This article is the first in a series dedicated to the company KRAOMA S.A.
An Industrial Flagship Under Threat
Chromite was first discovered in Madagascar in 1948 near the village of Androfia (Andriamena), located in the southeast part of the Betsiboka region, approximately 350 kilometers north of Antananarivo. Chromite is the primary ore of chromium, used in a wide variety of metallic, chemical, and manufactured products.
To exploit chromite on an industrial scale, the Andriamena Mining Company (COMINA) was established in 1966. This company, predominantly privately owned, was then 20% owned by the Malagasy state. Two years later, mining operations began, and in July 1969, the first shipment of 10,800 tons of ore was dispatched.
In 1975, during the socialist period marking President Ratsiraka’s first term, COMINA was nationalized and renamed Kraomita Malagasy, or KRAOMA.
Today, KRAOMA S.A. is a publicly traded company, with 97.17% of shares owned by the Malagasy state and 2.83% by its employee mutual fund. Its Board of Directors is composed exclusively of representatives from state entities.
Once a national pride, KRAOMA S.A., the only industrial mining company with majority state ownership, has accumulated significant debts. Poor management and successive governments’ tendency to treat the company’s cash flow as their personal wallet have drained it financially.
The company’s already precarious financial situation worsened during President Rajaonarimampianina’s tenure. Equipment and infrastructure have become increasingly dilapidated. Payment delays to suppliers have mounted. Since 2015, mining royalties have not been paid to the rural commune of Brieville—where the mining takes place—as the law requires.
An Unequal Partnership?
It was at this point that KRAOMA S.A.’s leaders turned to the Russian company Ferrum Mining for assistance. A strategic partnership was signed on August 8, 2018, between the two companies. The contract for KRAOMA S.A. was signed by Eric Jean Noël RANDRASANA, then Chairman of the company’s Board of Directors. This strategic partnership established a joint venture named KRAOMA MINING S.A. (see Box 1).
“KRAOMA S.A. was no longer able to pay its debts, so we had to find a solution. Hence this joint venture contract between KRAOMA S.A. and Ferrum Mining. We want only the best for everyone. […] What is certain is that KRAOMA S.A. is not being sold,” explained Benjamina Ramarcel RAMANANTSOA, the current Chairman of KRAOMA S.A.’s Board, in an interview in Brieville on December 18, 2018. Like his predecessor, Mr. RAMANANTSOA combines the role of Chairman of KRAOMA S.A. with that of Chief of Staff at the Presidency of the Republic. He was appointed in October 2018 following Mr. RANDRASANA’s departure.
That same month, Simon Seva MBOINY, former Madagascar representative of STORK INTERNATIONAL—KRAOMA S.A.’s main client—was appointed CEO of the KRAOMA MINING S.A. joint venture.
Box 1: The Joint Venture Experience of KRAOMA S.A.
The purpose of a joint venture is to pool certain resources from partner entities with the aim of achieving actions that each partner separately could not carry out as efficiently. This is not the first time KRAOMA S.A. has formed a joint venture with an international partner. Notably, the Italian company United Technologies formed the joint venture United Chrome S.A. with KRAOMA S.A. in 2009, before withdrawing from the partnership the following year.
KRAOMA MINING S.A. is registered in Madagascar. The partnership stipulates that 80% of the joint venture’s shares belong to Ferrum Mining, while the remaining 20% go to KRAOMA S.A.
Considered by many as overly favorable to the Russian company, this share distribution has been widely contested. Another point of contention is the lease contract signed on September 12, 2018, between KRAOMA S.A. and KRAOMA MINING S.A., which transfers from the former to the latter three exploitation permits for chromite deposits at the Brieville site (Betsiboka) for a period of five years (see Box 2). The goal of KRAOMA MINING S.A. is to extract 3,000,000 tons of ore during this period.
The three exploitation permits (No. 33, 45, and 49) were officially transferred to the joint venture on October 12, 2018, by the Madagascar Mining Cadastre Office (BCMM). Chromite extraction work by KRAOMA MINING S.A. began on October 22, 2018.
Box 2: Leasing in the Mining Industry
A lease, which does not constitute a transfer of ownership, is a legal act by which a public authority or a private individual assigns a piece of land to a third party (a private company or community) for a limited and, in principle, reversible period. In the mining sector, leasing refers to the act whereby the holder of a mining concession entrusts its exploitation to another party. It is not an ordinary rental since the use destroys the leased asset: thus, registration fees correspond to those of a property sale rather than a lease.
Employee Grievances
Ferrum Mining provides technical support to KRAOMA MINING S.A. through nine of its employees, all Russian nationals, who were based until recently at the Brieville site.
Since late November 2018, KRAOMA S.A. employees have been on strike. Union representatives complain about irregular salary payments and difficult working conditions with Ferrum Mining’s consultants, whose departure they demand. For Jean Sosthène RAKOTONIAINA, Chairman of KRAOMA S.A.’s joint union, “The delays in salary payments and overtime hours are the triggers of our strike. Two months working with the Russians is more than enough…”
Negotiations on these issues began with Ferrum Mining, which paid employees’ salaries for September 2018, even though production started the following month. Before paying salaries for October and November 2018, KRAOMA MINING S.A.’s management required KRAOMA S.A. to disclose detailed payment statements and a comprehensive list of paid staff—something KRAOMA S.A.’s management refused.
October salaries were eventually paid by KRAOMA MINING S.A., amounting to 198,000 US dollars, plus 15,600,000 Ariary for medicines. According to Valerii KARIAVKIN, Ferrum Mining’s technical manager advising Dominique RAJOELISON, Brieville’s Site Operations Manager, KRAOMA S.A.’s management provides no support to KRAOMA MINING S.A., either in labor relations or in acquiring the equipment and supplies necessary for site operations. “We have no collaboration with the central office [i.e., KRAOMA S.A.’s headquarters in Antananarivo],” Mr. KARIAVKIN reports.
The partnership agreement and lease contract provide for the secondment of some KRAOMA S.A. employees to KRAOMA MINING S.A. In a letter received by KRAOMA S.A.’s management on November 23, 2018, KRAOMA MINING S.A.’s CEO wrote that “after lengthy negotiations, both parties agreed that the joint venture would only employ those KRAOMA S.A. employees working at the Brieville plant. Employees from the central office are not covered by this agreement.” According to Mr. MBOINY, having KRAOMA MINING S.A. pay all KRAOMA S.A.’s employees would render the latter a hollow shell, and Ferrum Mining could then be accused of having effectively bought KRAOMA S.A.
The personnel secondment agreement, submitted for signature on October 19, 2018, was not signed by KRAOMA S.A.’s management. Some employees see the salary payment delays as blackmail by KRAOMA MINING S.A. to enforce the personnel secondment. The union fears that employees not transferred to KRAOMA MINING S.A. will be laid off. Yet the day before, during a meeting between Ferrum Mining representatives, KRAOMA S.A. management, and KRAOMA S.A. unions, Ferrum Mining stated it does not plan to replace or cut jobs. Since KRAOMA S.A. lacks the cash flow to pay salaries for employees not transferred to KRAOMA MINING S.A., the latter proposed a loan to KRAOMA S.A., repayable by reducing future dividends as a minority shareholder of KRAOMA MINING S.A.
Mr. MBOINY alleges that KRAOMA S.A.’s interim CEO, Mr. Terji RAKOTONDRAZAFY, is the instigator of the strike for reasons he considers unclear.
A Partnership Called Into Question
The strikers’ demands are not only social but also fundamentally target the partnership with Ferrum Mining. According to the joint union president, “For nearly 50 years, there have been operations at Brieville and Andriamena; foreigners left in 1980, and since then, Malagasy people have managed the company without any problems. We do not need foreigners; we have the experience for this [mining]. […] The strike will not end until the contract with the Russians is canceled.”
Mr. KARIAVKIN said, “We worked very well with the plant employees in November. We had no problems with them before the central office union representatives arrived.” Why then do these unions demand their departure? “Which unions?” Mr. KARIAVKIN retorts. “We don’t know these people. They don’t speak to us at all […] We have kept all our promises, and we have signed all documents [ensuring employees’ social benefits].” According to Mr. KARIAVKIN, employees have received threats to discourage collaboration with them.
Interviewed for this investigation, Mr. RAMANANTSOA, current Chairman of KRAOMA S.A.’s Board, noted that Ferrum Mining’s employees “do not understand Malagasy culture, and this has caused frustration as well as the employee strike.” For Mr. RAMANANTSOA, the joint venture’s shareholder structure is also a problem: “The terms and conditions of the shareholders’ agreement are not clear to everyone and need to be refined as the partnership progresses. These misunderstandings lead to miscommunications and frustrations that need to be resolved among all stakeholders.”
A rebalancing of the partnership between KRAOMA S.A. and Ferrum Mining is concretely demanded by the Ministry of Finance and Budget, acting as KRAOMA S.A.’s financial supervisory ministry.
In a letter received by KRAOMA S.A. on December 20, 2018, addressed to its interim CEO, the Minister of Finance and Budget stated: “In its current state, the partnership agreement and lease contract do not contribute to the recovery of [KRAOMA S.A.]. Therefore, I hereby request that you take the necessary measures to review the terms of the partnership agreement, particularly concerning the inclusion of in-kind contributions in the share capital or shareholder current accounts after evaluation by a contribution auditor, the paid provision of equipment and materials, and the distribution method of the new company’s revenues. Regarding the lease contract, the remuneration should not be diluted in the net profits shared under the partnership agreement.” This is an unequivocal warning to KRAOMA S.A.’s management accused of insufficiently considering the company’s interests during the formation of the KRAOMA MINING S.A. joint venture.
Suspicions of Corruption
Dark clouds hang over this partnership, which was supposed to save KRAOMA S.A. from bankruptcy. The imbalance of gains between the two shareholders of KRAOMA MINING S.A. can be explained by KRAOMA S.A.’s weak negotiating power due to its disastrous financial situation. However, the choice of partner—Ferrum Mining—made without any public tender and in complete opacity, raises suspicions of corruption benefiting former President RAJAONARIMAMPIANINA. These suspicions are dismissed by Mr. KARIAVKIN, who says, “We are just doing business. […] We are here to develop production, that’s all.” Mr. MBOINY, CEO of KRAOMA MINING S.A., justifies the absence of a tender because KRAOMA MINING S.A. operates on KRAOMA S.A.’s mining perimeter but does not hold permits in its own name. “We are only bringing in money. […] So, I don’t see the point of having a tender.” According to Mr. MBOINY, Ferrum Mining, through KRAOMA MINING S.A., is investing 16 million US dollars to purchase production equipment. This amount would therefore not correspond to the financial compensation paid by KRAOMA MINING S.A. to KRAOMA S.A. for leasing the three Brieville exploitation permits, as reported by the press in recent months. Having not had access to the full lease contract, our investigation was unable to determine the actual amount of this necessary financial compensation.
Although the company is still operating at a fraction of its capacity, 12,000 tons of chromite have been produced since KRAOMA MINING S.A. resumed production, with some ore already transferred to a depot in Toamasina. Ferrum Mining is said to have spent nearly 3 million US dollars to restart production. Ferrum Mining employees present at Brieville wished to stay despite the strike to ensure production security, but rising tensions with workers forced their repatriation to Antananarivo.
Dismissed by KRAOMA S.A.’s Board of Directors from his position as interim CEO, Mr. RAKOTONDRAZAFY was replaced in mid-December by Jaobarison RANDRIANARIVONY, another prominent figure of the HVM party, as was Mr. RANDRASANA. “We are for negotiation. If there are things to improve in the contract, we agree. If there are things to correct, we agree,” insists Mr. MBOINY. Given the resistance emerging from various quarters, it is uncertain whether the partnership with Ferrum Mining will be revived…
