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Viewing cable 06MAPUTO396, U.S. TOBACCO COMPANY DEPARTING MOZAMBIQUE OVER

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Reference ID Created Released Classification Origin
06MAPUTO396 2006-03-31 07:43 2011-08-25 00:00 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Maputo
VZCZCXRO8253
PP RUEHDU RUEHJO RUEHMR
DE RUEHTO #0396/01 0900743
ZNR UUUUU ZZH
P 310743Z MAR 06
FM AMEMBASSY MAPUTO
TO RUEHC/SECSTATE WASHDC PRIORITY 5213
INFO RUCNSAD/SOUTHERN AFRICAN DEVELOPMENT COMMUNITY PRIORITY
RUEHRC/DEPT OF AGRICULTURE WASHDC PRIORITY
RUEAIIA/CIA WASHDC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RHEFDIA/DIA WASHDC PRIORITY
RHEHNSC/NSC WASHDC PRIORITY
RUEHLMC/MILLENNIUM CHALLENGE CORP WASHINGTON DC PRIORITY
UNCLAS SECTION 01 OF 02 MAPUTO 000396 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
AF/S - HTREGER 
EB/IFD/OIA 
STATE PASS USTR FOR P.COLEMAN 
STATE PASS OPIC 
 
E.O. 12958: N/A 
TAGS: EAGR ETRD EINV MZ
SUBJECT: U.S. TOBACCO COMPANY DEPARTING MOZAMBIQUE OVER 
COMMERCIAL DISPUTE 
 
REF: 05 MAPUTO 1481 
 
MAPUTO 00000396  001.2 OF 002 
 
 
Sensitive but Unclassified - Not for Internet Distribution. 
 
1. (SBU) Summary: American loose-leaf tobacco merchant 
Alliance One International has decided to discontinue all 
operations in Mozambique.  The withdrawal comes as the result 
of the GRM's decision in August 2005 to seize Alliance One's 
most profitable Mozambican concession and grant it to another 
company, U.S. tobacco company Universal Leaf.  Alliance One 
believes the GRM,s actions are in violation of the 
concession agreement and Mozambican law, and will likely file 
an insurance claim.  The GRM's posture in the dispute raises 
additional concerns about the Mozambican business 
environment.  End Summary. 
 
----------- 
Pulling Out 
----------- 
 
2. (SBU) On March 15 Colin Armstrong (protect), Mozambique 
country director for the tobacco firm Alliance One 
International, an American company, called on the Ambassador 
to inform her that Alliance One would be ceasing operations. 
According to Armstrong, Alliance One reluctantly came to the 
decision to close its Mozambican operations in response to 
the GRM's decree, made in August of 2005, under which it 
seized Alliance One's concession in Chifunde district, Tete 
province, and awarded it to Alliance One's rival, another 
American loose-leaf tobacco company, Universal Leaf (see 
reftel for details).  Alliance One maintains the cancellation 
of the concession violated its concession agreement the GRM 
and was in violation of Mozambican law.  Armstrong and the 
company,s lawyer told the Ambassador they did not believe 
that Universal Leaf was directly behind the cancellation of 
its concession, however. 
 
3. (SBU) According to Armstrong, Alliance One did not take 
this decision lightly.  The company spent eight months 
attempting to convince central government and provincial 
officials to reverse course, including meeting with the 
Governor of Tete, the Minister of Agriculture and with close 
advisors to President Guebuza.  (As noted in reftel, it is 
still not clear whether ultimate responsibility for the 
action lies with the provincial governor or the Minister of 
Agriculture.) On several occasions Alliance One informed 
officials that if the Chifunde concession were not returned, 
the tobacco company would be forced to exit Mozambique.  On 
March 20 Alliance One's Managing Director for Africa, Mike 
Roberts (protect), in speaking with Poloff explained that 
while Alliance One was leaving Mozambique with a heavy heart, 
without the Chifunde concession its operations in Mozambique 
simply were not profitable. 
 
------------ 
Consequences 
------------ 
 
4. (SBU) Alliance One purchased tobacco leaf from 50,000 
Mozambican small farmers.  Some 15,000 tobacco farmers in the 
Chifunde concession will be able to sell to Universal Leaf. 
However, with Alliance One's departure the remaining 35,000 
farmers - mainly in Niassa and Zambezia provinces - will find 
it difficult, if not impossible, according to Armstrong, to 
sell their product.  Many of Alliance One's 550 direct 
employees may be unemployed, as well. 
 
5. (SBU) In a March 22 letter to the SEC, Alliance One 
estimated closure of its operations in Mozambique will cost 
the company USD 6 million.  According to Alliance One's legal 
representative here, the company is in the process of filing 
an insurance claim against the Mozambican government and is 
considering whether to pursue damages under the US-Mozambique 
Bilateral Investment Treaty (which only entered into force in 
March 2005).  He speculated that the insurance claim, at 
least, if successful would negatively impact Mozambique's 
credit rating. 
 
------- 
 
MAPUTO 00000396  002.2 OF 002 
 
 
Comment 
------- 
 
6. (SBU) It is unclear to what extent President Guebuza and 
his advisors are aware of the downside for Mozambique's 
reputation of the taking of the concession and the departure 
of a major U.S. investor.  When the Ambassador at one point 
informed President Guebuza that Alliance One had requested a 
meeting with the Embassy, Guebuza indicated that he was aware 
of the issue but said his advisors were telling him that the 
company had a problematic record in Tete province, especially 
on labor issues.  We understand that Agriculture Minister 
Mandlate made a last-minute appeal in a letter on March 20 
asking Alliance One to stay and negotiate, but the GRM never 
pressed further and by then it probably was too late.  It is 
not clear what impact a possible insurance claim or rating 
downgrade would have in Maputo.  Nor is it clear whether the 
concession seizure was a one-off hiccup or a sign of 
increased government willingness to arbitrarily act against 
major business investments, or at least not to curb such 
actions by provincial officials.  In public statements 
President Guebuza continues to stress his government's 
support for an independent private sector and a transparent 
business environment that encourages foreign investment. 
La Lime