Congo-Kinshasa: Govt Struggles With Vague Chinese Mining Contract

5 October 2021

More than a decade after the Democratic Republic of Congo signed, and, a year later, renegotiated a mining contract with the Chinese, it still faces the question of what really is in there.

This month, a report by the Extractive Industries Transparency Initiative (EITI) is expected to be published and hopefully eliminate the opaqueness that has punctuated China's involvement in the Congolese extractive sector. Its preliminary version was hailed by local experts as exposing "prejudice unprecedented in the history of the Congo".

When it was signed in 2008, the deal with Sicomines SA, the Chinese firm, was worth about $9 billion. However, after the International Monetary Fund poked holes in it, Kinshasa renegotiated the deal to $6 billion. It still raised questions.

In Kinshasa, people called it the 'contract of the century' after details emerged of how skewed it was, even in 'joint ventures' between the Chinese and the Congolese.

The preliminary report indicated that while the DRC provides most of the assets of the joint venture in the form of mining deposits, it only has 32 percent of the shares. In addition, the feasibility study carried out by the Chinese reportedly undervalued the reserves of these deposits.

Details also showed that, in fact, the contract had been amended in 2017 in secret, just a year before former President Joseph Kabila left office. It turned out that even the minister in charge of mines was excluded from the clandestine renegotiations.

This amendment would have provided for the payment of dividends from the first year of the contract to shareholders. But because shareholders did not earn the dividend, the mining projects were exempted from paying taxes.

Yet there were further findings: The Chinese investors pledged $3 billion to build local infrastructure such as roads, schools and health centres. They only disbursed less than $1 billion and most of the projects identified were never put up.

The contract in question involves Sicomines, the firm that, on paper, extracts minerals under Chinese-Congolese ventures. In July, Congolese Minister for Mines Antoinette Nsamba had indicated that: "In reality, it was a leonine contract because to date, Sicomines does not pay any tax or royalty. Yet Sicomines exports minerals and imports equipment and operating products free of charge. This company is exempt from everything, even with regard to driving licences."

Chinese officials have rubbished the claim. Sicomines officials in Kinshasa published a statement terming as false the existence of a secret deal "since there was consensus between the two parties, Chinese and Congolese, and that only a small part of profits was to be distributed, most of which was used to repay loans".

Sicomines officials say DRC has gained from the deal as shown in the $6 billion loan granted by China. They also assured that 43 projects have been completed, notably in Kinshasa, contrary to the EITI assertions.

When EITI published its preliminary report, it was the result of work done by independent consultants.

But pressure was also fueled by the declaration by President Félix Tshisekedi demanding an adequate assessment by the Minister of State in charge of Infrastructure and by the Minister for Mines. According to the Minister for Infrastructure, Mr Alexis Gisaro, the technical and financial execution of the selected infrastructure projects is only at 27.5 percent, according to a dispatch from the September 24 Council of Ministers meeting in Kinshasa.

"On a planned financing of 3 billion US dollars, the amount invested by the Chinese side amounts to 825 million US dollars (interest not included) ... This amount has been allocated to the execution of 40 projects of which 27 are completed and 13 in progress," the dispatch said.

"A sequenced programme in six phases has been proposed for the disbursement of the balance of $2 billion over the period 2021-2025. Hence the need to release the tranches of $150 million planned for 2021 and $300 million for 2022," it added.

The council said the Minister of Infrastructure and Public Works suggested to the government to convince the Sicomines SA, "in view of the cash flows recorded, to review its cap on the financing of infrastructure projects currently amounted to $1.053 billion".

Regarding the technical and financial execution of the mining project of the Sino-Congolese contract, the government noted that "it appears that approximately $2.454 billion have so far been effectively invested" out of planned funding of $3.2 billion, or an execution rate of 77 percent.

The minister suggested that the main legal, technical and financial problems noted in the collaboration agreement should be handled through an in-depth evaluation of the execution of the mining project by an interministerial commission. This is to help determine the expenses incurred in the implementation of the project and to realise the benefits for both sides.

The commission is expected to table its proposals to the council before the end of October. Meanwhile, stakeholders are waiting for the final report of consultants at EITI, even as the government appears to launch a parallel evaluation through the commission.

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