VZCZCXRO3465
RR RUEHMA RUEHPA
DE RUEHRY #0981 2411654
ZNR UUUUU ZZH
R 291654Z AUG 07
FM AMEMBASSY CONAKRY
TO RUEHC/SECSTATE WASHDC 1579
INFO RUEHZK/ECOWAS COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS CONAKRY 000981 
 
SIPDIS 
 
SIPDIS 
 
SENSITIVE 
 
DEPT PLEASE PASS TO USTR 
 
E.O. 12598:  N/A 
TAGS: ECIN EFIN ECON EMIN GV
SUBJECT: GUINEAN GOVERNMENT TRIES TO SQUEEZE MORE OUT OF MINING 
CONTRACTS 
 
 
¶1.  (SBU) SUMMARY.  The Guinean government's contract review 
commissions published their reports regarding the contracts of U.S. 
oil company Hyperdynamics and Rusal, the Russian bauxite mining 
company.  The GoG recommends major changes in both contracts in 
order to collect desperately needed additional revenues.  Despite 
its high demands, the Government may be willing to compromise.   END 
SUMMARY 
 
¶2.  (SBU) The Government of Guinea (GoG) previously established 
separate commissions to review each of its current major mining 
contracts.  On August 27, two of those commissions released their 
reports with respect to Hyperdynamics and Rusal.  The Hyperdynamics 
commission recommended that the GoG change most of the terms in the 
oil and gas sharing contract, which in effect, would result in a 
near complete reversal of benefits in Guinea's favor. 
 
¶3.  (SBU) The GoG proposal calls for changes to the sliding profit 
sharing scale between Guinea and Hyperdynamics, which is linked to 
overall production.  Currently, the GoG gets 25% of profits at 
start-up production levels, which increases to 60% at full 
production.  The GoG's proposed amendment, cited by the commission, 
has the scale starting at 75% for the GoG at start-up and 90% at 
full production.  The report also called for a minimum of 40% 
reduction in the off-shore production area covered by the contract. 
With respect to the Rusal contract, the commission recommended an 
increase of 1000% in the monthly rent paid under the company's 
current bauxite contract, from about 62,000 USD to about 700,000 
USD. 
 
¶4.  (SBU) The commissions cite legal justifications to support their 
recommendations. For example, the Hyperdynamics commission cited 
article 77 of the "Loi Fundamentale" as the basis for the revision 
of the contract.  Article 77 provides for ratification of all 
contracts by the National Assembly before they can be considered 
binding.  (Note - There is some controversy to this assertion as it 
is argued that Article 77 applies only to mining contracts, while 
Hyperdynamics' contract should be considered under the petroleum 
code, which allegedly does not require National Assembly approval.) 
 
¶5.  (SBU) On August 27, Econoff met with the local attorney for U.S. 
company Hyperdynamics, Maitre Alpha O. Diallo.  The lawyer stated 
that the in-country manager of Hyperdynamics, Foromou Kourouma, met 
on August 21 with President Cont, and that a company representative 
had met with the Prime Minister's office on August 23.  M. Diallo 
was unable to discuss the details of the discussion with Cont. 
 
 
¶6.  (SBU) Diallo characterized the reaction of the Prime Minister as 
sympathetic.  However, he also said that Kouyate wants and/or needs 
Hyperdynamics to offer some kind of concession so that the public 
could see that he is making progress on his reform efforts. 
 
¶7.  (SBU) Maitre Diallo stated that he would be contacting 
Hyperdynamics management in Houston to explain the situation and to 
determine a course of action.  He added that he needs his client to 
clarify which changes the company might be willing to accept and 
which changes are non-negotiable.  Diallo requested that the USG 
pressure the Government of Guinea to honor the contract as written. 
 
¶8.  (SBU) COMMENT.  The Hyperdynamics contract includes several 
terms that may be considered unfair to Guinea, but which were agreed 
to by both parties when the contract was written.  The current 
interplay of Guinean domestic politics, extreme poverty, systemic 
corruption, and unrealistic popular expectations is driving the 
GoG's controversial efforts to renegotiate contracts and ultimately 
expand Government coffers.  The fact that the GoG is looking to 
revise the Rusal contract, in addition to that of Hyperdynamics, 
indicates that the Government may not be singling out individual 
companies.  The GoG may be willing to negotiate terms, which while 
not perfect, could offer a possible solution within a short time 
frame, provided Hyperdynamics is willing to compromise.  Embassy 
continues to stress to appropriate host government officials the 
importance of contract integrity and equal treatment of all parties, 
especially with respect to promotion of a positive investment 
climate and general rule of law. END COMMENT. 
 
BROKENSHIRE