VALCO Opens Talks to End Dispute with Govt

Negotiations are taking place this week in Ghana to resolve an ongoing dispute between the government and an American mining company that is complicating an otherwise cooperative relationship between two countries with long historical ties.

The disagreement, involving Houston-based Kaiser Aluminum and its Ghanaian subsidiary, Valco, has led to a suspension of all lending to Ghana by the Overseas Private Investment Corporation (Opic), a U.S. government agency that provides political risk insurance and loans to American businesses investing abroad.

"Ghana is being seen as not acting in a commercially reasonable manner that would ensure investor confidence," OpicPresident Peter Watson stated in a letter to Ghana's ambassador in Washington early this year. As a result of Ghana's actions, he said, "All applications for investment support in Ghana will remain under review." Watson, who refused several requests for an interview, said through a spokesperson this week that the agency "is accepting applications but not acting on them at the current time."

This week's negotiations in Ghana involve the Kaiser corporate vice president and general counsel, Edward F. Houff, and a ministerial team led by Ghana's energy minister, Dr. Paa Kwesi Nduom. Riva Levinson, who represents Kaiser Aluminum in Washington, said the company is "hopeful that a commercially negotiated deal can be reached."

The talks are being closely monitored in Washington, where the dispute has received high-level attention at a number of agencies, including the Treasury, State and Commerce Departments and the office of U.S. Trade Representative Robert Zoellick. At issue is the price and availability of electric power for the aluminum smelter at Tema operated by Valco, the Volta Aluminum Company, which is owned by Kaiser (90%) and Alcoa (10%).

Kaiser Aluminum first invested in Ghana shortly after the country gained independence from Britain in 1960. Since aluminum processing requires a large volume of affordable electricity, the investment was made feasible by construction of the huge Akosombo Dam on the Volta River, built with U.S. government assistance in what was regarded in Washington as a Cold War counterpoint to the massive Soviet-built Aswan Dam in Egypt.

Part of the current disagreement centers around the 50-year Master Agreement that was signed in 1962, when Kaiser began operations in the country. Although the agreement remains in effect, the government argues that the Power Contract contained in the Agreement has expired and that renewal is subject to Parliamentary approval. The government has sought to garner international support for its stance by publishing its position paper in various media, including allAfrica.com (see The Position of Ghana on the Arrangements with Valco.

Ghana says Valco is paying 1.1 U.S. cents per kilowatt-hour, while the cost of producing electricity in the country has risen to 6.5 cents. Kaiser disputes the government's cost calculation and says the price of 3.0 cents that Ghana is demanding would push the cost of producing aluminum above the world market price.

A mediation effort in January broke down with no agreement. A new set of talks in Washington earlier this month proved more productive and resulted in concurrence by both sides to abide by arbitration, if negotiations don't produce a resolution, according to government and private sector sources. Kaiser has submitted the case to the arbitration panel of the International Chamber of Commerce.

"Should there be the need to continue on the arbitration path, we will be responsive, we will participate and we will respect whatever conclusions come in the end," Ghanaian Energy Minister Nduom told AllAfrica during a visit to Washington last month. He sharply dismissed suggestions by U.S. officials that Ghana acted without regard to the rule of law in this case, calling adherence to the law the "centerpiece" of President John Kufuor's program since he took office in early 2001.

"This is the government that has said 'zero tolerance' for corruption and that no one is above the law," Nduom said. "For anybody, anywhere to suggest that this particular government would not respect contracts or any part of the rule of law is something that we will contest very, very vigorously."

Ghana no longer has sufficient hydroelectric power to meet rising industrial and consumer demand and must generate electricity from thermal plants that burn petroleum, a more expensive process. In addition, Ghana has to import power from Cote d'Ivoire, Nduom said. The water level in Volta Lake has dropped to an unsustainably low level, and the lake needs healing, he said.

One concern on the Ghanaian side is the fact that Kaiser Aluminum has been in bankruptcy for more than a year. According to Jones Day, the company's law firm, the action was caused by an "unusually weak aluminum market," as well as the cost of asbestos litigation and rising retiree pension and medical obligations. Kaiser has said the bankruptcy plays no role in the dispute with Ghana and will not affect its future in the country. The company's largest shareholder is Maxxam, a Houston holding company controlled by financier Charles Hurwitz.

The discussions this week in Accra are aimed at resolving the disagreements and devising a solution that does not require arbitration. That prospect appears to have been enhanced by Ghana's willingness to accept an arbitrated outcome, if needed. Already, the atmosphere for discussion has improved, leading to an easing of the tensions that had been hampering bilateral ties, according to both U.S. and Ghanaian officials.

Even without a final accord, Ghana's acceptance of binding arbitration is expected to open the way for resumed lending by Opic to the country. Earlier this month, Opic took part in a trip to Ghana in connection with financing for a $100-million upgrade by CMS Energy for its thermal power plant at Takoradi. The expansion by the Michigan-based firm would significantly contribute to lowering the cost of electricity in Ghana, a core issue in the dispute between Kaiser Aluminum and the government. Last month, CMS Energy joined with other firms to establish the U.S. Ghana Economic Council to encourage improved bilateral ties.

According to Nduom, the government of Ghana wants to find an "amicable settlement" with Kaiser that will bring the matter to a close.