VZCZCXRO9128
RR RUEHMA RUEHPA
DE RUEHMV #0242/01 0911430
ZNR UUUUU ZZH
R 311430Z MAR 08
FM AMEMBASSY MONROVIA
TO RUEHC/SECSTATE WASHDC 9887
INFO RUEHZK/ECOWAS COLLECTIVE
RUEATRA/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS SECTION 01 OF 03 MONROVIA 000242 
 
SIPDIS 
 
DEPARTMENT FOR AF/W-PDAVIS, INR/AA-BGRAVES, AF/EPS, EB 
AID FOR AFR/WA-SSWIFT 
ACCRA AND DAKAR FOR FCS 
 
SENSITIVE 
SIPDIS 
 
E.O.12958: N/A 
TAGS: PGOV ECON EIND ETRD EINV LI
SUBJECT: LIBERIA: GOVERNMENT RATIFIES AMENDED FIRESTONE CONCESSION 
 
¶1.  (U) SUMMARY:  The Liberian Legislature ratified March 27 the 
Amended and Restated Concession Agreement signed by the Government 
of Liberia (GOL) and Firestone Liberia on February 22.  The new 
Agreement concludes extended negotiations between the GOL and 
Firestone to modify a concession extension the National Transitional 
Government of Liberia (NTGL) awarded the firm in 2005.  Under the 
new agreement, which runs through 2041, Firestone commits to 
continue replanting, complete a rubber-wood factory, increase its 
support to small Liberian rubber farmers and undertake additional 
social and educational projects.  It also increases Firestone's 
income tax rate from 25% to 30% and establishes new transfer pricing 
provisions based on international indices. The GOL estimates the new 
agreement will result in a retroactive increase in revenues for 
2007-08 of nearly $2.5 million. 
 
¶2.  (U) SUMMARY CONTINUED:  The amended Firestone agreement, like 
the revised contract with ArcelorMittal in 2007, illustrates the 
GOL's determination to negotiate and conclude detailed and 
transparent concession agreements with current and potential 
investors that maximize government revenue and promote social 
investments.  Although the renegotiation of valid concession 
agreements runs the risk of establishing a precedent that future 
governments might exploit for private gain, and while the 
negotiations themselves were often protracted and vulnerable to 
rent-seeking, the agreements are more in line with international 
best practice and a break from the opaque and often imprudent 
concessions of the past.  END SUMMARY. 
 
¶3.  (U) Firestone negotiated its original 99-year concession with 
the Liberian government in 1926.  In 2005, Firestone concluded an 
extension with the NTGL that granted the company an additional 
86-year term up to 2091.  The Contract and Concession Review 
Committee established in 2006 under the Governance and Economic 
Management Assistance Program (GEMAP) proposed that the government 
renegotiate the NTGL agreement to remedy questionable provisions. 
The amended and restated agreement of 2008 is valid for 36 years 
(from 2005), until 2041.  Additional changes from the 2005 
concession agreement include: 
 
Grant of Rights 
--------------- 
 
-- Firestone Liberia acknowledges Government ownership of all rubber 
trees and other non-moveable assets in its production area at 
termination of the agreement; 
 
-- Parent company Bridgestone Firestone Diversified Products, LLC 
pledges that Firestone Liberia will remain a wholly-owned subsidiary 
and the fixed assets of Firestone Liberia will not be transferred 
without Government consent; 
 
-- Firestone Liberia will maintain a debt to equity ratio of 2:1 
(vice 4:1); 
 
-- Firestone and Government will prepare a binding map to confirm 
the total concession area of 118,900 acres. 
 
 
Conduct of Operations 
--------------------- 
 
-- Export sales prices for transactions between Firestone Liberia 
and an affiliate shall be determined by reference to available 
international reference prices or indices rather than on a price 
negotiated and set internally by Firestone and reviewed by 
Government; 
 
-- The purchase price for rubber offered to private Liberian rubber 
farmers will be based on an international index rather than set by 
Firestone; 
 
-- Firestone Liberia commits to replant at least 50,000 acres (up 
from 5,000) between 2005 to 2017 and to maintain 65,000 planted 
acres during the term of the concession; 
 
-- Firestone will give (an unspecified) preference to goods produced 
in Liberia by Liberian citizens when purchasing goods and services 
related to its activities; 
 
-- Firestone commits to invest $10 million in a rubber wood facility 
to start operations in 2008, employing at least 500 people (Note: 
the factory is already near completion); 
 
-- Firestone will provide 700,000 (vice 600,000) rubber saplings per 
year and sell farm supplies at cost to qualified Liberian rubber 
farmers. 
 
MONROVIA 00000242  002 OF 003 
 
 
 
 
Public Health, Safety and Environment 
------------------------------------- 
 
-- Firestone shall develop a security plan that will be approved by 
Government to ensure the Plant Protection Department adheres to the 
rule of law and international human rights principles; 
 
-- Firestone commits to construct 2,300 new houses by 2010, provide 
one house per entitled employee by 2015, and ensure each household 
has a sanitary latrine or bathroom by 2011; 
 
-- Specific reference now obligates Firestone to adhere to Liberian 
environmental laws, including the Environmental Protection 
Management Law. 
 
 
Education, Employment and Training 
---------------------------------- 
 
-- Firestone shall provide education through high school (vice ninth 
grade) for all eligible dependents, donate $165,000 in financial 
assistance per year for three years to the Harbel Multilateral High 
School, and contribute $35,000 annually through 2015 to a 
Government-administered adult education program. 
 
-- All unskilled positions are now limited to Liberian citizens, and 
50% of the ten senior management jobs must be held by Liberians 
within 10 years; 
 
-- Firestone shall provide $50,000 annually to the University of 
Liberia's College of Agriculture, as well as $115,000 annually 
through 2015 and $150,000 annually thereafter in scholarships for 
Liberian citizens, a quarter of which will be reserved for Margibi 
county students; 
 
-- Firestone will support the Government's efforts to create a 
Rubber Development Fund financed by rubber export fees, to support 
the rehabilitation of the rubber sector through extension programs 
and services to Liberian farmers; 
 
 
Taxation and other Government Payments 
-------------------------------------- 
 
-- Firestone to be taxed on its net taxable income at a rate of 30% 
(vice 25%), computed in accordance with Liberian law (rather than 
the specific terms of the 2005 Agreement) applied retroactively to 
2007 income provided the agreement is ratified by the Legislature 
and signed into law by the President by March 30, 2008; 
 
-- Firestone no longer exempt from certain import duties and must 
pay taxes on fuel, rice and other goods, albeit with a 50% reduction 
on fuel duties and a ceiling of $1.10 per bag for rice during the 
rehabilitation period (through 2015); 
 
-- Firestone no longer exempt from certain taxes - now subject to 
ECOWAS Trade Levy (1% on goods imported from non-ECOWAS states), 
withholding taxes, real property taxes, and goods and services tax, 
with a ceiling on the latter of 3.5% and an exemption on capital 
goods; 
 
-- Firestone's quarterly turnover tax rate increases from 1% to 2% 
of gross income; 
 
-- Annual rental fee for government land in the concession area of 
$2.00 (vice 50 cents) per acre, adjusted for inflation every five 
years; 
 
-- Firestone no longer enjoys free access to broadcast and 
communications frequencies and instead must pay prevailing rates; 
 
-- Firestone no longer enjoys privileged use of airports, seaports 
and other similar facilities owned by the Government and instead 
must pay applicable rates, including inspection fees at prevailing 
rates. 
 
¶4.  (U) The revised agreement was signed on February 22 by Firestone 
and an inter-ministerial negotiation team.  Minister of Agriculture 
Dr. J. Christopher Toe, who led the negotiations on behalf of the 
GOL, referred to the renegotiation of the Firestone concession as 
"an embodiment of Government's goals to ensure that all existing 
agreements equitably protect Liberian interests and are consistent 
with principles that attract and sustain foreign investment in 
Liberia."  Dan Admontis, President of Firestone Natural Rubber 
 
MONROVIA 00000242  003 OF 003 
 
 
Company, emphasized that "the new agreement provides the right 
framework for Firestone Liberia" to rebuild operations and 
facilities in Liberia while supporting Liberia's recovery efforts. 
 
¶5.  (SBU) The proposed agreement then passed to the Legislature 
where there were initial indications that some legislators might 
seek to delay ratification.  A Joint House Committee on Judiciary, 
Agriculture and Concessions sought to raise the land rental fee and 
to earmark such fees for the development of Montserrado and Margibi 
counties, where Firestone is located.  Representative Saah Gbollie 
told PolCouns March 20 that he was seeking more local control over 
tax revenues and scholarships.  In the end, the legislators were 
reminded that the government stood to receive $2.5m in retroactive 
tax revenues from Firestone if the agreement was passed before March 
¶30.  The Senate passed the restated concession on March 20 and the 
House did the same on March 27.  The agreement was returned to the 
President in time for her signature before March 30. 
 
¶6.  (SBU) COMMENT:  Like the 2007 agreement with Mittal Steel, 
conclusion of the Firestone agreement marks a break from the past 
and sets a benchmark for future concession agreements.  While 
agreements concluded with the NTGL often granted significant tax 
privileges with few investment or performance benchmarks, President 
Johnson Sirleaf's administration has demonstrated a determination to 
negotiate and conclude detailed and transparent concession 
agreements with current and potential investors that maximize 
government revenue and benefits for Liberians even if achieving such 
an outcome requires protracted negotiations that delay urgently 
needed investment and job creation.  Thus far, the GOL has limited 
the renegotiation of concessions to those concluded during the NTGL 
or found to be improper by the Contract and Concessions Review 
Committee in 2006, but there are fears that the GOL intends to 
re-examine other concessions, establishing a contract revision 
precedent that future governments might repeat for private gain, and 
future investors might find off-putting.  In addition, although the 
process has been largely transparent, in the absence of standardized 
investment incentives and approval procedures, these long 
negotiations (or re-negotiations) involving multiple interests 
provide opportunities for rent-seeking.  The GOL walks a fine line 
between breaking with "business as usual" while still remaining 
"open for business."  END COMMENT. 
 
BOOTH