------- 
Port Activity Halted 
-------------------- 
 
¶11.  (SBU) Representative of shipping company Maersk told EconOff 
that the port functioned at minimal capacity during the general 
strike and the state of siege.  Ships scheduled to arrive in Conakry 
were permitted to dock and unload.  However, customs did not clear 
incoming shipments, so goods were simply left in their containers. 
 
¶12.  (SBU) There are now hundreds of containers filling every 
available storage space, making it difficult to maneuver within the 
area.  Embassy GSO and Maersk representatives confirm the port is 
nearing its full storage capacity and that it will take weeks for 
operations to return to normal. 
 
¶13. (SBU) Although customs was not technically open during the 
strike and state of siege, Guinea's major rice importer Amadou 
Diallo told EconOff he paid customs officials to have an eight-ton 
shipment of rice "cleared" through the port.  (Note: That is to say 
he bribed the officials to gain access to his goods.).  Diallo's own 
trucks loaded and transported the rice to his storehouses. 
 
¶14.  (SBU) The industrial port at Kamsar is used exclusively by 
mining companies and is functioning, but shipping markedly less 
product volume. 
 
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COMMENT 
------- 
 
¶15.  (SBU) The mining sector is pretty resilient and has weathered 
storms before.  The global demand for bauxite and alumina is at no 
risk of diminishing.  The import-export merchants have undoubtedly 
taken a hit, but most spread their risk and will recover once 
shipping is up and working again.  It is the national coffers that 
are most damaged by more than six weeks of starvation.  Moreover, 
the new government will inherit fundamentally flawed policies that 
will continue to decimate revenue:  subsidies on petroleum products 
and a prohibition on the export of agricultural goods for the 
remainder of the calendar year.  Both these policies are commitments 
included in the January 27 tripartite agreement that eventually led 
(after a side trip or two) to seeming resolution of Guinea's crisis. 
 As new Prime Minister Lansana Kouyate takes stock, he will have to 
make some tough decisions on how to increase revenues and limit 
expenditures. 
 
MCDONALD