Wikileaks: A spoonful of Chinese sugar sours US investors in Mali

Viewing cable 09BAMAKO104, A SPOONFUL OF CHINESE SUGAR SOURS U.S. INVESTORS

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R 231120Z FEB 09
FM AMEMBASSY BAMAKO
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	C O N F I D E N T I A L SECTION 01 OF 03 BAMAKO 000104 
 
SIPDIS 
 
DEPARTMENT PLEASE PASS AID/AFR 
 
E.O. 12958: DECL: 02/13/2019 
TAGS: ECON EIND ETRD EINT EAGR ML
SUBJECT: A SPOONFUL OF CHINESE SUGAR SOURS U.S. INVESTORS 
IN MALI 
 
REF: BAMAKO 00051 
 
Classified By: Economic Officer Manoela Borges, Embassy Bamako, 
for reasons 1.4. (b) and (d). 
 
1.(C)  Summary:  During a February 2 meeting with the 
Embassy, representatives of the Schaffer Global Group, a U.S. 
based project development firm, enumerated repeated failings 
by the Malian government to honor an investment agreement 
with Schaffer and its South African technical partner, Ilovo, 
to establish a sugar cane plantation and refinery near the 
Malian town of Markala.  Since the project's inception in 
1999, Schaffer has received nearly USD 2 million in USG 
funding from the U.S. Trade and Development Agency (USTDA) 
and USAID.  In an attempt to undermine the Schaffer 
consortium's investment, a preexisting Chinese-owned sugar 
refinery in Markala has pressured the Malian government to 
renege on official agreements with Schaffer and reallocate 
prime sugar cane land already ceded to Schaffer to the 
Chinese sugar refinery for its own alleged expansion plans. 
Schaffer representatives insisted that no such expansion was 
planned and that this was purely an attempt by the Chinese 
company to retain its monopoly over Mali's sugar market. 
Schaffer representatives warned that Ilovo would pull out of 
the project if the issue is not settled within the next few 
weeks, effectively killing the project.  We have, in 
conjunction with the South African Embassy, frequently raised 
concerns with senior most Malian government officials over 
the various delays that have prevented Schaffer's sugar 
project from moving forward.  We will continue to demarche 
senior Malian officials over the need to live up to official 
commitments to foreign investors.  However, with Ilovo's 
deadline rapidly approaching, we fear that Mali may choose 
the easiest way out: running out the clock on ten years and 
several million dollars worth of investment by both Schaffer 
and the USG.  End Summary. 
 
-------------------------------- 
The Schaffer-Ilovo Sugar Project 
-------------------------------- 
 
2.(U) In 1999 the U.S. Trade and Development Agency (USTDA) 
funded a feasibility study for a sugar refinery project at 
the request of the Malian Ministry of Industry, Commerce and 
Transport.  USTDA provided the Louisiana-based Schaffer and 
Associates with USD 250,000 and the Malian government USD 
200,000 to conduct this study.  After Schaffer completed the 
study in 2001, Schaffer was selected as a consultant by the 
Malian government to seek funding for the implementation of 
the project to be located in Markala just north of the town 
of Segou.  In 2003, USAID contributed USD 892,000 and 
Schaffer USD 600,000 to undertake sugar cane variety trials. 
For these trials, Mali contributed a 74 hectare (ha) plot of 
land in the Office du Niger, which is the agricultural 
management and irrigation authority for Mali's main rice 
growing zone.  USAID contributed another USD 500,000 in 2005 
to complete initial field trials, analyze irrigation 
practices and potential sugar cane varieties. 
 
3.(U)  Schaffer subsequently secured a technical partner, the 
South African company Ilovo, which is a subsidiary of British 
Amalgamated Foods, and created, in 2003, the Malian company 
Societe Sucriere de Markala (SOSUMAR).  SOSUMAR is 70 percent 
owned by Ilovo, 22 percent by private Malian investors, and 4 
percent each by Schaffer and the Malian government.  The 
refinery project was envisaged in two stages.  During the 
first 10 year phase of the project, SOSUMAR would produce 
200,000 metric tons of pure plantation white sugar per year 
over 15,000 ha at a cost of roughly USD 400 million.  This 
sugar would meet international standards and could be 
exported to other markets in west Africa.  Production would 
double during the second phase, to 400,000 metric tons per 
year, creating an economy of a scale large enough as to 
satisfy the domestic market and transform Mali into a sugar 
exporter.  The project is expected to create about 7,000 
full-time jobs and more than 3,000 seasonal jobs.  Schaffer 
and Ilovo are now in the process of creating a second 
company, CaneCo, to manage the actual cultivation of sugar 
cane.  CaneCo will be 90 percent owned by the Malian 
government and 10 percent owned by SOSUMAR. 
 
4.(U) Funding for the projects' privately financed industrial 
component, valued at USD 200 million, is significantly 
committed and awaiting loan institutions, including the 
African Development Bank (ADB), Kuwaiti Funds, the Islamic 
Development Bank, OPEC, the West African Development Bank 
(BOAD) and others pledging to cover the long term loans for 
 
BAMAKO 00000104  002 OF 003 
 
 
sugar cane operations.  Schaffer and Ilovo are working with 
Mali and the ADB - mandated by the Malian government as the 
project's lead lender - to secure USD 200 million in funding 
for the project's agricultural component. 
 
-------------------------- 
Chinese Sugar Not So Sweet 
-------------------------- 
 
5.(U)  The Schaffer sugar project's proximity to a Chinese 
owned sugar refinery, SUKALA, has been a challenge from the 
start.  As Mali's only domestic sugar producer and refiner, 
SUKALA has enjoyed unrivaled market share in Mali since it 
started operations in 1968.  Originally wholly owned by the 
Malian government, in 1996 Mali decided to part of its 
Chinese debt accumulated during the factory's construction 
for SUKALA shares.  As a result, China acquired a 60 percent 
share of SUKALA, leaving 40 percent for the Malian 
government.  Over 40 years, SUKALA has yielded approximately 
USD 10 million in profits.  Since SUKALA produces poorly 
refined sugar that does not meet international standards and 
is not particularly well liked by Malian consumers, 
preferential import treatment by the Malian government has 
helped SUKALA stay afloat.  Currently, for every one part 
SUKALA sugar purchased, an importer may import from abroad up 
to three times that amount in pure white sugar duty-free. 
 
6.(U) These import regulations and SUKALA's status as the 
only sugar refinery in Mali means that the Chinese company 
has a guaranteed market for its product and is anxious about 
losing this profitable arrangement should SOSUMAR's 
operations get underway.  Chinese attempts to "compensate" 
for SOSUMAR's envisioned activities have forced Schaffer and 
Ilovo to seriously alter their business plan at several 
points during the design phase. 
 
------------------------ 
Schaffer Takes its Lumps 
------------------------ 
 
7.(C) SUKALA has repeatedly pressured the Malian government 
to revisit its land agreement with Schaffer, hoping that Mali 
will reallocate SOSUMAR land back to SUKALA.  Such a move 
would effectively torpedo the project as current production 
models require all of the land already allocated.  In late 
2008 Schaffer informed the Embassy that Mali's newly named 
Minister of Economy, Industry and Commerce, Ahmadou Abdoulaye 
Diallo, had informed Schaffer of his intention to do exactly 
this by reallocating hectares already officially given 
SOSUMAR back to SUKALA.  A few days later, however, Minister 
Diallo reversed this decision, claiming that he had not been 
aware that the Malian government had already officially given 
the land in question to Schaffer.  It now appears that 
Minister Diallo has reversed his reversal. 
 
8.(C) During a February 2 meeting with the Ambassador, 
Schaffer Global Group CEO Geralyn Contini, Schaffer Global 
Group Managing Director Mima Nedelcovych, and other 
representatives described the latest hurdles they have 
encountered.  Schaffer officials enumerated repeated failings 
by the Malian government to honor an investment agreement 
with Schaffer and its South African technical partner, Ilovo. 
 Schaffer representatives said SOSUMAR's operations have been 
effectively stymied by efforts by the adjacent Chinese 
refinery SUKALA to persuade Malian officials to revisit 
already settled land allocations.  Under the pretense of 
planning its own expansion, SUKALA has pressured the Minister 
of Economy to allocate a 35,000 ha tract of land, known as 
Zone A, to SUKALA.  Schaffer representatives insisted the 
Chinese had no such expansion planned and were simply 
interested in sabotaging the SOSUMAR operation so as not to 
lose its dominance over Mali's sugar market.  Schaffer CEO 
Contini said this was a common tactic employed by Chinese 
companies in Africa and that she had witnessed similar 
maneuverings by Chinese operations in other East and West 
African markets.  The Schaffer representatives described 
Chinese importers in Mali as a "mafia", since the producers, 
importers, and distributors are an insular group of three to 
four Chinese businessmen. 
 
9.(C)  In an attempt to allay Chinese fears that the SOSUMAR 
refinery would herald the end of Chinese operations, SOSUMAR 
had previously drafted a market sharing agreement that would 
guarantee a quota on the local market proportional to 
production.  Any excess production would be traded either in 
foreign markets or through an exchange in Mali.  This would 
effectively guarantee a market for all Chinese sugar 
 
BAMAKO 00000104  003 OF 003 
 
 
production.  SUKALA would still be affected, however, as the 
introduction of plentiful, high quality sugar produced by 
SOSUMAR would naturally drive prices down.  Schaffer said 
they were told during meetings with the Minister of Economy 
that SUKALA had rejected numerous offers for alternative 
tracts of land.  The Minister also intimated he was under 
pressure from Prime Minister Sidibe to support a "two-project 
plan" but that, if it came to it, his own preference was to 
lose SUKALA rather than SOSUMAR.  According to Schaffer's 
local representative and SOSUMAR Director Harouna Niang, 
during a January meeting with Schaffer the Minister of 
Economy went through several iterations of land allocation to 
try to please both SOSUMAR and SUKALA.  The Minister promised 
Niang he would present the proposal designed during this most 
recent meeting for the Prime Minister's approval and attempt 
to defend it as the Malian government's best option. 
 
-------------------- 
Electricity Problems 
-------------------- 
 
10.(U)  Schaffer Global Group Managing Director Nedelcovych 
stated that the land allocation issue obscured other 
fundamental problems in getting SOSUMAR's operations off the 
ground.  Principally, the questions of electricity and water 
supply were still unresolved.  Mali's electricity company, 
Energy of Mali (EDM), currently has a 15 kilo Volt (kV) line 
from Alatona, which would be used to power SOSUMAR's 
operations.  But SOSUMAR's needs are 33kV.  Ilovo would make 
the up-front USD 2 million investment necessary to increase 
power supply with reimbursement from the GOM.  However, an 
agreement with the GOM regarding whether this would be 
denominated in USD or CFA has not been reached; the GOM wants 
the investment denominated in CFA and Ilovo does not want to 
assume the foreign exchange risk. 
 
--------------------------------------------- ----------- 
Comment:  Chinese Influence Trumps U.S. Investors, Again 
--------------------------------------------- ----------- 
 
11.(C)  Unfortunately, Schaffer's experience is part of a 
broader pattern of Chinese influence over the GOM in cases 
where Chinese investment interests are threatened (Reftel). 
On its own, this influence represents a considerable 
deterrent to foreign investment in Mali.  Schaffer 
representatives told the Embassy that their primary financial 
partner, Ilovo, was on the brink of pulling out of the 
project if a solution could not be reached by the end of 
February.  Such a decision by Ilovo would effectively kill 
the Schaffer sugar project ten years after it was initiated. 
 
12.(C)  Over the past four years we have, on Schaffer's 
behalf, frequently raised concerns about various impediments 
to the sugar project with many senior Malian officials.  This 
includes President Amadou Toumani Toure, Prime Minister 
Modibo Sidibe, Foreign Minister Moctar Ouane, former Minister 
of Finance and Economy Abu-Bakar Traore, and former Minister 
of Commerce, Trade and Investment Ousmane Thiam.  Many of 
these demarches were delivered jointly in conjunction with 
the South African Ambassador to Mali.  We will continue to 
press the Malian government to both honor its commitments to 
Schaffer and consider the ramifications for foreign investors 
should the Schaffer project fall through.  Unfortunately, the 
Malian government is not known for either swift or decisive 
action and Mali could regard an end of February deadline as a 
opportunity to simply run out the clock on Schaffer.  Chinese 
President Hu Jintao's Feb 12-13 visit to Mali to inaugurate 
Bamako's third bridge over the Niger - billed as the largest 
Chinese development project in west Africa - will likely not 
accelerate the Malian government's interest in clarifying 
Schaffer's land dilemma. 
MILOVANOVIC