US loans fueled insider deal, failed power plan in Liberia
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US loans fueled insider deal, failed power plan in Liberia
RONNIE GREENE & JONATHAN PAYE-LAYLEH
Jan. 27, 2015
BUCHANAN, Liberia (AP) — The auburn-red soil and lush green vegetation lured the foreign investors to Liberia's third-largest city with visions of environmental gold.
They formed a company, Buchanan Renewables, and set anchor, crafting a plan to convert swaths of rubber trees into biomass chips that would power the impoverished nation and fuel their own profits.
The Overseas Private Investment Corporation, a little known U.S. government agency 4,700 miles away, backed the venture with $217 million in loan approvals from 2008 to 2011.
Two years later, Buchanan shuttered its Liberian operations and dismissed 600 workers. It never built a promised power plant, so instead of powering a country in need, it shipped its biomass chips to Europe.
It repaid the U.S. government loans. It paid its non-African employees handsomely. But it left behind fields of depleted rubber farms and a trail of allegations of sexual abuse and workplace hazards.
From the start, an Associated Press examination found, OPIC's support for the power project in this western African country was marked by questionable due diligence and deep political links. Even for ostensibly philanthropic projects meant to aid the world's poorest, profit and corporate opportunities can intersect with family and business ties among Washington's political elite.
In Liberia, Buchanan's CEO was James Steele, a larger than life former U.S. military figure and onetime Texas business partner of OPIC's then-president and CEO, Robert Mosbacher Jr.
Mosbacher's father was commerce secretary under President George H.W. Bush. Steele drew acclaim, and attracted controversy, over his role in U.S. military exploits from Iran-Contra to Iraq, where he performed work for President George W. Bush's defense secretary, Donald H. Rumsfeld.
Even before the Liberian project, Mosbacher had tapped Steele as a consultant to help OPIC develop power projects in hard-pressed countries. Over 22 months from 2006 to 2008, the agency paid Steele $390,000 for consulting and an additional $114,556 in travel, the AP found. Then it approved three loans to support Buchanan's vision in Liberia.
The venture collapsed amid tension between the company and Liberian government, questions from the U.S. Embassy and the withdrawal by a vital financier. As tensions escalated, troubling stories emerged: charcoal producers having to trade sex for wood that was promised as part of the undertaking; Buchanan's machinery cracking open an ancestor's grave on one family farm; the company leaving piles of woodchips that attracted stinging ants and fouled local waters.
Some women said they became pregnant after trading sex for sticks with Buchanan staff members in Liberia. "If we didn't have sex with the employees they wouldn't give you sticks," Sarah Monopoloh, chairwoman of a local charcoal sellers union, told the AP. She said she miscarried. "I nearly died in the process," Monopoloh said.
Tree planter Aderlyn Barnard was knocked unconscious, breaking a leg and wrist and dislocating an arm, when the company's clearing machine felled her with a tree. "I am one of the victims," she said. "Right now I am disabled."
To Mosbacher, who abstained from the OPIC's loan approval, the project was an opportunity lost.
"This was absolutely for the best of intentions and that's why it was literally the biggest disappointment I had from all my time at OPIC," said Mosbacher, the agency head from 2005 to 2009. "What seemed to be a home run, a win-win, just didn't work out the way any of us had hoped."
Backing the project at every stage was a U.S. agency that approves more than $3 billion a year in global financing but whose profile is so low it regularly cancels annual public hearings because no one signs up to speak.
In all, OPIC handed out $77 million of the $217 million approved in Liberia.
The last loan came under the current president and CEO, Elizabeth Littlefield. As the longtime head of the global Consultative Group to Assist the Poor, she once bought a fleet of scooters so executives could quickly zoom down the hallways in their office in Washington, D.C.
When OPIC approved the final loan, worth $90 million, in 2011, the agency did not conduct an onsite environmental and social check for a project in a country haunted by a decade-long civil war and history of abuses against women, the AP found.
"There was just an utter failure of the due diligence process that OPIC is supposed to follow," said Natalie Bridgeman Fields, executive director of the Accountability Counsel, a San Francisco legal organization representing laborers in Liberia. "There are a lot of deep issues of that society that would require a high level of due diligence."
OPIC's own Office of Accountability questioned the agency's review process.
Buchanan's senior management had no prior experience in the rubber sector or in operating a commercial venture in Liberia, the accountability office said. The agency approved the loans despite incomplete background reviews involving key figures at OPIC and Buchanan, it found.
Littlefield called the report "unprecedented" and said OPIC was making reforms.
"OPIC is pleased to see that the report did not uncover any failure by OPIC to apply the policies and procedures that were in place at the time," she wrote.
For the men and women lured by Buchanan's promises, the project's collapse left a painful legacy.
"The workers are still grieving today," said Alfred Brownell, executive director of Green Advocates International, a legal advocacy group in Monrovia, the Liberian capital. "The only thing Liberia got was the massive cutting down of rubber trees."
BIG MANDATE, LOW PROFILE
The Liberian financing is one piece of an $18 billion portfolio for a U.S. agency that issues loans, loan guarantees and political risk insurance.
Its projects span the globe, including solar power plants in Chile, palm oil plantations in Honduras and hydropower generation facilities in Georgia.
OPIC operates from Washington with a staff of 230. President Barack Obama appointed Littlefield, a former World Bank official and steady Democratic donor, the agency's 10th CEO.
Launched in 1969 by President Richard Nixon, OPIC bills itself as the U.S. government's development finance institution.
Of $3 billion in financing it approved last budget year, a record $1.2 billion was committed for renewable energy. Self-sustaining, the agency has returned money to the U.S. coffers 37 straight years.
Despite its global mission, OPIC flies under the radar. Littlefield herself has called it the "best-kept secret in government." For an agency operating in 102 countries, it rarely undergoes deep scrutiny. Its Office of Accountability — created in 2005 — has issued reports on just five deals over a period when OPIC has approved more than 530 projects.
The office's previous director served through September to finish the Liberia report. The position has been vacant since.
OPIC's financings have sometimes been the subject of criminal fraud investigations, raising questions about the agency's loan review process.
Last September, a Texas businessman got 27 months in prison for defrauding OPIC and a private company of nearly $1.7 million in a project to produce toilet paper and napkins in Mexico, the Justice Department said. OPIC had guaranteed 97.5 percent of losses in the company's $10 million financing.
Earlier, four defendants got prison for defrauding OPIC from 2003 to 2005 in securing a $9.4 million loan to fund a milling and bakery project in Estonia.
The most noteworthy criminal case involves InnoVida Holdings Inc., a Miami Beach, Florida, company that won a $10 million OPIC loan to help build prefabricated housing for victims of the 2010 Haiti earthquake.
Jeb Bush, the former Republican governor of Florida who is considering running for president in 2016, served as a board member of InnoVida when the loan was approved in January 2010. Bush later left InnoVida and is not accused in the criminal case.
InnoVida's owner, Claudio Osorio, pleaded guilty in 2013 to wire fraud and money laundering. One charge involved the $10 million OPIC loan, which prosecutors said Osorio used to repay investors and for his own benefit. In a Miami courtroom, Osorio got 12½ years in prison.
His Haiti plan had been in development for months when the earthquake struck, prompting OPIC to accelerate the project. OPIC loaned $3.3 million before the fraud was unmasked, money it seeks to recover in bankruptcy proceedings.
OPIC spokesman Charles Stadtlander said the criminal cases were isolated incidences spread over a decade for an agency that consistently maintains a default rate below 1 percent.
"That's something private institutions would aspire to," he said, "and we are doing this in some of the most challenging environments across the world." He said OPIC plans to fill the accountability director position, a job that he said was created to respond to complaints.
While the Export-Import Bank has received congressional scrutiny in recent months, OPIC has been spared such attention.
"Most of the public has never even heard of OPIC, much less what it does," said Doug Norlen, a senior program manager with Friends of the Earth, a coalition of environmental groups, and among the few people who follow the agency. "Usually when I start to talk to people about OPIC they think I am talking about OPEC."
Norlen has seen OPIC sharpen its focus on protecting the environment. But he believes the agency still must improve transparency, noting that OPIC — while touting its overall successes — does not publicly disclose the outcomes of individual projects.
"There can be some very negative development impacts, displacement, human rights violations and environmental degradation," Norlen said. "We think they should disclose that."
OPIC posts brief descriptions of projects it approves but not regular updates on their status. Stadtlander said the agency is "trying to get better at reporting that out."
A STATE LUNCHEON, DAWN OF A PROJECT AND JIM STEELE
The Liberia project's origins spawned during a state luncheon in 2006, when then-CEO Mosbacher walked through a receiving line and met Ellen Johnson Sirleaf, Liberia's president. She asked whether OPIC was open to doing business in Liberia.
"She said, 'Help us.' And the president was standing next to her," Mosbacher recalled. "And he said, 'Mosbacher, help her.'"
That was George W. Bush, who appointed Mosbacher as CEO.
Power was Liberia's priority. Mosbacher turned to his friend Steele, who that year had returned from Iraq, to pursue potential energy projects.
They had worked together in the family business of Mosbacher Sr., the Texas oilman and prominent Republican who died in 2010.
In 1995 the elder Mosbacher had plucked Steele from Enron, where he worked on gas pipelines and power plants overseas. Steele became president and CEO of Mosbacher Power Group, where Mosbacher Jr. was vice chairman. Three years later, Steele became president and chief executive of TM Power Ventures, a joint venture between TECO Power Services and Mosbacher Power Group, where Mosbacher Jr. was vice chair.
Earlier, Steele spent 24 years in the Army. He earned decorations including a Silver Star in Vietnam, when, after his troop encountered gunfire, he "crawled through the hail of hostile fire" to rescue an injured comrade.
His military exploits also have led to scrutiny. In the 1980s, the U.S. Senate Intelligence Committee called Steele to testify about the Iran-contra scandal.
In Iraq, the retired colonel served as special envoy for Rumsfeld and senior counselor to top diplomat Paul Bremer for Iraqi security forces.
Steele did not respond to AP interview requests through Mosbacher and a speaker's bureau that represented him.
At OPIC, Mosbacher said he retained Steele as a consultant to help the organization explore power projects in emerging markets. He said OPIC lacked the internal business development staffing to aggressively seek new undertakings, saying it is "staffed mostly to react to projects brought to it."
In all, OPIC paid nearly $505,000 from August 2006 to May 2008 for Steele's consulting and travel costs to Liberia, Central America, Central Asia, Pakistan and the Middle East. He stayed at the Hyatt Regency Dubai, Four Seasons hotels in Vancouver and Amman, Jordan and the Islamabad Serena Hotel, according to records obtained by AP under the Freedom of Information Act.
His global travels and accompanying bills were so extensive, Steele wrote to OPIC one Friday evening in October 2006. "Help!" he emailed. "My credit card bills are in the tens of thousands and no OPIC reimbursement as yet. Thanks, Jim"
The following Tuesday morning, an OPIC staffer alerted colleagues: "Please make it a point to pay his invoices right away. He is a contractor in the President's office."
In early 2008, Steele traveled to Monrovia as an OPIC consultant.
Ultimately, he made acquaintance with John McCall MacBain, a philanthropist whose Pamoja Capital investment arm became the lead foreign sponsor of the Liberian biomass venture.
Steele became CEO of Buchanan Renewables, and in each of the three loans from OPIC that followed, was one of the U.S. sponsors. MacBain did not respond to interview requests.
LOANS AND RED FLAGS
Mosbacher saw no issue between his stewardship of the agency and loans approved to a company employing his former business colleague. He said there was "complete disclosure" about Steele's role. OPIC's subsequent investigation disputed this.
"I didn't own any part of his business," Mosbacher said. "I didn't have any financial relationship with him whatever."
The accountability office said their close, past relationship raised potential reputational risks for the government agency. The report did not name the executive and the OPIC official it said "had been involved in various transactions and professional activities."
AP confirmed the report was referring to Steele and Mosbacher.
OPIC conducts diligence checks on the corporate officers to whom it gives money. It conducted these reviews on other executives with Buchanan Renewable Energy (BRE), the parent company. But the accountability office said OPIC was not provided this information involving Steele when it approved the project.
OPIC's board approved the biggest loan in September 2008, a $111.7 million financing to help Buchanan Renewables (Monrovia) Power Inc. build a rubber wood fired biomass electricity generation facility. The loan would bankroll 75 percent of the $148.9 million total cost.
Though Mosbacher supported funding the project, he did not vote on this loan, the agency said.
The government of Liberia never signed off on the power plant, and the money was not handed out. Still, the approval signaled OPIC's support for Buchanan's Liberian blueprint.
Also in 2008, OPIC approved a $15 million loan to help Buchanan Renewables Fuel Liberia Inc. produce wood chips from unproductive rubber trees. OPIC disbursed the money in March 2009, and Buchanan began harvesting rubber trees on the vast Firestone Plantation north of Monrovia.
The final $90 million loan allowed Buchanan Renewables Fuel to expand its biomass operation by contracting with local plantation and farm owners to remove aged rubber trees, and process them into wood chips. Plans called for Buchanan to plant new seedlings to rejuvenate farms.
By 2012, OPIC had handed out $62 million of the $90 million. The company was portraying itself as a good neighbor in Buchanan, a port city some 90 miles south of Monrovia. "Welcome to the City of Buchanan," one billboard announced. "The Home of Buchanan Renewables. Working Towards (sic) a Brighter Future."
The promises proved hollow.
The project's collapse was triggered by myriad factors converging in a country where large projects are challenging under any circumstances.
Buchanan's executives, new to commercial enterprises in Liberia, set overly ambitious projections, the watchdog report concluded. Its owner overpaid for key assets on the ground, straining pressure for production even as operating expenses were high, with Buchanan paying "generous benefit packages for expatriate employees."
Unable to build its power plant, the company ended up shipping biomass chips to Europe.
Other problems arose. Under its agreement, Buchanan was to share discarded pieces of Firestone rubber trees with charcoal producers from nearby Freeman Reserve.
"The workers took advantage of that," said Sarah Singh, an Accountability Counsel lawyer who visited Liberia. "They would call them your girlfriend. As long as you were their girlfriend they would set aside sticks for you so you could make a living."
Liberia had drawn shame for abuses against women during the country's civil war. One 1998 study said 49 percent of women interviewed reported "at least one act of physical or sexual violence by a soldier or fighter." A U.N. report said sexual violence was a characterizing feature of the civil war.
Tensions escalated between charcoal producers and industry.
Before Buchanan set up shop, area charcoalers sustained their trade by tapping discarded trees that Firestone no longer used from the company's mammoth plantation. With Buchanan clearing trees, Firestone prohibited farmers from producing charcoal on its land. The situation became so intense, Firestone hired an ex-rebel commander who patrolled the plantation with AK-47s, advocates said.
OPIC's accountability office explored this conflict. Buchanan Renewables Fuel "operators required charcoalers to pay for the roots and branches that BRF had previously agreed to give them at no cost, and a Firestone contractor posted 'no burning' signs and demanded $350 (Liberian dollars) as 'registration' for permission to burn," it said. "Female charcoalers who could not afford the payment for wood were offered the opportunity to pay with sexual favors."
Buchanan and Firestone managers told OPIC they did not sanction these practices.
Joseph and Charles Bryant, who ran a family farm, told advocates investigating the project's aftermath that Buchanan's machinery cracked open a grave on the family's farm. They blamed contaminated runoff from discarded wood chips for polluting a nearby creek, and said a 3-year-old child who drank water died. The AP was not able to verify the cause of the child's death.
Another worker suffered a snake bite after not getting proper footwear. The company dumped woodchips on area farms, attracting stinging ants and fouling the water supply when rains came.
Overall, former accountability director Keith Kozloff concluded that worker complaints "have varying degrees of credibility. Importantly, several allegations have a significant degree of credibility." Asked in an interview to cite his most important reform, Kozloff cited one suggesting enhanced due diligence involving human rights.
Mosbacher learned of the abuses reading the report. "I hope it's not true. If it is, it's extremely disappointing and unexpected," he said. "Jim Steele had a pretty darn impressive military record for years and is a high integrity guy, so if that was going on, I can't imagine he knew about it."
A PROJECT'S COLLAPSE
Workers weren't the only ones raising questions. By March 2012, the U.S. Embassy cabled OPIC questioning Buchanan's business model and citing "tense exchanges" between the company and President Sirleaf.
A month later, an OPIC policy compliance group conducted its sole visit to Liberia, but said it failed to find any problems related to worker rights or environment, health and safety.
Others saw problems. That May, Swedish financiers withdrew from the enterprise. In November 2012, a former Buchanan human resources official sent OPIC a letter citing labor problems.
By January 2013, Buchanan Renewables Fuel cancelled a remaining commitment of $28 million it could have borrowed from OPIC, sold its fuel and power group, and repaid its debt. Within months, the company that pledged to revive the economy dismissed 600 workers.
In January 2014, worker advocates filed a formal complaint to OPIC. When Littlefield directed Kozloff to launch a "lessons-learned" review, she shared her view that the U.S. agency was not to blame. "Unfortunately, for reasons outside of OPIC's control, these projects did not progress as planned and our clients folded their operations in Liberia in early 2013," she wrote.
In Liberia, workers are still waiting to be compensated for their losses.
"In the end, only the poor farmers and the poor charcoal sellers became the losers," said Brownell. "If (Buchanan Renewable Energy) was able to fully pay OPIC's loan, why wasn't it able to address the impact it had on the small farmers and the workers?"
Charcoal producer Monopoloh asks the same question. "Our charcoal business was fine," she said, "until BRE came."
Greene reported from Washington.