Exclusive: Resource deals audit overshadows Liberia anti-graft push

DAKAR Wed May 1, 2013 2:24pm EDT

Liberia's President Ellen Johnson Sirleaf speaks to the media following a UN High Level panel meeting at Number 10 Downing Street, London November 1, 2012. REUTERS/Leon Neal/Pool

Liberia's President Ellen Johnson Sirleaf speaks to the media following a UN High Level panel meeting at Number 10 Downing Street, London November 1, 2012.

Credit: Reuters/Leon Neal/Pool

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DAKAR (Reuters) - Almost all the $8 billion worth of resource contracts signed by Liberia since 2009 have violated its laws, according to a draft audit report commissioned by the government, casting doubt on anti-graft and good governance efforts under President Ellen Johnson Sirleaf.

Sirleaf, a Nobel Peace Prize winner, has said the billions of dollars in foreign investment she has drawn since becoming Africa's first freely-elected female president in 2006 should help ordinary Liberians to climb out of poverty.

In a continent often blighted by corruption and mismanagement, the Liberian government has promised greater openness in its dealings with foreign investors. The country's transparency watchdog LEITI - which is co-chaired by the Finance Ministry - itself commissioned the audit of deals involving oil, mining, agriculture and forestry in the West African country.

But the audit, initially praised as a bold attempt at improving standards of government in Africa, could prove a bitter pill for Liberia. The accounting firm hired to conduct the audit, Moore Stephens, disclosed widespread irregularities with the deals in its draft report, which Reuters has seen.

Liberian law sets rules for foreign investment projects including on competitive tendering, tax rates and equity stakes to be held by the government.

While some failures to comply with the law are relatively minor, the Moore Stephens draft shows the government granted vast swathes of land to firms including Golden Agri's Golden Veroleum and Sime Darby without competitive bidding, and otherwise skipped contract steps meant to ensure a fair deal for Liberians.

Other companies with contracts found to be flawed include U.S. oil firm Chevron Petroleum and mining giant BHP, according to the report, which also accused Liberian authorities of having tried to stonewall the audit process since late last year by failing to hand over information promptly.

The presidency declined comment on the report until its final version is completed, while the Finance Ministry denied any deliberate attempt to derail the audit.

RISING STAR

Liberia bills itself as a rising African star as it recovers from 14 years of on-and-off civil war funded by "blood diamonds" that ended in 2003, leaving its economy and infrastructure in ruins. But the report highlights the difficulty of bringing deals into the open on a continent that investors say is now ready to follow the economic success of India and China.

"Overall, we encountered a significant lack of cooperation from Government Agencies involved in the award process and faced major delays in obtaining documents," said the draft report from Moore Stephens, which showed that just two out of the 68 contracts audited adhered to Liberian law.

Sirleaf's political opponents allege graft, nepotism and mismanagement in the resources sectors, and the report puts the government in the uncomfortable position of deciding how to fix the problems.

"The government is scared to death of the consequences of this contract audit," said Alfred Brownell, head of governance watchdog Publish What You Pay in Liberia. "The big question is: will the contracts have to be revised or canceled?"

A spokeswoman for Sirleaf noted the audit report was in draft form and could be amended before the final version is ready in a few weeks. It would then be considered by the Multi-stakeholder Steering Group (MSG), which brings together government agencies and non-governmental organizations, and made available to the public.

"We cannot preempt what will be contained in the final report, nor can we foresee the MSG decisions," she said, noting the progress Liberia has made in recent years in improving its record on transparency and accountability.

A copy of the April 22 draft report is scheduled to be circulated to the leadership of LEITI - the Liberian agency created under the global Extractive Industries Transparency Initiative - this week for feedback before publication, a source with knowledge of the process said.

Liberian government officials denied trying to obstruct the audit and have declined comment on how its findings will be addressed. "The Government of Liberia, through the Ministry of Finance, is committed to bringing transparency," said Sidi Trawally, a spokesman for the ministry.

COMPANIES FAVOURED?

The International Monetary Fund expects Liberia's economy to grow 7.5 percent this year as iron ore exports boom, making it one of Africa's top 10 performers.

In 2009, Liberia was praised for becoming the first African country to join EITI, a program that tries to help governments avoid the corruption often bred by weak governance.

Under this program, Liberia created its LEITI agency with a mandate to audit contracts to ensure they were awarded fairly, going beyond the normal revenue reporting demands of EITI membership and marking the genesis of the current report.

LEITI hired Moore Stephens to start its work reviewing the contracts in November 2012 and had initially expected to complete the audit by January before the problems with government agency cooperation forced several delays.

Among the draft report's major conclusions, Golden Veroleum's $1.6 billion palm oil project - Liberia's biggest agricultural investment to date - and a smaller project granted to Cavalla Rubber were found to have been awarded without "any competitive bidding".

"The issues ... lead us to conclude that these two companies could have been favored," the report said. It added that Malaysian giant Sime Darby nearly doubled its palm oil acreage in 2009 without competitive bidding.

A Liberian-based official at Golden Veroleum, which is indirectly owned by Singapore-listed Golden Agri, said his company broadly supported the audit process, but did not respond to the draft report's findings. Golden Agri, Sime Darby and Cavalla Rubber did not respond to requests for comment.

The report added that offshore oil Block 14, now held by Chevron and Nigeria's Oranto, was also awarded without competitive bidding, and that other such blocks involved terms that favored the firms with lower taxes and a smaller government equity stake than stipulated by Liberian law.

"Chevron values its relationship with Liberia. We do not comment on the commercial terms of our contracts as per our long-standing policy," a Chevron official said.

Liberia's major mining contracts signed since 2009 - including a $1.5 billion deal held by Anglo-Australian BHP - were also only "partially compliant" with Liberian law, the report said. A BHP official declined comment.

None of the country's tangle of commercial and private forestry contracts - dozens of smaller-value projects covering a huge area of forest - complied entirely with Liberian law, the draft report said. This was due to an array of problems including irregular land deeds and overlapping timber concession sites on privately-owned land.

Diarmid O'Sullivan, a member of the international EITI board between 2009 and 2012, said improving transparency can prove to be a long haul. "Maybe Liberia got too much credit for EITI compliance in the past, when really it was a first step in a very long process," he said.

(editing by David Stamp)

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