Rio's $700 million tax to boost Guinea's infrastructure

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CONAKRY (Reuters) - The government of Guinea will use 35 percent of a $700 million windfall from Anglo-Australian miner Rio Tinto <RIO.AX> to rebuild the mineral-rich West African nation's broken infrastructure, a Guinean official said on Sunday.

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Rio struck a deal with Guinea in April to settle a dispute over its stake in the Simandou iron ore project, agreeing among other terms to pay $700 million in compensation -- a sum that is nearly 75 percent of the poor nation's 2008 budget.

Guinea did not release budget figures for 2009 and 2010 when it was under the rule of a turbulent military junta.

The $700 million is expected to boost Guinea's $4.5 billion economy, held back by years of political instability and lack of infrastructure despite its mineral wealth in bauxite, gold, iron ore and diamond coveted by major miners including Vale, Rusal and Chinalco.

About $240 million will be spent on improving roads, electricity, health, the justice system and education in this fiscal year, said Amadou Camara, member of a council that is acting as Guinea's transitional parliament.

"About 770 billion Guinean francs ($112 million) will be used in the power sector including the launch of the 240 megawatt capacity Kaleta Dam and the purchase of a thermal power station with a capacity of about 100 megawatt," Camara said.

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Camara said about $25 million will be used for military and security spending while about one percent of the amount released will be spent on education.

The remaining $460 million will be kept in the state treasury for future budget outlays, Camara said.

(Reporting by Saliou Samb; Writing by Bate Felix; Editing by Mark Heinrich)