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Sunday, September 23, 2007

DRC - A review of mining contracts may well be a sham

How this will end, no one knows. Having said that, companies will continue to work in the DRC, even if on a smaller scale. There's no escaping the fact that if you want to be on the lowest end of the cost scale, you have to be here...

Who benefits from the minerals?

Sep 20th 2007 | KINSHASA, Democratic Republic of Congo
From The Economist print edition

A review of mining contracts may well be a sham

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THERE is nothing new in Congo's staggering wealth benefiting the few and bringing misery to the many. When peace finally prevailed in 2003, after the last big Congolese war, the transitional government signed several dubious contracts with foreign companies that bought concessions at give-away prices to exploit vast tracts of copper-bearing land. Some disenchanted Congolese and sceptical foreign observers complained, but most people's attention was on holding the first multi-party elections in more than 40 years, so little was done. Still, after the government announced a review of all mining contracts in April, hopes rose that the principle of accountability would be taken seriously. Such hope has begun to fade.

More than 60 contracts between private firms (nearly all of them foreign) and Congo's state mining companies were to be reviewed. A clutch of other concessions would also be looked at. A government-appointed commission would check whether companies were abiding by the mining code, paying the right taxes and investing in infrastructure and social services, as they promised. In short, President Joseph Kabila's government had apparently bowed to calls for more transparency in mining contracts and for more revenue to go to the state and Congolese people.

The surge in commodity prices had a lot to do with this. Companies with new deals to exploit copper and cobalt in the mineral-rich Katanga province were making hundreds of millions of dollars on stock exchanges across the world. But few of them had actually dug up any ore. By one estimate, the state's direct income last year from mining was a paltry $32m.

Once the commission makes its recommendations, says Victor Kasongo, Congo's deputy minister of mining, the government will decide whether to leave the deals untouched, renegotiate or cancel them. He says the government has lined up international firms to negotiate with the companies concerned on its behalf, probably in a European country. A couple of deals have already been cancelled: one for uranium, another for copper and cobalt. A row has broken out over the legality of one of the cancellations.

All the same, worries are growing. The review, like the mining sector it is intended to clean up, is shrouded in secrecy. Little information is being made available; what does seep out seems to change every day. The contracts are meant to be open to public scrutiny, but few have proved to be. Excuses range from a claimed need for confidentiality to the cost of photocopying.

The government appears to have rejected a proposal for a truly independent body to oversee the review; parliament has been sidelined; and fears are growing that the commission will remain politicised. Much of Congo's mining sector is already controlled by an elite surrounding Mr Kabila, many of whom are from the mineral-rich province of Katanga.

International mining executives have been rushing to Kinshasa, Congo's capital, to badger friendly officials. Others have put advertisements in Congolese newspapers to show how much they have done for the country. One says that his company was asked for money in exchange for a favourable hearing. “There is little that gives us any confidence in the process,” says Patricia Feeney, who runs Rights and Accountability in Development, a watchdog that monitors corporate responsibility in the poor world.

Recently, China has been the beefiest country to spot new opportunities. This week Congo's government announced that China would lend $5 billion to build new transport infrastructure and help rehabilitate Congo's mines. Congo says it will repay the loan by granting mining concessions and toll rights from roads and railways that the Chinese would build, including a road link to Zambia and a railway from southern Congo to the Atlantic. No questions asked.

Copyright © 2007 The Economist Newspaper and The Economist Group. All rights reserved.

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