Desert Storm: Why Canadian fertilizer firms’ phosphate from Western Sahara is causing controversy

Desert Storm: Why Canadian fertilizer firms’ phosphate from Western Sahara is causing controversy Republish Reprint Armina Ligaya | February 11, 2014 | Last Updated: Feb 11 1:25 PM ET More from Armina Ligaya | @arminaligaya On the streets of Laayoune, Western Sahara in May, a boy waves a flag representing the Polisario Front, a separatist group that opposes Morocco’s claim to the territory. Holding up a Polisario flag is an act banned in Western Sahara, the last remaining colony in Africa. Armina Ligaya/National PostOn the streets of Laayoune, Western Sahara in May, a boy waves a flag representing the Polisario Front, a separatist group that opposes Morocco’s claim to the territory. Holding up a Polisario flag is an act banned in Western Sahara, the last remaining colony in Africa. Twitter Google+ LinkedIn Email Comments More This article appears in the February 2014 edition of the Financial Post Magazine. Visit the iTunes store to download the iPad edition of this month’s issue. LAAYOUNE, WESTERN SAHARA • A lumbering four-storey-high dragline excavator rumbles and clanks as it digs its teeth into the gritty taupe layers of phosphate rock in the pit below. The machine swivels the excavator’s arm to the right, and hoists the dragline’s scoop, now spilling over, towards the sky. Its dusty haul is dumped on a growing pile in the mine, located in the heart of Western Sahara, a territory on the northwest coast of Africa. From here, the world’s longest conveyor belt transports the phosphate rock — prized for its phosphorus, a key ingredient in fertilizer — more than 100 kilometres across Western Sahara and offshore to a marine port in the Atlantic Ocean. This phosphate from this isolated region has a global footprint. Shipping vessels then load up with the rock and head to customers in many corners of the globe, including Canadian fertilizer companies PotashCorp of Saskatchewan Inc. and Agrium Inc. Exporting natural resources would be routine business in most places, but in Western Sahara — the last remaining colony in Africa — it is a political landmine, and some argue, against international law. The Phosboucraa mine — home to an estimated 1.1 billion cubic metres of phosphate rock — is front and centre in a bitter 30-plus-year battle between Morocco, which took control of Western Sahara in 1976, and the Saharawi people of this region. Much is at stake, financially as well as politically, given that Morocco and Western Sahara are home to 75% of the world’s phosphate reserves, according to the U.S. Geological Survey. It’s a battle little discussed on the other side of the world, even by investors looking to cash in on PotashCorp and Agrium’s steady profits in recent years (although both have hit a rough patch in recent months on falling fertilizer nutrient prices). Concerns over the legality of removing natural resources from the non-self-governing territory — via the Moroccan owned and operated mining company Office Chérifien des Phosphates (OCP) — has already pushed some investors in PotashCorp and Agrium to either divest their stakes, or press the companies to clarify their involvement. Most recently, four pension funds from Sweden last September announced they were divesting their holdings in PotashCorp over its involvement in the contested region. The international reach of Phosboucraa’s phosphate is a sore point for many Saharawis. Local groups say Morocco is slowly draining their lucrative natural resources, and that when — or if — their political situation is resolved, there may be little remaining for the people of Western Sahara. Among those with a rightful claim include thousands who were displaced by the decades-long conflict, and are now languishing in refugee camps in neighbouring Algeria and Mauritania. “I always feel bitterness when I do the math, and see how much money is being plundered,” says Salmani Mohamed, a Saharawi man who lives in Laâyoune. He says his people face discrimination and unemployment, since just 30% of the employees at the Phosboucraa mine are from the territory. Many Moroccans have moved into Western Sahara, enticed by tax breaks and other incentives from the Moroccan government over the years, leaving Saharawis as a minority in their own land. Mohamed is part of a local group pushing for the protection of Western Sahara’s natural resources, and is calling on international firms to stop their involvement. “This is not right because this is disputed territory,” he says. “And, as long as these foreign companies are accomplices with Morocco plundering the natural resources, this is against the international law.” Related Agrium continues potash expansion, sees no change at Canpotex Potash Corp slashes 18% of its workforce because of weak demand Cultural barriers, perceptions keeping Canadians from exploring hot global markets Western Sahara is one of 17 remaining non-self governing territories worldwide, according to the United Nations. At 266,000 square kilometres — slightly smaller than New Zealand — it is the largest of these remaining territories, left behind after a decades-long global decolonization process that has seen 80 former colonies gain independence. Western Sahara, now with a population of more than 500,000, has been under Moroccan rule since 1976 after Spain, its previous colonial power, vacated the region. After a long and violent war ensued between Morocco and the Polisario Front, a separatist group that opposed Morocco’s claim to the territory, the UN brokered a ceasefire in 1991. But not before thousands of Saharawis fled into nearby countries such as Algeria, where many still languish in refugee camps. The Algerian government currently estimates the number of refugees in its country at 165,000, but the Office of the United Nations High Commissioner for Refugees pegs the number closer to 90,000 across four camps and one settlement. A UN plan brokered in 1991 to hold a referendum to allow the people of Western Sahara to decide the fate of their land has been stymied by problems — such as identifying exactly who is Saharawi and eligible to vote after years of migration — and has yet to come to fruition. In late 2010, thousands of indigenous Saharawis organized a massive protest 12 kilometres east of Laâyoune to oppose the Moroccan authorities, gathering at a camp, called Gdeim Izik, says El Idrissi Mohamed Lamine, one of the protesters. The figures cited vary widely, ranging between a few thousand to as many as 38,000 people who set up in tents on the desert sand. The crackdown by the Moroccan authorities was swift, dismantling the camp and dispersing the crowd using light ammunition and arresting hundreds, Lamine says. Armina Ligaya/National Post Armina Ligaya/National PostProtesters flash the peace sign during a peaceful demonstration on the streets of Laayoune, Western Sahara, in May. This symbol signals their support for the Polisario Front, a separatist group opposing Morocco's claim to the territory. It was the first spark of unrest in the North Africa and Middle East region that would go on to be referred to as the Arab Spring (and, ultimately, one little talked about, and with little to no success.) Ongoing frustration in the region over the lack of progress spurred thousands of people to protest in recent months on the streets of Laâyoune. In May, thousands of men and women, of all ages, marched peacefully along the city’s main road, brandishing the red, white, green and black flags of the Polisario Front (an act banned in Morocco). They also chanted “Viva Polisario” and flashed peace signs to signal their support for the separatist group. The protests ended after nightfall, and after rocks were thrown and a car was smashed. Both the government and Saharawi protesters accused each other of violence. Beyond the protests, human rights groups say Saharawis have been the victims of forced disappearances, torture and abuse. Many Saharawis argue that foreign companies that continue doing business with Morocco in Western Sahara lend a legitimacy to their limbo, and leave little financial incentive for their occupiers to change the status quo. Neither PotashCorp nor Agrium would disclose annual figures or the specific amounts of phosphate rock they source from Western Sahara, and figures are hard to obtain. But PotashCorp said in an April statement that the amount it imports from the mine in Western Sahara represents 6% of the total phosphate processed company-wide. Armina Ligaya/National Post Armina Ligaya/National PostThe Moroccan flag flutters in the sun at the port in Laayoune, Western Sahara, on the northwest coast of Africa. From here, phosphate rock from the Phosboucraa mine is deposited onto tankers for export to countries around the world, including Canada. A Norwegian activist group says PotashCorp is the biggest recipient of the mine’s phosphate with an estimated 720,000 to 840,000 tonnes of phosphate rock per year delivered to its U.S. subsidiary in Geismar, La. At roughly US$108 per tonne in January, it represents a large amount of money and resources out of the hands of the indigenous population, says Erik Hagen, of Norway-based Western Sahara Resource Watch. “It’s kind of a paradox that in one of the world’s richest territories — rich on phosphates, rich on fish — you find at the same time unemployment, marginalization, refugees,” he says. Advertisement PotashCorp says it is mindful of the dispute between Morocco and parties claiming to represent the interests of the inhabitants of Western Sahara. “PotashCorp — and its U.S. subsidiary — has consistently adhered to applicable trade and customs laws regarding the importation of phosphate rock,” it said in a four-page statement issued in April. (The fertilizer company declined to comment further for this article.) “Neither the UN nor any other competent legal authority has concluded that the production and use of phosphate rock from Western Sahara is in violation of international law.” PotashCorp cites a UN legal opinion that concluded such activities would be illegal “only if conducted in disregard of the needs and interests of the people of that Territory.” Given the amount that OCP has invested in Western Sahara, in terms of employment, social services and infrastructure, its involvement is beneficial for the region, PotashCorp said. A team from the Saskatoon-based company visited Western Sahara in January 2013 to observe this first hand, it added. But Hagen argues that exports of natural resources, according to the UN, even if beneficial to the people of the territory, must also be done according to their wishes — and many continue to object. Agrium started importing phosphate rock from OCP, including from the Phosboucraa mine, last June, says Todd Coakwell, Agrium’s director of investor relations. Agrium, too, says its involvement in Western Sahara helps bring jobs and funds into the region. The phosphate rock is destined for Agrium’s Redwater facility in Alberta, which consumes one million tonnes of phosphate rock annually. This plant used to source phosphate rock from Agrium’s mine in Kapuskasing, Ont., but that mine has reached its end life, he says. “Agrium’s agreement with OCP does comply with the respective trade and custom laws of these jurisdictions,” Coakwell says. “And we certainly sought and received third-party legal advice under international Canadian and U.S. laws to make sure we are in compliance.” Armina Ligaya/National Post Armina Ligaya/National PostThe Phosboucraa mine — home to an estimated 1.1 billion cubic metres of phosphate rock — is front and centre in a bitter 30-plus-year battle between Morocco, which took control of Western Sahara in 1976, and the Saharawi people of this region. But some investors aren’t so sure. In September, four Swedish pension funds known as the AP funds announced they were divesting their holdings in PotashCorp and Australian fertilizer company Incitec Pivot Ltd. for “being purchasers of phosphate from a Moroccan supplier that mines its product in Western Sahara,” said the Ethical Council, which coordinates the funds’ work on environmental and ethical issues. The Ethical Council in a statement said it has engaged both fertilizer companies since 2010, aiming to persuade them to either stop the practice or prove that the extraction of phosphates complies with the interests and wishes of the local population. “The Ethical Council concludes that further dialogue with Potash and Incitec Pivot would be to no avail as neither company has indicated an intention to cease procurement of phosphate from Western Sahara in the near future or been able to demonstrate that the extractive process accords with the interests and wishes of the Western Saharan people,” it said. It’s kind of a paradox that in one of the world’s richest territories you find unemployment, marginalization, refugees Norway’s state pension fund — one of the biggest sovereign wealth funds in the world with about US$818 billion in assets — blacklisted investment in PotashCorp over ethics concerns in 2011. Within the last year, Meritas SRI funds, a Canadian manager of socially responsible equitable funds, has been in dialogue with both Agrium and PotashCorp to clarify their involvement. Generally, though not all agree, the removal of resources from a non-self governing territory by an occupying power is considered contrary to international law, says Gary Hawton, president of Vancouver-based OceanRock Investments, which owns Meritas. “Given that Morocco’s claim to Western Sahara is not internationally recognized, but Potash[Corp] is sourcing the phosphate from OCP, which is a Moroccan state-owned enterprise, Potash[Corp] then could be seen complicit in being both offside international law and generally international human rights accords and agreements as well.” The intent of Meritas’ ongoing dialogue with both PotashCorp and Agrium is to assess whether they understand the full spectrum of the conflict and the potential pitfalls. “As an investor, we want to understand if they acknowledge the risk,” Hawton says. “We need to make sure that they know that at least one of their investors is raising a yellow or red flag on this issue.” Executives from OCP, which transformed into a private corporation in 2008 with Morocco owning a 97% stake, say they have heavily invested in the Phosboucraa mine with about US$2 billion in infrastructure and other projects. OCP also says it has made a concerted effort to provide jobs to local Saharawis and invest in social programs, including US$7.5 million in training programs between 2011 and 2013, and US$7 million in social, environmental and health projects between 2007 and 2011. “All the profits which the company is making remain here,” says Mohamed Belhoussain, marketing director of OCP. As well, between 2001 and 2011, 78% of the more than 1,000 people who were hired were from the region, OCP says. It adds that it has programs for locals to get the skills required to take on jobs at the mine and other facilities, but not everyone is qualified for the roles they need to fill. Armina Ligaya/National Post Armina Ligaya/National PostLaâyoune, the largest city of Western Sahara. “As a private company, we have to manage the operations properly,” says Maoulainine Maoulainine, the mine’s director, through a translator. “Our duty is merely to invest in the region, and contribute to its development. Obviously, there are people who may not be satisfied by the outcome… Sometimes there are just certain needs that cannot be satisfied, [due to] business economics.” Until just four years ago, the Phosboucraa mine was a losing operation, Belhoussain says. Infrastructure for the phosphate mine was costly, and the market price for phosphate was below US$50 until 2007, according to Index Mundi. But an upswing in phosphate prices in 2008 has put OCP in the black at Phosboucraa. By September 2008, the price skyrocketed to US$430 per tonne. In 2009, the price slipped back down to US$90, but climbed back up to US$165 in June 2013. It has since slipped to about US$108 per tonne. (Overall prices for phosphate and fertilizer nutrients potash and nitrogen have fallen steeply since the start of 2012.) Meanwhile, global demand for phosphate — key for crops to thrive, and to help feed the world’s growing population — is mounting. The world’s phosphate fertilizer demand increased 2.4% to 41.5 million tonnes in 2012 from 40.6 million tonnes in 2011, according to the UN Food and Agriculture Organization. It is expected to touch 45 million tonnes by 2016, amid worries of dwindling global supply. Morocco earned money from the company, from Canada, for goods on occupied land PotashCorp and Agrium both say they have no plans to stop sourcing from Western Sahara in the future. PotashCorp’s U.S. subsidiary requires “very high-quality phosphate rock” to meet the specifications required under a long-term agreement with a customer that produces food-grade phosphoric acid, it says. Other sources, including from its own mines in the U.S., are “not a viable option,” it says. “We recognize the issue is both politically-charged and complicated. Like many interested parties to the dispute, we are looking forward to a peaceful United Nations-sponsored resolution and are encouraged that they continue to work towards this outcome.” But Norwegian activist Hagen argues that their involvement hampers efforts to reach that goal. “In that difficult negotiation process, Morocco earned money from the company, from Canada, for goods on occupied land,” Hagen says. “Now, why would Morocco enter into any serious peace talks if they earn money from that territory?” Meanwhile, the Moroccan government is pushing ahead with economic plans for Western Sahara, which includes foreign direct investment and potentially exploring mining and offshore oil reserves, according to the Economic, Social and Environmental Council, a Moroccan government advisory board. The council’s general secretary Driss Guerraoui says this is aimed at alleviating unemployment problems in Western Sahara, where the rate is between 15.8% and 17%, compared with 9% nationally. Development in the territory has historically been driven by government-led investment, and this model must be changed, he says. “We can’t continue to support public subsistence and finance this development, we need to create a big private sector in order to create more jobs.” Although Western Sahara’s political status is still in flux, Morocco cannot pause its plans for the region, Guerraoui says. “We are constructing the future and we know there will be a solution,” he told journalists in May. “It’s becoming very urgent, we cannot wait until we reach a resolution… we can’t wait, independent of the political question.” Armina Ligaya travelled to Western Sahara and Morocco with the support of the International Women’s Media Foundation.