A picture paints a thousand words:

Thanks to @georgemoore for the link.

Both the French and the European Investment Bank were duped very effectively. 

The latter’s report stated: “The Bisha Project itself, which can expect to become a highly profitable operation does not feature any serious technical or market difficulties.  Environmental and social issues are being adequately addressed.” 

NB.  The Visit Eritrea team suspect that the mine uses conscripted labour supplied by the Isaias regime.  To us that’s a social issue which isn’t being addressed.

The report also accepted at face value the Isaias regime’s explanation why they shouldn’t join the Extractive Industries Transparency Initiative.  The Ambassador summaries Isaias’ position, replicated faithfully and unquestioningly by the EIB in their report: 

“[Eritrea] would have to accept that the international community did not trust them, and when according to the EIB report given Eritrea’s history of abandonment by the international community, it is they, the GSE, who have reasons to mistrust the international community.  Thus, insistence by development partners to the conditionalities of the EITI questions the sincerity of Eritrea’s commitment to just and fair development and as such is unacceptable.  Second, efforts to address the ‘resource curse’ and the risks associated with large financial windfalls for poor countries insult the GSE’s capabilities, intelligence and its sovereignty over the use of its own resources.”

Meanwhile, miners working in Eritrea are nervous.  Demetrius Pohl, the Director of Sanu Resouces (another Canadian company) shared with an Embassy official his “major concerns”:

1. the Isaias regime’s history of taking over profitable businesses
2. under the current mining law the GSE could potentially reap up to 48% of the mining profits; complicating raising funds or securing buyers for the mining rights. 
3. the potential under the existing law for the GSE to have nearly 30% ownership in a mining extraction company is inconsistent with the 10% ownership that has become the standard in other parts of Africa

From my perspective, Point 1 is the most important one for those who care about Eritrea and its people.    Foreign companies won’t invest in Eritrea as long as they understand that the Isaias regime is likely to steal all their profits, confiscate their capital investment and conscript their workforce.

However, As long as investors have certainty about the percentage of profits they will receive, I don’t think that Eritrea should worry at all about taking 48% (point 2) in tax.  Also ownership by the government (point 3) is not too much of a problem per se,  as long as that government is honest, well-intentioned and reliable – which the Isaias regime is most certainly not.

Cable dated 14 June 2006:  Ambassador attended the opening session of the Eastern Front/Government of National Unity preparatory talks held in Asmara at the Eritrean Labor Union Hall.

Cable dated 16 June 2006: where the ambassador is rude about Nevsun.  Dealt with in separate post.

A Wikileaks cable, dated 15th June 2006, describes a visit organised by Nevsun and the Government of Eritrea for export credit agencies from Canada and South Africa, as well as Proparco, Standard Bank, and the European Investment Bank. 

The American Ambassador to Eritrea, Scott de Lisi, stated that “according to staff of the European Commission and the local director of the World Bank, the GSE [Government of the State of Eritrea] and Nevsun gave an Oscar-worthy performance which, in their view, mislead those who visited.”

The full cable is copied below. 

The Visit Eritrea team is the only organisation systematically working its way through the 1,127 cables from the embassy in Asmara released by Wikileaks.

The team commented: “Foreign capital and skills have an important part to play in Eritrea’s economy.  However, if this is how Nevsun treat potential investors, how likely are they to be a responsible employer in the country?”

For more information about this story, please contact info@visiteritrea.org

C O N F I D E N T I A L ASMARA 000515

SIPDIS

SIPDIS

LONDON FOR AFRICA WATCHER
PARIS FOR AFRICA WATCHER

E.O. 12958: DECL: 6/15/2016
TAGS: EMIN ETRD ECON ER
SUBJECT: FINANCING MINERAL EXTRACTION IN ERITREA: WHO WILLPAY?

CLASSIFIED BY:  AMB Scott H. DeLisi, for reasons 1.4 (b) and (d).

REFTEL: ASMARA 250

¶1. (C) Summary: Despite on-going concerns about the practicality of foreign investment in Eritrea, privatemining companiescontinue to actively seek foreigninvestors to bankroll the mineral extraction. Since Marchseveral development banks, private banks and privatecompanies have traveled to Eritrea to further explore the viability of investment in the Eritrean mining sector.  And as financing is sought, exploration continues with two companies reporting significant finds.  Yet, despite enthusiasm from some for the possibilities, political realities combined with burdensome GSE requirements and restrictions may prevent the GSE from reaping the greatest of rewards. End Summary.

IMPRESIONABLE INVESTORS COME TO TOWN AND THE GSE IMPRESSES
——————————————— ————-

¶2. (C)  Both Nevsun and Sanu Resources supported visits from potential investors in the past 2 months.  The style and approach differed greatly.  For three days Nevsun together with the GSE entertained export credit agencies from Canada(EDC) and South Africa(ECIC), Proparco (investment arm of the French development agency) Standard Bank, and the European Investment Ban (EIB).  The IFC and the Dutch and German development funds were invited but did not attend for various reasons.  The entire visit was planned without prior discussion or input from the development banksQ country missions in Eritrea, many of whom are skeptical about the wisdom of investment in Eritrea for reasons ranging from concern over lack of transparency in terms of mining sector policies to broader unhappiness with the GSEQs record on economic policy, governance, and human rights generally.  In the end the German development fund and the IFC did not attend after last minute discussions with their local missions.

¶3. (C) According to staff of the European Commission and the local director of the World Bank, the GSE and Nevsun gave an Oscar worthy performance which, in their view, mislead those who visited.  The visitors met with the Ministers of Mining, National Development, and Finance, toured sites, and even had an QunexpectedQ meeting with President Isaias.  A bootleg (not for public discussion) copy of the EIB report of the visit states QThe Bisha Project itself, which can expect to become a highlyprofitable operation does not feature any serious technical or market difficulties.  Environmental and social issues are being adequately addressedQQ  The report goes on, QThe Government seems to be fully committed to the project and Nevsun receives all necessary supports.Q (Note: Nevsun has established its own subsidiary for the mining and is seeking investors in this new company. End Note.)  The French Ambassador told us recently that the French participants in the visit were, like the EIB, very impressed by the GSEQs seeming openness and enthusiasm for foreign investment.

¶4. (C) Even when the EIB in its report later acknowledged potential problems, its articulation of these challenges suggests that the EIB views were colored by the GSEQs salesmanship.  The EIB report, for example, acknowledges that the GSE unapologetically voiced its unwillingness to adhere to policies of the Extractive Industries Transparency Initiative (EITI).  It went on, however, to seemingly accept at face value the GSEQs explanation that in consenting to EITI the GSE would have to accept that the international community did not trust them, and when according to the EIB report given EritreaQs history of abandonment by the international community, it is they, the GSE, who have reasons to mistrust the international community.  Thus, insistence by development partners to the conditionalities of the EITI questions the sincerity of EritreaQs commitment to just and fair development and as such is unacceptable.  Second, efforts to address the Qresource curseQ and the risks associated with large financial windfalls for poor countries insult the GSEQs capabilities, intelligence and its sovereignty over the use of its own resources.

¶5. (C) Contrasted with NevsunQs big show, Sanu Resources quietly brought in one analyst from a private Canadian firm the middle of April. According to SanuQs country director, Estaphanos Ogbasghi, several more potential investors could visit in the next few weeks, however, it is possible that their visits could be delayed until the fall.  While Nevun will do its own mining, Sanu anticipates completing all of the assessments and then selling the mining rights.  Thus, Sanu is looking for potential buyers while Nevsun is looking for potential investors.

BUT WILL INVESTMENT REALLY FOLLOW?
———————————-

6.(C) Yet, even with the hullabaloo around the GSE/Nevsun engineered presentation for possible investors and despite the GSEQs assertion that everything is order, concerns and difficulties lurk in the background.  Demetrius Pohl, the Director of Sanu Resouces shared with Poloff his major concerns regarding mining operations in Eritrea.  First, is the GSEQs history of taking over profitable businesses. Second, under the current mining law the GSE could potentially reap up to 48% of the mining profits; complicating raising funds or securing buyers for the mining rights.  Third, the potential under the existing law for the GSE to have nearly 30% ownership in a mining extraction company is inconsistent with the 10% ownership that has become the standard in other parts of Africa.

ENVIRONMENTAL IMPACT
——————–

¶7. (U) Pohl further explained that while the GSE and others may attempt to minimize the potential environmental impact, the effect of mining on the local communities will be significant.  Of primary concern will be issues with water. While different mining techniques may be employed to minimize the impact, regardless all mining requires a substantial amount of water.  He expects extraction companies will need to develop dams to collect water for at least 18 months prior to extraction beginning.  While the pumping of groundwater for mineral extraction is possible, the long term damage to the already precarious water table and to the environment offers a strong disincentive for this practice.

AND STILL MORE DISCOVERIES
————————–

7.Q(U) As mining companies plan for the future of extraction and begin looking for financing, the timeline keeps being extended.  While Nevsun planned to have their environmental assessments and final deposit reviews completed by June 2006, they are still in process and now late fall is a more realistic deadline.  Meanwhile, the mining companies continue to invest in new exploration. Sanu believes they have found another significant deposit near their initial discovery in Western Eritrea, although they will know more after the drilling is completed in the fall.  Sunridge Gold Corp announced in May more promising results from the drilling of the Emba Derho volcanogenic massive sulphide (VMS) project near Asmara.

COMMENT
——-

¶9. (C) Comment: The development of the mining sector continues to be perceived as critical to EritreaQs economic health and perhaps even as the cornerstone of economic recovery.  Yet, the GSEQs policies toward foreign investment and its repeated practice of nationalizing successful private firms undermine its ability to attract investment.  While they may be able to impress some visitors, you can not fool all of the people all of the time.  Eventually, investors will dig past the topsoil and question the GSEQs political unpredictability and its economic practices.  In the interim, mining companies will continue to do their job, prospecting and encouraging high risk investment, with the hope that the payoff will be enormous. End Comment.

The Eritrea-Ethiopia Boundary Commission delivered its Decision on Delimitation of the Border between Eritrea and Ethiopia to representatives of the two governments on Saturday 13th April 2002 at the premises of the Permanent Court of Arbitration in the Peace Palace in The Hague.

That’s 10 years ago.

What’s happened since then?  Nothing.

The international communities’ failure to force President Meles of Ethiopia to acccept the EEBC’s decision is shameful.  We’ve got the levers (vast amounts of aid flow from western countries into Ethiopia) but we haven’t used them.

Movement towards demarcation of the border would help to undermine Isaias, and to show Eritreans and the Eritrean Diaspora that the West supports their country and its geographic integrity.

(For the unitiated, there’s a good post here by Frank Jacobs on the Opinion Pages of the New York Times which gives you a bit more background.  Mr Jacobs is the author of the ‘Strange Maps’ blog.)

Reporters Without Borders has learned that the journalist Yirgalem Fisseha Mebrahtu (see photo on right), in custody since her arrest in February 2009, was admitted to hospital in the Eritrean capital Asmara earlier this year. The organization is extremely worried about her state of health and concerned about the conditions under which she is being held.

Mebrahtu is in serious condition in Asmara’s Halibet hospital.

She has been admitted to the hospital twice, once last November and again in January this year. She is under permanent guard and is allowed no visitors. Her family and friends have not been told of the nature of her illness but her treatment requires the purchase of medication abroad.

A journalist and poet, she is originally from the southern city of Adi Keyih and was arrested during a raid on Radio Bana on 22 February 2009, during which its entire staff was detained (http://en.rsf.org/eritrea-plea-to-e…).  (She is supported by Reporters Without Borders and is sponsored by the organization’s Spanish section, as is her jailed fellow journalist Dawit Isaac.)

In a rare piece of good news, Reporters Without Borders has learned that the journalist Said Abdulhai, arrested in March 2010, was released several months ago.  A veteran of the independence war against Ethiopia and a graduate of Libya’s University of Benghazi in the 1980s, he was one of the media department’s founders after independence. He has at various stages run the information ministry’s press department, the Eritrean news agency and the main pro-government newspaper, published in Tigrinya, English and Arabic. At the time of his arrest he was working for the foreign ministry and is now employed by the education ministry.

Some of her colleagues are still leaving the country to escape the dictatorship and possible arrest. The journalist Senay Gebremedhin, who worked for the Amharic-language service of the state radio station Dimtsi Hafash and the state television station Eri-TV and was employed by the information ministry for 14 years, relocated to neighbouring Ethiopia in January.

It gives us proof that the Isaias regime is desperately short of hard currency.

Last year it was agreed that the Isaias regime would buy out 30% of one of Chalice’s mines (called Zara), in addition to the 10% stake it already held.  Then Chalice decided to sell the remaining 60% to a Chinese company, China SFECO Group.   

We discover from the Half Year Report that in January 2012, Chalice and the Isaias regime agreed to vary the payment and completion terms of their transaction.

Under the revised agreement, the regime has made an interim payment of US$3 million in January this year to Chalice.  That’s not a lot of money compared to what they were expecting….

The remaining balance of US$31 million is only payable to Chalice either:

1. on completion of Chalice’s 60 percent interest in the Zara Project to China SFECO Group
2. or by 30 June 2012.

Why would this be?

It can only mean that the Isaias regime has run out of cash.  Hardly surprising bearing in mind that he’s not being bankrolled by Colonel Qaddafi any more.

What’s the significance of the sale to China SFECO?  Well, I think that as soon as China SFECO hands over US$100m to Chalice, then the Isaias regime can collect its 38% tax on that sum, which then gives them the cash to pay Chalice for the Isaias regime’s share.   

Strange times for mining companies in Eritrea.  I wonder how Nevsun’s getting on?

It must be something to do with how it is governed…

The UNHCR has released statistics about asylum seekers in 44 of the world’s “industrialised nations” (basically the EU, plus Canada, USA, Japan, NZ, Turkey, etc etc).  It makes for fascinating reading. 

(Remember when looking at these figures that they only relate to asylum claims, not the total number of refugees fleeing the Isaias regime.  There will be a number of individuals who don’t claim asylum but choose to live, or find themselves work, in one of these 44 countries.)

• 10,600 Eritreans claimed asylum in 2011.  (The World Bank believes that the total population of the country is 5,253,676.  That’s 0.2% of the population.  The most widely quoted statistic is that 2,000 Eritreans flee the country each month ie about 24,000 per year.  It comes from the International Commission on Eritrean Refugees, and that figure is not inconsistent with this UNHCR data.)
• Eritrea is now the ninth largest ‘exporter’ of asylum seekers in the world.  (After – in order - Afghanistan, China, Iraq, Serbia, Pakistan, Russia, Iran and Somalia.)
• There has been a 25% increase in these asylum applications in the last year.
• The majority of Eritreans fleeing Isaias go to Europe (9,739 out of 10,600 in total), but only half of them end up in the EU (5,208 people.)
• The countries which received the most Eritrean asylum seekers in 2011 are Switzerland (3,224), Sweden (1,649), Norway (1,256), France (924), United Kingdom (835), USA (766), Germany (632), Netherlands (458).
• There was a gradual step change in the number of applications in 2010.  Half way through the year they increased from about 1,800 every three months, to c.2,500 every quarter.  (Why?)  Then there was a peak (3,360) in April to June of 2011 (Why?)  before going back down to th c.2,500 level.
• Switerland took more Eritreans in between October and December last year (757) than Germany and the Netherlands did in the entire year.  (Why is this?)
• Eritrea provided the most applications in Norway in 201o of any country, and the fifth in the UK (after Afghanistan, Sri Lanka, China, Nigeria).   They then dropped down a bit in both lists in 2011.
• Eritrean asylum seekers didn’t even feature in the Swiss list in 2010, and then rocketed up to the top in 2011.  There must have been a change in policy, because the overall number of applications from individual countries increased considerably, from the hundreds to the thousands.

So what’s going on in Switzerland? and why is it so attractive to Eritreans?

[This is particularly interesting because of Isaias' training in the country inthe 1960s, and the resulting influence of Maoist politics, presumably including his disregard for the Eritrean people: Mao is believed to have caused the deaths of 40-70 million people.]

Cable dated 14 June 2006: the GNU and Eastern Front talks have begun…..