Sierra Leone Mamamah airport project: A twist in China’s tail – Part One

Saad Barrie

Sierra Leone Telegraph: 27 October 2016

The government of Sierra Leone is determined to build a new international airport in the north of the country, financed by a whopping $400 million loan from China. Opposition to this policy decision is strong, including the Word Bank who says that the government simply cannot afford to commit the nation to further debt, with an uncertain economic outlook.

After fifty-five years of gaining independence from British colonial rule, and in spite of huge natural resource revenue potential of over $2 billion a year – with a population of just over six million people, Sierra Leone is rated as one of the poorest nations in the world.

Less than half the country’s adult population would live to see their 51st birthday; it’s health service is a death trap, because of the lack of trained doctors, poorly equipped hospitals, and poor access to medicines; education is sub-standard, compared to other countries in Africa; fewer than 30% of the population have access to electricity and clean drinking water.

Sierra Leone is one of the most dangerous countries for a woman to give birth, with a survival rate of less than 80%. Survival rate for newly born children is even more appalling – with more than 30% unlikely to see their 5th birthday.

Unemployment in Sierra Leone is disturbingly high. Over 70% of the economically active population are out of work, and more than 60% of youths unlikely to have ever worked. Less than 30% of the population can read and write.

The country’s economy has seen its fair share of bad political management, civil war and health epidemic – Ebola. The economy is struggling to survive due to lack of investments and competition from neighbouring countries in attracting foreign investors.

Sierra Leone is massively dependent on foreign aid and debt to make up its annual budget deficit. The country cannot feed itself. Millions of dollars are spent every month on importing its staple food – rice, which it can, not only grow on its doorstep for domestic consumption, but has the potential to feed the rest of West Africa.

President Koroma and senior ministers believe that to fix Sierra Leone’s economic and social problems, there is the urgent need for a new international airport costing $400 million – a decision that most analysts and the World Bank say is seriously misguided. The country simply cannot afford it, nor is the need real.

But what is the real story behind this airport project?

New look Lungi International Airport 1The country’s existing airport -the Lungi International Airport, has the capacity to receive thousands of passengers a day, but daily passenger arrivals is less than 200.

The airport which is now being partly managed by a British company, has received millions of dollars from the World Bank to pay for expansion, upgrading of the runway and facilities to bring it up to international standards. Still, passenger numbers are struggling to rise.

At a cost of $400 million, and with the competing priorities facing the government – health, access to clean water, provision of electricity, education, housing, road renewals and improvement, waste management and sanitation – why is the Koroma government determined to secure a loan package from China to pay Chinese workers to build a new international airport that will be managed by the Chinese for a  fee?

Writing in a three part series of articles for the Sierra Leone Telegraph, Saad Barrie discusses the pros and cons of building a new airport, as well as the political and economic factors that are driving this decision. This is part one of Saad Barrie’s analysis:

The Mamamah Airport and New City is the flagship infrastructure project in Sierra Leone’s current medium term development plan, the Agenda for Prosperity. The indicative cost of the Mamamah Project is US$481 million. The airport alone is estimated to cost at least US$300 million (about 6% of GDP in 2014).

The proposed new airport has been harshly criticised by some of its key stakeholders either for its location, huge cost, or method of financing and the lack of transparency in the negotiations with its financiers and contractors.

Many Sierra Leoneans believe the country does not need a second airport. Not with the perennially low number of flights in and out of the country; total arrivals by air is less than one hundred thousand yearly at its peak.

The International Monetary Fund (IMF) and the World Bank, the country’s main economic advisers and lenders, have weighed in on the debate, saying “now is not the time for a new airport” and that the government “has misplaced priorities” – or words to that effect. The country’s economy has been in dire straits since mid-2014.

map-of-freetown-estuarySome of the critics of Mamamah are more concerned about the government’s future plans for the Lungi International Airport than they are of the huge cost, method of financing, or the location of a new airport. Among these are mostly indigenes of Lokomasama and Kafu Bullom, the two chiefdoms that host the Lungi Airport.

Abandoning Lungi or placing it in the ‘wrong hands’, some say, has serious implications for the country’s security. A report in South Africa’s Daily Maverick in June 2016 alleged that the Chinese government “have their eye on the Lungi site for a military base” for an increasingly adventurous PLA Navy (PLAN).

Incidentally, a Chinese state-owned enterprise (SOE) now has control over the Tonkolili Iron Ore Project and its Transport Corridor. The Corridor stretches across three districts, about 240 Km long and includes the rail, the port at Pepel and a significant portion of land surrounding the Tagrin ferry terminal which has been earmarked as the site for a new deep sea port.

president-koroma-and-the-chinese-airport-delegation-june-2016On Thursday September 29, the recently recalled Ambassador Zhao Yanbo visited President Koroma at State House to bid him farewell. In his parting words to the Chinese diplomat the President said “it’s unfortunate that you will not be here for the commissioning of the Mamamah Airport which will commence soon”.

This begs the following questions: Why has Mamamah become the focal issue in Chino–Sierra Leone relations? Is Mamamah a Trojan Horse from Beijing as the South African online paper seems to suggest? Who should pay the cost of constructing the Mamamah Airport?

 Shandong Iron and Steel Group takeover of AML’s Tonkolili Project

The construction of the Mamamah Airport is crucial to the long term operational plans for the Tonkolili Iron Ore Project. No surprise therefore that it has featured prominently in bilateral engagements between the governments of Sierra Leone and China since the Chinese takeover of the Project a little over a year ago.

During the Ebola (EVD) outbreak of 2014 in Sierra Leone the country’s mining sector fell into deep crisis. The Iron ore miner London Mining (SL) Ltd suddenly went under administration.

Mining operations at the world renowned Tonkolili Project were paralysed by a rancorous power struggle between its two leading shareholders, the Shandong Iron and Steel Group (SISG) and the Bermuda registered African Minerals Limited (AML).

alpha kanu2The government of Sierra Leone refused outright to get directly involved in the negotiations between AML and SISG. According to Alpha Kanu, the minister of information at the time and a former minister of mines and mineral resources, the government viewed the impasse as an internal corporate dispute between two sets of shareholders.

The Shandong Group was a minority shareholder in two of AML’s Sierra Leonean subsidiaries. SISG paid AML US$1.5 billion for a 25% stake respectively in the Tonkolili Iron Ore Project (SL) Limited (“Tonkolili”) and the African Rail and Port Services (SL) Limited (“ARPS” or “Tagrin”). AML held 75% control in each of the two subsidiaries.

SISG is wholly owned and controlled by the provincial government of Shandong in China. The Chinese company is among the top twenty steel producers in the world.

Another Chinese SOE, China Railway Materials (CRM), was a major shareholder in AML (Bermuda) and for a sizable fee acted as the principal marketing agent in China (and Hong Kong) for the Tonkolili Project.

The Tonkolili Project was the AML Group’s biggest earner and the two projects in Sierra Leone were the largest and most prestigious of its global operations.

Since AML obtained a mining license in Sierra Leone in 2010 major Western investment banks like Goldman Sachs, Citi, Credit Suisse and Deutscher Bank have been either significant shareholders (with at least one million shares) or brokers for the Group at one time or another.

But it was the Chinese SOEs that had been the main source of both capital and revenue for AML’s operations in Sierra Leone.

As well as being a minority shareholder at the operational level, SISG was also the most important customer with a 20 year off-take purchase agreement with AML. CRM had an off-take agreement with AML on similar terms as SISG’s, though for a lower quantity of ore.

Sales of iron ore to SISG accounted for about 53% of AML’s total revenue in 2013, its last full year of operation. Total sales to SISG and CRM accounted for 82% of iron ore sold by AML in 2013.

To show how significant SISG was to AML’s operations, in its 2013 Annual Report the Chinese company was mentioned by name 81 times, whereas African Minerals/AML 87 times and Sierra Leone/Tonkolili 52 times.

As global iron ore prices fell, Tianjin Materials and Equipment Group Corporation (Tawoo), another Chinese SOE, backed out of negotiations for a stake in AML reported to worth a total of US$990 million.

Had it gone through the deal would have given Tawoo a 10% stake (at US$390m) in the holding company and another 10%, worth about US$600m, in the Tonkolili Project.

African minerals2014The investment could have fast-tracked rollout of Phases 2 and 3 of infrastructure development for Tonkolili and, through a joint venture tied into the deal, would have given AML an entry point into the Chinese manufacturing sector.

According to Bloomberg Business the sharp fall in iron ore prices caused a 95% fall in the AML Group’s financial worth from about US$3 billion at its peak in 2011 to US$51 million by the time trading of its shares was halted in November 2014.

The Group had a “total debt of $766 million at the end of September, including a $400 million convertible bond, which it defaulted on in February [2015].” About US$250 million of the AML Group’s debt was owed to SISG.

When AML faced a risk of default on its debt payment it turned to SISG to release US$102 million of restricted cash in order to help keep itself solvent.

The Chinese company refused to disburse the cash on the basis that the funds were not meant for recurrent expenditure by AML but for part financing of Phase 2 of infrastructure development linking the mines to Tagrin.

Instead, SISG acquired the debt, said to be about US$167 million, from a syndicate of AML creditors (including Standard Bank, Standard Chartered and Citi) thereby forcing the Tonkolili Project to temporarily cease its operations.

In the end the rest of the AML shareholders reluctantly agreed to a takeover by SISG. By March 2015 SISG was in full control of Tonkolili and ARPS.

Thus, SISG now controls AML’s 25 year concession granted in August 2010 to mine about 12.8 billion tonnes of iron ore reserves.

SISG also inherited from AML the 99 year exclusive lease granted to ARPS to build and operate the Tagrin port and a 240km railway connecting the mines to Pepel and the new port (see the figure below).

One might argue that the fiscally constrained government was only being pragmatic in letting the investor with the deeper pockets and a more responsible financial management regime takeover such a strategic national asset.

The government is however having a rude awakening, barely a year after the Chinese took over direct control of the mines.

Unlike the AML executives who could be easily persuaded to pay taxes in advance whenever the government needs to close a financing gap (as had been alleged by the opposition parties), the new Chinese owners of the iron ore mines are no pushovers – especially not during a crisis.

Read part two of this article in tomorrow’s edition of the Sierra Leone Telegraph.

10 Comments

  1. Very good and insightful analysis. I dont know if I am thinking too fast, but all of the said agreement and negotiation does not seem to be in the best interest of the country and if we don’t brace up as a country we will sink further

  2. Well said Raymond Bangura. You have hit the proverbial nail on the head.

    I always wondered why dont they want to build a bridge from Tagrin to Freetown? Now I know this was their plan all along. The only reason why they want to relocate the airport, is to obliterate Lungi completely, dredge the waters and create a sea port where the massive Chinese vessels will dock and cart our minerals away.

    Is this why even the late president Tejan Kabba reneged on his manifesto promise to build the Freetown-Lungi bridge?

    What madness, greed, selfishness and incompetency from our so called leaders. They care not about the country, its people or about future generations. Why should we take a loan from the Chinese to build a new airport that we do not need?

    If the chinese want our natural resources, let them pay for building the airport themselves, create a new town around it, modern schools with up to date technology, new hospitals, a mall, etc. Afterall, they are getting our minerals for next to nothing – paying little or no taxes. Better still, if they do not want to expand Lungi, then, keep away and hands off our mineral resources.

    You are right that even if the airport is built, it will not create jobs for Sierra Leoneans, because we do not have the skills mix needed on a large scale. The Chinese will bring their own workers to man the airport and our country will not benefit at all.

    I cannot believe that the government cannot give the people the basic necessities and yet money is to be wasted on a great white elephant. There is no water in the toilets of a small airport like Lungi; people have no clean water to drink on a daily basis. electricity is scarce and yet the leader is selling the country for ‘coco ebe’. It is shocking really.

    Indeed the people have been fooled. Such a monumentous issue which will affect generations yet unborn, should have been discussed on tv, radio and newspapers in all languages; and people should be allowed to phone in with their comments. This should be the choice of the people and not of a few selfish individuals behind closed doors.

    This government has signed so many MOUs with the Chinese, and I would love to see all of them – trust me, none will be to Sierra Leone’s benefit. Only the politicians will benefit.

    Bolivia in South America has over 50 trillion dollars worth of Lithium mineral resource in their soil. Lithium for use in lithium batteries is in great demand. However, the Bolivians are content to mine it themselves on a small scale. Major multinational companies are not allowed to mine and make a mess of their landscape and create an environmentally disaster in their country. Sierra Leone should learn from them and follow suit. The people should oppose the building of Mamamah airport and the destruction of Lungi and its environs.

    This expected windfall of cash from the Chinese has made our politicians very very lazy, fat and stupid. It is time they put their shoulders to the wheel and work for the people who elected them. Start first with simple measures to cleanse the capital Freetown. Valentine Strasser enforced a monthly cleaning Saturday; why cant you?

    Roll on 2018 – vote them OUT OUT OUT

  3. Guys, I have shared my views on these so called lauded projects in many Sierra Leonean discussion fora in the past. I strongly believe that this new airport project undertaken by the Chinese will have devastating effects on our country.

    First and foremost, there is no need at this time for a new international airport to be built in Sierra Leone when the country’s economy is in shambles. There are a lot of other immediate priorities that must be addressed rather than relocation of the Lungi International Airport.

    There are ulterior motives both from the APC and Chinese governments. The APC government are desperate to amass personal wealth as they have mortgaged the entire Lungi community including the Rokel river estuary to the Chinese who are desperate to obliterate our mineral resources with impunity.

    What the Chinese are going to do is to dissolve part of Lungi including Tagrin whilst expanding by dredging the Rokel river estuary in order to allow their massive cargo ships to be berthing at the Pepel port. Presently, those massive cargo ships have to anchor at sea while barges transport the iron ore from Pepel port.

    There will be devastating environmental consequences of this project on our country especially relating to the health and wellbeing of Sierra Leone’s longest and most productive river, the Rokel river which holds our largest hydroelectric project, Bumbuna and serves as a vital source of water for many communities.

    The expansion of the estuary will drain the river as there will be a steep increase in flow of its water into the sea. Thus there will be the possibility of drying up of the river in most of our rural communities, especially in the dry seasons. The Bumbuna hydroelectric project will be adversely affected. The Chinese are well aware of this but they just don’t care and are not telling our people of the looming disastrous effects.

    Even the APC government are aware of this but they have kept it a secret only sugarcoating the populace by presenting the idea of a new airport in Mamamah that will relieve their troubles of traveling to Lungi for international air travels. They never told them that they have sold Lungi to the Chinese.

    Let no one fool us, what is been done here is to relocate Lungi International Airport. They are not building a second airport at all. People must be made aware of this. Moreover, the Rokel estuary is rich in lignite, which is a precious natural resource that can be used to generate electricity. Lignite is just like natural coal but it is cleaner. A lot of countries depend on coal for their power generations. Lignite is less polluting than coal.

    China imports coal from Australia and other countries for their energy generation. Thus by allowing this project to take place, we will not only be giving away our iron ore and other metals mined by Shandon steel owned by the Chinese state government but our previous lignite energy resource as well.

    I believe president Ernest Bai Koroma and his government are aware of this but they have kept it a secret to themselves because they are desperate to amass personal ill gotten wealth. It is but prudent that the Sierra Leone people be made aware of these looming devastating consequences of this airport project.

    It doesn’t cost much to establish effective ferry services between Freetown and Lungi. But this government has deliberately ignored that making it difficult for the people to commute to Lungi so that they will readily accept their plans. There should be a public debate on this. You are free to share my views on your networks.

  4. I’m not sure what is the motive behind the construction of this new airport by the Chinese, but I hope and pray it’s for our benefit and not for using Lungi airport for their military expansion at the door steps of our European allies namely Britain and France and to an extent North Atlantic Treaty organization (NATO), and also our African alliance (ECOMOG)

    The west aren’t even comfortable to see the economic domination of the Chinese in this hemisphere, let alone to be followed by military dominance from a communist country which may be perceived as a threat to democracy and western civilization.

  5. China should understand that Sierra Leone is not Taiwan. We understand the Chinese politico-criminal game and their economic imperialist agenda in Africa.

    Only recently China was given marching orders out of Zimbabwe for breeding poverty in the country and stealing over thirty billion dollars from that country’s wealth.

    Sierra Leoneans will not accept any government to pawn their natural resources and wealth to foreign criminal adventurers. We will resist China’s criminality in our country. Sierra Leone for Sierra Leoneans.

  6. We need to sacrifice and build the new airport. It will open up financial blessing for sierra Leone. Let the Chinese’s have their military base in Lungi.

    After all, they are our closest allies. We will have to weal and deal with them. Nothing is perfect.

  7. Of all the flag-bearer aspirants of the Sierra Leone Peoples Party (SLPP), only one person has satisfied the condition of a work experience of being a well calculated head of state of Sierra Leone.

    This person already knows and he is well educated about the problems our country is facing under the leadership of the All peoples Congress (APC) political party.

    If we are aiming at electing a Head of State that caters strategically for what Sierra Leoneans really need, it is better for supporters of SLPP to consider this special candidate of the flag-bearer aspirant.

    This person is JULIUS MAADA BIO, who transferred democratic politics from the military rule to a civilian government, in order to give a chance to all civilians to register their interests and participation in the politics of Sierra Leone.

    This has given political opportunities to SLPP and APC, eradicating the one party rule of democracy in the APC’s Siaka Stevens style. This is in fact the reason why APC was given a second chance, that has been mismanaged.

  8. Why a new airport when our people are dying every day. If the president is to borrow money from another country, let it be for a good cause. The country needs good schools, good hospitals, and industries to create jobs for the young adults. A new airport is not the answer to our problems that the country is facing right now.

  9. This is what you get with an APC government, just like they hosted the OAU in the 1980s when it was not affordable. Financial mismanagement is what the APC knows best. We remember the days of the new order and long queues for basic commodities.

    President Koroma inherited a stable economy but despite huge increases in government revenue during his tenure, he has failed to manage the economy well. This government fails to understand that you cannot attract investment by building an airport alone, when the roads are deplorable and power supply is inadequate.

    Sierra Leone needs manufacturing and other industries that rely on stable power supply; and good road networks for operations and distribution. Huge costs in these areas mean they will invest in countries with the necessary infrastructure. This airport project is just another means of enriching themselves.

  10. All the opposition parties should let the Chinese Government know that the next government will NOT pay a dime or penny if the intended loan is directed to an airport project. Our EDUCATION, HEALTH, AGRICULTURE, MANUFACTURING and ENERGY sectors need the 400 MILLION Dollars.

    Let the 2018 elections be held as a referendum on improving the aforementioned sectors. Development versus building an airport – a project which is sure to fail before it starts, as the money will be shared among the sons of satan and “its” demons.

    The MAMAMAH project should not just be limited to an AIRPORT but to the creation of a modern CITY with all the trappings of modern infrastructures, Universities, Modern Hospitals, Modern Shopping Centres, etc.

    Unfortunately none of the above elements of sustainable development is factored in the current “cowboy” project. We are not anti-development!

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