US embassy cable - 05MAPUTO1481

UNCLAS SECTION 01 OF 02 MAPUTO 001481 
 
SIPDIS 
 
SENSITIVE 
 
SIPDIS 
STATE FOR AF/S - TREGER 
STATE FOR EB/IFD/OIA 
STATE PASS USTR FOR P.COLEMAN 
 
E.O. 12958: N/A 
TAGS: EAGR, ETRD, EINV, MZ 
SUBJECT: MOZAMBIQUE: GOVERNMENT REVOKES CONCESSION FOR US 
TOBACCO COMPANY, ALARMS LOCAL BUSINESS COMMUNITY 
 
 
MAPUTO 00001481  001.2 OF 002 
 
 
1. (U) Summary: The Government of Mozambique's (GRM) recent 
decision to revoke a large tobacco concession held by a US 
company without transparency, documentation or the steps 
required by Mozambican law is causing considerable concern in 
Mozambique's business community and could damage Mozambique's 
reputation with foreign investors -- particularly if the 
original holder of the concession, DIMON, files an insurance 
claim, as threatened.  Additionally, the GRM,s actions may 
violate its Bilateral Investment Treaty with the US, which 
came into force in March.  End Summary. 
 
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BACKGROUND 
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2. (U) DIMON, an American corporation, was involved in the 
worldwide cultivation of loose-leaf tobacco.  On May 13, 
2005, DIMON merged with Standard Commercial Corporation to 
form Alliance One International, incorporated in Virginia and 
now one of the world's largest loose-leaf tobacco merchants. 
The merger of DIMON,s operations in Mozambique is still 
ongoing.  For this reason, this cable refers to DIMON and not 
Alliance One. 
 
3. (U) DIMON,s investment in Mozambique is extensive; it 
currently operates in Niassa, Nampula, Zambezia, Manica and 
Tete provinces, works with almost 60,000 farmer/producers and 
directly employs nearly 2,000 Mozambicans.  On May 24, 2001, 
the Mozambican Government granted DIMON a ten-year right to 
operate a tobacco concession area in Chifunde district in 
Tete province, with the option to renew for five years. 
 
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CONCESSION REVOKED 
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4. (U) Our understanding of the concession revocation, drawn 
from information provided by lawyers for DIMON in Mozambique 
and from local business associations in Maputo, is as follows: 
 
5. (U) Prior to the 2005/2006 season, which started in 
September, DIMON invested approximately USD five million in 
seeds, fertilizers and other inputs delivered to producers in 
the Chifunde area.  On August 5, 2005, the Minister of 
Agriculture, Tomas Frederico Mandlate, issued a decision 
revoking DIMON's concession rights in Chifunde district. 
Minister Mandlate gave the following reasons: 1) the illegal 
entry of "Stancom" (referring to DIMON's merger with Standard 
Commercial Corporation, mentioned in para 2) into the 
concession area; 2) the massive dismissal of employees; 3) 
the stoppage of tobacco trade; and 4) the illegal purchase of 
tobacco.  Mandlate also cited a decree issued by the Tete 
provincial governor against DIMON, along with a request for 
intervention by the Chifunde district government.  DIMON says 
it received no warning prior to the revocation and, despite 
repeated requests, still has not received any evidence or 
documentation supporting the alleged grounds. 
 
6. (U)  On August 15, DIMON filed an appeal of the August 5 
decision with the Minister of Agriculture.  Under Mozambican 
law, this appeal should have maintained the status quo 
pending a final decision from the Ministry or a competent 
court.  Despite this fact, the status quo was not maintained 
and on September 15, 2005, the Tete governor issued another 
decree officially granting another company, Mozambique 
Tobacco, the immediate right to operate the concession. 
Mozambique Tobacco is the implementing partner for Universal 
Leaf, another an American corporation. 
 
7. (U) However, under pressure from public complaints by the 
US-Mozambique Chamber of Commerce and the national business 
umbrella association, CTA, on October 11 Agriculture Minister 
Mandlate revoked his August 5 decision against DIMON and 
remanded the issue back to the Tete governor for further 
consideration.  As we understand it, the governor of Tete was 
supposed to allow a joint fact-finding investigation team, to 
include a legal representative of DIMON and one of CTA, to 
visit the Chifunde area to investigate the grounds of 
revocation.  The investigation did not occur as planned; 
instead, one government official conducted the investigation 
 
MAPUTO 00001481  002.2 OF 002 
 
 
and supported the governor's decision against DIMON. 
 
8. (U) DIMON is considering several courses of action in 
response to the loss of its concession in Chifunde, including 
withdrawing investments from all of its tobacco concessions 
in Mozambique, filing an insurance claim with its private 
insurer asking for an indemnity of approximately ten million 
USD and seeking recourse through international arbitration. 
DIMON lawyers suggested also that they are exploring filing 
for arbitration under provisions of Article IX of the 
Bilateral Investment Treaty. 
 
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COMMENT 
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9. (SBU) We have heard allegations that DIMON treated its 
employees badly and was strongly disliked by tobacco growers 
in the Chifunde area.  It is also noteworthy that DIMON has 
never approached the Embassy for our assistance over the 
dispute.  For these reasons, we suspect the GRM's ire against 
DIMON may have some merit.  However, whether DIMON is in the 
right or wrong, it appears that the GRM has acted arbitrarily 
by not following the law.  This has foreign investors here 
worried, particularly that it could mark the beginning of an 
anti-business trend by the new Guebuza government.  If DIMON 
files an insurance claim, as threatened, Mozambique's credit 
rating and reputation as an investment destination will 
surely suffer. 
La Lime