So is this Blackwater part 2?
“It’s similar,” Prince replied. “But we’re not here to serve government or defence projects, we’re not there to build their police force, nothing like that. We’re there to move an NGO, an advanced seismic crew or a drilling crew from a mining company, or if an oil operation needs their camp supported and built.”

The story of Erik Prince starting Frontier Resource Group and focusing on Africa is not new and I have blogged about that when it first came out. But what was missing were the details, or at least more than what was available at the time I posted that stuff. Thanks to the Civilian Warriors book and all the interviews, Prince has been able to talk a little more about this new venture.

So in the articles below, there are some great little details to pluck out and talk about. The first one that I thought was interesting, was the ‘a ha’ moment for Prince as to what area of business he wanted to get into in Africa.

Prince, who has flown since he was 16, said he realised the potential of operating a safe and reliable air service a year ago when the aircraft which was flying him back from a mine site in Burkina Faso nearly crashed.
“A scary moment but also one of clarity,” he said.

I mentioned in my review of his book that he is an entrepreneur and businessman, and he constantly looks at the world through this lens. His ‘a ha’ moment for the creation of Blackwater came from the realization that he needed to be home with his family, and the SEALs and other groups needed a consolidated, all in one training facility. So he identified a market weakness that he could exploit, and also saw the advantage for his personal well being.

He is also a pilot and has had a love for aircraft since he was younger. In his book, he was very proud of all the aviation ventures that BW got into, so this move towards aviation and logistics in Africa makes sense.

The other tidbit is the quote up top and what was directly asked in regards to security work. He was asked by the WSJ on whether this new venture would include armed security work or not? Here is the quote.

Such high costs also reflect the dangers of piracy and civil conflict, but Mr. Prince plays down his firm’s plans in the security realm. “We are not there to provide military training. We are not there to provide security per se. Most of that security”—say, if an oil pipeline or mining camp needs protection—”would be done by whatever local services are there,” including police and private firms. “We don’t envision setting up a whole bunch of local guard services around the continent.”
So the former Blackwater chief won’t employ guys with guns? Well, he says, “that would be the exception, certainly not the rule.”

I should remind the reader that Prince could easily contract the services of other security firms to help in security.  That would mean using Academi or any of the offshoots of his older company. But like he mentioned in the quote, using local police or security firms is more than likely the path, which is already what most Chinese investors and companies are doing.

Although the problem with this arrangement is if those local forces are dependable? Can they deliver services on time and under budget, or is it even a good service? Can they provide high level PSD services for the engineers and workers for those companies? That is where PMSC’s like Blackwater would come in. Also, someone needs to manage those local forces, or look out for the best interest of the client.

I am quickly reminded of the In Amenas gas plant attack in Algeria and how depending upon incompetent local security forces (provided by the government) was a contributing reason why the attack was so successful. You must have a competent security company watching over the local security force that companies are either forced to use, or use because of cost and choice. I look at it from a concentric rings of security view point, and your outer layer should be your least dependable force and your final ring of security should be your most dependable. Ideally all rings are dependable in a perfect world, but that just does not happen in the real world. Another way to put it, is you need security you can ‘trust’.

But back to the articles below, I think this quote speaks pretty loudly as to why dependable and highly capable services are in such high demand in Africa.

“If you’re drilling in some remote area and your rig goes down and you need a new part for your rig; that’s 10s if not 100s of thousands of dollars a day. How do you get that thing quickly and with no excuses?”

Time is money as they say, and guys like Prince can absolutely organize an effort to get that part or human out there.

This also reminds me of another potential problem for companies. What if their equipment gets caught up in a mess like what the Arab Spring has created in the Middle East? For that, a guy like Prince could organize the effort to secure equipment and people until it can be either flown out or convoyed out of that mess.  Those types of contracts remind me of what helped put Executive Outcomes on the map.

I am talking about the Ranger Oil contract that Executive Outcomes had in Angola. Basically things became unstable there and Heritage Oil and Gas turned to EO to save some equipment caught up in the mess. At the time, they were leasing some drilling equipment that was costing over $20,000 a day, and UNITA would not allow the company to get the equipment out of there. EO was contracted to secure that equipment, which they did.

It is also important to note that the Chinese account for the largest group of people kidnapped in Africa. I have talked about this demand for protective services by the Chinese in the past, and how the South African PMSC market has been filling that niche. Lot’s of money being spent on some risky projects–hence the need for security and folks who know what they are doing.

As long as we are talking about money, it is also interesting to pluck some of the quotes that discuss why Africa is so interesting to Prince. China is investing billions into development and resource extraction there.

Mr. Prince won’t share any revenue projections, but his prospectus notes that “China is Africa’s largest trading partner,” with annual flows of $125 billion. Most estimates put that figure closer to $200 billion, a meteoric increase from $10 billion in 2000 and $1 billion in 1980. The U.S., which was Africa’s top trade partner until 2009, registered $100 billion in annual African exchange at last count. China-Africa trade could reach $385 billion by 2015, according to Standard Chartered Bank.

Not only that, but the US is also delving more and more into Africa with it’s military ventures. So Prince is basically gunning to be the logistics and transportation ‘go to guy’ for Africa. If US strategy includes getting more involved with Africa, it will need companies in place that can provide a need wherever it presents itself.

Although he does have some competition, because there are numerous larger companies  that have already been working that angle in Africa. PMSC’s in Somalia and their support of AMISOM are one example. There is still room though, and investors are looking for folks that they trust can do the job. That is a key point here, because Prince has shown capability in the past by making things happen, and putting his money where his mouth is. He spent over 100 million on new products and services when he owned BW, and much of it never reached fruition. But some did, and really paid off for him. I imagine he will do the same with this company. This quote shows why investors would be drawn to him and what has provoked Prince to get into this market in the first place.

“As I was moving around Asia trying to raise money for this private equity fund, a lot of the big investors said, ‘It’s great that you want to be a fund manager, but what we really need you to do is to build a business like you had before. Not a defence services business, but one that can help us operate in the challenging areas and take away a lot of the uncertainty’.”

Pretty cool and I imagine he will apply the same mindset to this business as he did with BW. Research the region, find services that are lacking or non-existent but are needed, or see a coming need for a product or service, and create that service or product to meed those needs. That is how he built BW, and that is probably how he will build this company.

As to what kinds of aircraft he will purchase and bring to the market, who knows?  If you look at the aircraft that AAR has (former Presidential Airways and BW business unit), you can get an idea as to the kind of aircraft Prince might introduce into the game. Here is a quick run down from wikipedia as to what they have used.

Presidential operates CASA C-212 and CASA CN-235 turboprops. Recent contracts have added de Havilland Canada DHC-8 Dash 8 turboprop aircraft to the fleet. The company also operates turbine powered helicopters including Bell 214ST, Bell 412, MD Helicopters MD-530, Eurocopter/Aerospatiale SA 330J “Puma”, and Sikorsky S-61 rotorcraft.

The key for Prince is to invest in aircraft that can carry a lot, has robust fuel capacity, is durable, and can land on the really crappy air strips throughout Africa. The parts need to be cheap as well. I am sure he will find something that fits the bill. Either way, we will keep on eye on this. –Matt

Edit 04/02/2014: It looks like DVN (or it’s new name Frontier Services Group Limited) has acquired another percentage of an airline that operates out of Wilson Airport. Here is a clip from the news story about it.

News broke yesterday in Nairobi that DVN had apparently acquired a 49 percent stake in Phoenix Aviation which is based at Wilson Airport in Nairobi and engages in aircraft charters and aircraft maintenance, among other aviation services. First it was Kijipwa Aviation, based in Kilifi, a relatively small aviation company, in which DVN acquired a 49 percent stake in late February, then announcing that they were to bring on line as many as two dozen additional aircraft to boost the operational capacity of the firm. However, the acquisition of a similar share in Phoenix may change those plans as suggestions have been floated already among the aviation fraternity at Wilson Airport that the operations of the two local airlines may be consolidated or aligned under one umbrella or at least they will be working under one central command. While DVN reportedly dished out some 1.2 billion Kenya shillings to acquire the 49 percent stake in Phoenix, no confirmed value could be obtained for the acquisition of the Kijipwa shares. Both investments have been linked to the discovery of significant oil deposits in Kenya and the apparent need of international oil exploration companies to contract a range of services from local Kenyan companies, including aviation.

Frontier Resource Group website here.

Frontier Services Group website here.

 

 

Beyond Blackwater: Prince looks to resources in Africa
Photo
Sun, Feb 2 2014
By Stephen Eisenhammer
After running one of the world’s biggest and most controversial private military groups, Blackwater founder Erik Prince is starting a new venture providing logistics for oil and mining companies in remote and dangerous parts of Africa.
China is increasingly looking to Africa to meet its ever growing demand for natural resources. Trade between the two reached an estimated $200 billion (121 billion pounds) this year. With 85 percent of Chinese imports from the continent being oil or minerals, Prince sees an opportunity.
He wants to use his experience of getting people and equipment in and out of remote places, where there is little or no infrastructure, to help companies looking to exploit abundant natural resources in places like Sudan or Somalia.
The 44-year-old former U.S. Navy Seal became chairman of Frontier Services Group (FSG) this month, a Hong Kong-listed company of which China’s state-backed investment fund Citic owns 15 percent. Prince himself has share options in the firm that would convert to a 9 percent stake.


The appointment is a remarkable turn-around for a man vilified by many as a war-profiteer with blood on his hands. Blackwater, which provided security for the U.S. government in Iraq and Afghanistan and grew from a $6 million investment into a billion dollar business, gained notoriety after its guards were accused of killing 14 Iraqi civilians in 2007.
Iraq revoked Blackwater’s licence.
In the political backlash that followed, the U.S. pulled its contracts and the Blackwater empire which had been heavily reliant on government work, began to crumble. Accusations of tax evasion, illegal weapons and more deaths followed.
Blackwater denied wrongdoing.
The firm changed its name to Xe Services as Prince resigned as chief executive in 2009. He sold the firm in 2010, after which it changed its name again, this time to Academi.
PLANES
Prince seeks both to emphasize the similar skills and people involved in providing logistics in Africa with the work Blackwater did, while also distancing himself from the violence and the politics.
Planes are Prince’s starting point. FSG already owns a few planes and airstrip in Kenya and is on the hunt for acquisitions this year to build a pan-African network of aircraft.
“We’re starting in the aviation space because I believe if you’re going to operate in Africa you’ve got to be able to move by air. Commercial airlines are limited, roads get washed out,” he told Reuters in an interview.
“If you’re drilling in some remote area and your rig goes down and you need a new part for your rig; that’s 10s if not 100s of thousands of dollars a day. How do you get that thing quickly and with no excuses?”
Prince, who has flown since he was 16, said he realised the potential of operating a safe and reliable air service a year ago when the aircraft which was flying him back from a mine site in Burkina Faso nearly crashed.
“A scary moment but also one of clarity,” he said.
The planes will start by transporting people and cargo before moving into pipeline and route surveillance, and mapping. Trucking and barging capability are the next steps. Aviation was an important part of the Blackwater business, operating 70 aircraft.
Finding the people to fly into and out of remote and dangerous parts of Africa is not an issue, Prince asserts, drawing on some of the people who used to work at Blackwater.
“I know a lot of people in the aviation business, particularly ones who will fly to places where your boots get dirty when you get out of the airplane,” he said.
BLACKWATER 2?
Since selling Blackwater in 2010 Prince has been working as a fund manager for his private equity firm, Frontier Resource Group (FRG), with investments in a refinery in South Sudan and a mapping company for early stage oil and mineral exploration.
This gave him a taste for the growing natural resources story, and a sense that there was opportunity for a much bigger player than the small projects he was investing in.
“As I was moving around Asia trying to raise money for this private equity fund, a lot of the big investors said, ‘It’s great that you want to be a fund manager, but what we really need you to do is to build a business like you had before. Not a defence services business, but one that can help us operate in the challenging areas and take away a lot of the uncertainty’.”
It is still very early days for the new venture, and Prince would not be drawn on the specific customers he is courting or give revenue forecasts. He said he was targeting major oil and mining companies, as well as infrastructure groups.
So is this Blackwater part 2?
“It’s similar,” Prince replied. “But we’re not here to serve government or defence projects, we’re not there to build their police force, nothing like that. We’re there to move an NGO, an advanced seismic crew or a drilling crew from a mining company, or if an oil operation needs their camp supported and built.”

Story here.

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Erik Prince: Out of Blackwater and Into China
The former CIA asset on his latest venture: After being ‘blowtorched’ by U.S. politics, he says, this time he’s working for Beijing.
By David Feith
Jan. 24, 2014
Erik Prince —ex-Navy SEAL, ex-CIA spy, ex-CEO of private-security firm Blackwater —calls himself an “accidental tourist” whose modest business boomed after 9/11, expanded into Iraq and Afghanistan, and then was “blowtorched by politics.” To critics and conspiracy theorists, he is a mercenary war-profiteer. To admirers, he’s a patriot who has repeatedly answered America’s call with bravery and creativity.
Now, sitting in a boardroom above Hong Kong’s Victoria Harbour, he explains his newest title, acquired this month: chairman of Frontier Services Group, an Africa-focused security and logistics company with intimate ties to China’s largest state-owned conglomerate, Citic Group. Beijing has titanic ambitions to tap Africa’s resources—including $1 trillion in planned spending on roads, railways and airports by 2025—and Mr. Prince wants in.
With a public listing in Hong Kong, and with Citic as its second-largest shareholder (a 15% stake) and Citic executives sitting on its board, Frontier Services Group is a long way from Blackwater’s CIA ties and $2 billion in U.S. government contracts. For that, Mr. Prince is relieved.
“I would rather deal with the vagaries of investing in Africa than in figuring out what the hell else Washington is going to do to the entrepreneur next,” says the crew-cut 44-year-old.
Having launched Blackwater in 1997 as a rural North Carolina training facility for U.S. soldiers and police, Mr. Prince says he “kept saying ‘yes’ as the demand curve called—Columbine, the USS Cole and then 9/11.” In 100,000 missions in Iraq and Afghanistan, he says, Blackwater contractors never lost a U.S. official under their protection. But the company gained a trigger-happy reputation, especially after a September 2007 shootout that left 17 civilians dead in Baghdad’s Nisour Square.
At that point, charges Mr. Prince, Blackwater was “completely thrown under the bus by a fickle customer”—the U.S. government, and especially the State Department. He says Washington opted to “churn up the entire federal bureaucracy” and sic it on Blackwater “like a bunch of rabid dogs.” According to Mr. Prince, IRS auditors told his colleagues that they had “never been under so much pressure to get someone as to get Erik Prince,” and congressional staffers promised, “We’re going to ride you till you’re out of business.”
Amid several federal prosecutions involving Blackwater employees, most of which fizzled, Mr. Prince resigned as CEO in 2009 and now feels “absolutely total regret in every way, shape and form for ever saying ‘yes’ ” to a State Department contract.
Which brings him to Hong Kong and his new firm. “This is not a patriotic endeavor of ours—we’re here to build a great business and make some money doing it,” he says. Asia, and especially China, “has the appetite to take frontier risk, that expeditionary risk of going to those less-certain, less-normal markets and figuring out how to make it happen.” Mr. Prince says “critics can throw stones all they want” but he is quick to point out that he has “a lot of experience in dealing in uncertainties in difficult places,” and says “this is a very rational decision—made, I guess, emotionless.”
Mr. Prince aims to provide “end-to-end” services to companies in the “big extractive, big infrastructure and big energy” industries. Initially focused on building a Pan-African fleet of aircraft, his firm will expand into barging, trucking and shipping, along with “remote-area construction” as needed for reliable transport. A company—Chinese, Russian, American or otherwise—may have “an extremely rich hydrocarbon or mining asset,” he explains, “but it’s worth nothing unless you can get it to where someone will pay you for it.” His investor prospectus notes that with today’s transportation infrastructure, “it costs more to ship a ton of wheat from Mombasa, Kenya to Kampala, Uganda than from Chicago to Mombasa.”
Neil Davies
Such high costs also reflect the dangers of piracy and civil conflict, but Mr. Prince plays down his firm’s plans in the security realm. “We are not there to provide military training. We are not there to provide security per se. Most of that security”—say, if an oil pipeline or mining camp needs protection—”would be done by whatever local services are there,” including police and private firms. “We don’t envision setting up a whole bunch of local guard services around the continent.”
So the former Blackwater chief won’t employ guys with guns? Well, he says, “that would be the exception, certainly not the rule.”
He says his attention is on “expeditionary logistics” and “asset management.” If a company needs to build a dam, he muses by way of example, “how do you deliver an extremely high-dollar turbine into a very remote part of the world? . . . Do you sling it with a helicopter? There’s all sorts of interesting challenges like that that we’ll be endeavoring to face.”
Mr. Prince won’t share any revenue projections, but his prospectus notes that “China is Africa’s largest trading partner,” with annual flows of $125 billion. Most estimates put that figure closer to $200 billion, a meteoric increase from $10 billion in 2000 and $1 billion in 1980. The U.S., which was Africa’s top trade partner until 2009, registered $100 billion in annual African exchange at last count. China-Africa trade could reach $385 billion by 2015, according to Standard Chartered Bank.
“The U.S. has been fixated on terrorism the last 10 or 15 years,” says Mr. Prince, “and American companies by and large haven’t had the appetite for Africa.” In 2010 the African Development Bank found that Chinese firms signed 20 contracts in Africa for every one signed by an American firm. But does post-9/11 distraction really explain this discrepancy?
A better explanation would begin with China’s state-directed investment strategy, which funds opaque state-owned firms to operate across Africa with little regard for trifles such as financial transparency, environmental degradation or human rights. When a tyrant like Sudan’s Omar al- Bashir can’t get Western financing for a mega-dam across the Nile River, China arrives with an easy loan, some state-owned firms to build the dam and some others to claim oil or mineral concessions elsewhere in the country. Beijing’s approach has helped boost African economic growth—projected at 6% this year by the International Monetary Fund—but it has also helped entrench some of the world’s most oppressive governments.
Mr. Prince prefers to look on the bright side. “Developing good investments in Africa is by and large the best for the people of Africa that have a job, that have electricity, that might have clean water, that might have those things that we in the West take horribly for granted.”
It’s Capitalism 101, he argues. “When someone needs copper, or wood or an ag product, and they invest capital somewhere to make that happen, and people get jobs from that, and that good gets introduced to the world stage and it gets traded and moved, the whole world benefits.”
As for Chinese patronage of presidents-for-life like Sudan’s Bashir, Mr. Prince’s CEO, Gregg Smith —a former U.S. Marine and Deloitte executive—offers this observation: “There’s thousands of tribal conflicts in Africa every decade that have nothing to do with anyone from the outside. It has everything to do with tribal conflicts that have been going on for centuries, and the fact that the economies cause folks not to have jobs,” says Mr. Smith. “It’s not about who backs Omar al-Bashir.”
Nor, adds Mr. Prince, does China’s expanding commercial empire come at the expense of American interests. “The United States and China are among each other’s largest trading partners,” he notes, “and I think countries that trade goods together tend not to trade lead,” meaning to shoot at each other.
This historically questionable reassurance notwithstanding, Mr. Prince certainly isn’t complacent about America’s global standing. U.S. policy in Africa, he says, “is just nonexistent. It’s about as coherent as U.S. Middle East policy—incoherent.”
Americans, he says, “are at a competitive disadvantage because of their government. . . . It’s amazing how many countries run their embassies as commercial outposts to promote businessmen from their country. I think the U.S. has forgotten about that one.”
At this point in the interview, Mr. Prince begins speaking more sharply, even bitterly, not simply as a critic of Washington policy but as a man betrayed. Which he was, in 2009, when he was outed publicly as a CIA asset.
For years while running Blackwater, it turns out, Mr. Prince was also using his personal wealth and expertise to recruit and deploy a world-wide network of spies tracking al Qaeda operatives in “hard target” locations where even the CIA couldn’t reliably operate. This work remained secret until June 2009, when then-CIA Director Leon Panetta mentioned it in classified testimony to Congress. Within weeks, leaks hit the front pages.
“The one job I loved more than any other was ripped away from me thanks to gross acts of professional negligence at the CIA,” Mr. Prince wrote in his memoir, “Civilian Warriors,” published in November.
This background comes to mind as Mr. Prince makes the surprising claim that “there’s very little advantage to being an American citizen anymore. They tax you anywhere in the world you are, they regulate you, and they certainly don’t help you, at all.”
His advice for Washington: “Stop committing suicide.” Lawmakers should “get out of their heads this idea that they can recklessly spend money that they don’t have,” he says. “The United States government is too big in all areas. . . . It’s time to make the entire thing a lot smaller.” That would include doing everything from allowing Americans to buy incandescent light bulbs to reining in domestic surveillance by the National Security Agency.
At no point does Mr. Prince address the irony of making these arguments days after going into business with a state-owned firm founded as part of Communist China’s Ministry of State Security.
“Look,” he says, grasping to end our talk on an optimistic note, “America can pull its head out at any time. That happens at the ballot box. Ballot boxes have consequences still in America.” He continues: “But the American electorate has to actually pay attention, has to turn off the Xbox long enough to pay attention. Otherwise they’re going to continue to elect the government they deserve.”

Story here.

Podcast interview with David Feith about his article here.