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DRC mining contracts

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DRC mining contracts ...

    IS A GENUINE AND TRANSPARENT PROCESS OF MINING

    CONTRACTS RENEGOTIATION POSSIBLE IN THE DRC?

    Claude KABEMBA

     1

    1. Introduction

    ? If there is a country where the paradox of plenty and poverty is so manifest it has to be

    the Democratic Republic of Congo (DRC). The DRC is intensely rich in natural

    resources, most famously for its minerals.

? The DRC is ―one of the most well endowed countries in the world with respect to 1minerals.‖ This is not a new revelation. We have known for centuries now that the DRC

    is a geological scandal.

? The DRC holds roughly one-third of the world‘s cobalt reserves and 10 percent of its

    copper reserves. You also have tin (cassiterite) which is the most traded metal on the

    London Stock Exchange.

    ? The commodity boom of recent years has raised the profile of the mining industry in the

    DRC.

    ? A relative peace in some parts of the country after a decade of war (Officially the war has

    ended. But it continues) and the organization of elections in 2006 which brought in a

    legitimate government have relatively reduced the risk of doing business in the DRC.

    ? Despite its metal resources, the average citizen‘s income is less than one dollar a day.

    Government revenues for mining only totalled just US$ 32 million in 2006. You have

    over 284 mining companies in the Katanga province alone. Where does the money these

    companies pay go? Do they pay the taxes at all?

    ? While in other parts of the country such as Katanga and Kasai you have registered

    companies doing business side by side with artisanal mining, in another part especially

    in the East you have an informal extraction of coltan taking place which government

    has no control of.

    ? In the East of the country there is an armed battle going on for the control of the mines.

    Here you do not know who is in charge and who is making money. What we are sure

    of is that the Congolese people who dig and transport these resources for miles and

    miles do it most of the time for free or in exchange for something to eat.

    ? In the DRC, war is economics by other means just as war is politics by other means

    for claussewitz.

    2. The Congolisation of mineral resources

    ? We cannot comprehend the necessity of the renegotiation of current mining contracts in

    the DRC without looking back into the historical aspects of the commercialisation of

    minerals in the DRC.

    1 Mark Smith, …..

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? Congolisation is a term borrowed from an eminent Congolese academicProfessor

    Ernest Wamba dia wamba.

? ―Congolisation‖ is the process of the creation of Congo that favors the foreign interests.

? This Congolisation can be divided in three stages:

    The colonial period

? My reference to the colonial past has another meaning.

    ? It is not a simple attempt, as many have done before, to argue that the crisis of the state

    in the DRC is purely a result of the colonial history.

    ? It is critical to revisit DRC‘s colonial history and see how its manifestations continue to

    influence directly and indirectly the way political agents have behaved for centuries.

    ? As such this exercise is not an attempt to make utopian and sterile attempts to repeat the

    past, but to go beyond.

This is what the Belgian Minister of finance said in a speech asking the Belgian

    Chamber to ratify the decisions of the Berlin Conference:

“May the Congo, gentlemen, from this day forth, offer to our superabundant activity,

    to our industries, more and more confined, outlets by which we shall know how to 2profit.”

? Before the Berlin Conference European economies were hungry for overseas markets,

    raw materials, cheap labor and hugely profitable land.

    ? European nations were expanding their territory by acquiring land on other continents in

    search of raw materials for their industries.

    ? Their foreign policy establishments became more and more committed to the

    maintenance of vast tracks of distant territory and large number of subjugated peoples.

    ? The Berlin Conference in 1885 by giving Leopold II as the sole owner of the land and

    people of the DRC, legitimised the looting of the DRC‘s natural resources.

    ? This history is important if you want to frame correctly the debate on mining contracts

    revision in the DRC.

    ? Leopold II did not only profit alone in the DRC. Financiers of mineral extraction and

    rubber came from all over the Western world. Even though Leopold succeeded in giving

    Belgium an important victory when he was allowed to create the Congo Free State, which

    would become a Belgian colony later, the understanding was that he would serve the

    interests of all the capitalist powers. He created the Congo Free State administration

    ostensibly to facilitate international trade.

    ? The Berlin conference, to agree with Walter Rodney, was not only about land grab. It was

    more so about a detailed and elaborated political project that prepared Africa and in

    2 Legum Colin, Congo Disaster, United States, Penguin Books, 1961, p26

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    particular the DRC to a successive, systematic and sophisticated wave of resource pillage

    that continues today.

    ? It was already established at that time that the Congo Basin contained products of great

    importanceIvory, copper and rubber.

To the finance Minister’s statement this is what Marx so oppositely observed, “ wherever

    a merchant capital held a position of dominance, it stood for a system of robbery such

    that its development among trading nations was always invariably associated with

    plunder and piracy.”

    ? When Leopold II was tired and running out of ideas on how to keep the control of the

    DRC, after decades of looting, he passed the control of the Congo to the Belgium

    government.

    ? The colonial rule, in an effort to remain in control of the invaded territory, was in

    constant search for new formulas to legitimize its presence and reinforce its domination.

The post Independence

The tendency is for critics to blame the DRC‘s poverty, corruption, poor infrastructure, lack of

    skills, poor economic growth and other problems on the nature of the state, which I will do later.

    But these problems have also to do with the distortions of the international economic / trade

    system.

The dominant economic dogma post-World War II pushed for an open trade policy climate in

    Africa promising that countries endowed with natural resources would experience economic

    growth by exporting their raw resources as their comparative advantage. This is in spite of the

    fact that the newly independent countries adopted interventionist import-substitution

    industrialization policies.

We know now that not only were the promised benefits short-lived, but that resource-based

    economic activity remained subject to diminishing returns.

The problem is the opening of markets by developing countries entering the crisis-ridden global

    system leaves them prone to a speculative and unstable global regime, with fewer resources to

    cope with a crisis.

Independent Period

    ? The Western powers in collaboration with a local elite continued to plunder the DRC‘s

    resources.

    ? The DRC Foreign policy during this period was about regime security. Mobutu came

    to power with the backing of Western powers. Congolese leaders have enjoyed

    political and economic benefits from the illegal and uncontrolled external exploitation

    of the country’s minerals. Politically, they receive security of their regimes; and

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    economically, they benefit financially from the sell of the resources. In return, they i use the money to buy the opposition and civil society.

    ? The politico economic basis of the Mobutu regime was the distribution of rents iiderived from natural resources exploitation.

What I May say?

    ? The plan has remained the same over the centuries: to extract as much as possible

    resources at a lower cost and where possible for free. Western powers‘ method of

    accessing the resources continuously adapt to the changing nature of the African society

    and the international environment.

    ? The method is always refined to achieve the plan. Every time Western capitals sense an

    increase in awareness in the chef of Africans to protect their resources against an

    imbalanced system, they move quickly to change the methods and the system.

    ? The major visible shift which has occurred has been the move from unlawful, illegal and

    forced extraction to a more legalised form of pillage. It is estimated today that 70% of

    the Congolese minerals have already been sold to foreign companies.

    ? This process of destroying and reconstructing the method has left serious scars on the

    DRC state and its population. It is not accidental the politics of the DRC remains

    dominated by the dynamics of pillage from western powers in collaboration with a

    Congolese elite that takes the little that is left for the people. It is within this context that

    the renegotiation of mining contracts is taking place.

    ? So, the renegotiation of mining contracts cannot be discussed outside the question that

    starts to ask who controls DRC‘s minerals? If hypothetically, the Congolese no longer

    own most of the mineral resources, how can they renegotiate what they do not own? May

    be the debate has been misplaced. Is it about renegotiation or reclaiming ownership?

    ? If this viewpoint is correct, it is thereof logical to argue that the revision and renegotiation

    of mining contracts should be seen as part of the Congolese people claim over their

    resources. If this is correct, the Congolese need to articulate correctly the objective of the

    process and the end result they expect from the process. This articulation has not been

    clearly done.

The review of mining contracts

In April 2007, the Congolese government took a very courageous decision to review all mining

    contracts. A total of 63 mining contracts were identified for review. These are contracts signed

    during the two wars (1996-1997; 1998-2003) and during the transition period (2003-2006).

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An important element to mention is that it was not the big mining houses such as Rio Tinto,

    BHP Billiton, Anglo who came in during this risky time. It was mostly junior and sometime

    individuals with no mining experience who took the risk to enter the mining sector.

The imbalance has been established between what companies get and what the government of

    the DRC get out of these contracts. The imbalance is enormous. The example of Gecamines is

    known and well documented.

Gecamine, a state-owned firm that once controlled the entire industry, it is now taking minority

    positions in private mining projects.

It‘s also been noted that after Lutundula filed his report in mid-2005, the DRC government

    dished out a series of joint venture agreements involving giant mining assets in Katanga and the 3 Thus, on August 4 2005, a presidential decree ratified two joint venture agreements Kasaï.

    between private companies and Gécamines, involving the vast concessions of Tenké Fungurumé 4and of Kamoto in Katanga.

Another presidential decree in October 2005 finally handed out Gécamines‘ last important assets

    and a month later the government confirmed three memorandums of agreement of diamond

    parastatals MIBA with three private companies, De Beers, DGI Mining, and Nizhne-Lenskoye,

    apparently concerning mining licenses for a massive surface area of more than 35 000 km2.

The arrangements in which Gecamines and other parastatals find themselves don't look

    advantageous to the Congolese government or the Congolese people." The international

    community knows this, companies know this and the people of the DRC are now informed

    about it.

The moral argument for the renegotiation has been made and it seems at the surface that there is

    a consensus that contracts should be renegotiated.

Three reasons might have militated to the decision:

    ? The macroeconomic exigenciesthe new government is in need of fresh cash it can

    inject to start dealing with the social question. The next democratic elections are in five

    years. The political elite in power is well aware of the fact that the next elections will not

    be easy to win as were the first ones. They need to demonstrate some kind of successes

    on the ground.

    ? The general need to understand what is going on in the mining sector. It seems that

    government and the society at large in the DRC do not have information on the sector.

    ? Government recognition of the imbalances in these contracts considering the

    environment within which they were signedwar. Because there was war going on, some

     Issue 7 September 2007

    3 Barry Sergeant, D-Day in the Congo Should the ghost of the Lutundula Commission give rise to sleepless nights for

    numerous mining executives? 02 April 2007 4 Ibid

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    people who purported to sign for the government had no authority to do so. Others 5 might have had the authority but didn‘t have the expertise needed at hand.

    The last point might have been the most determinant. There were already other studies undertaken which pointed to the deep seated problems in the extractions of natural resources in the DRC. They include:

    The UN panel of Experts on the Illegal Exploitation of natural Resources of the DRC

The Lutundula Commission

    In 2005, a parliamentary commission known as the Lutundula Commission was tasked to review mining contracts. Lutundula, from the opposition, was appointed as chairman of a commission of enquiring into mining contracts. The work of the Commission started at the end of May 2004 and investigated selected mining contracts signed between 1996 and 2003. The final report was submitted to the Bureau of the National Assembly in June 2005. The parliament of transition has never discussed it. The Lutundula report raised serious concerns over numerous contracts and in some cases recommended that certain contracts be cancelled. The Commission focussed in Katanga where it examined dozens of contracts signed with State-owned copper-cobalt miner Gécamines, amid many others such as contracts with Sodimico.

    The report denounced the interference of high-level politicians in the negotiation of contracts. It noted the failure to conduct feasibility studies before contracts were signed with Gécamines and the fact that Gécamines was always negotiating from a position of weakness. This had led to deals that, the report said, were disproportionately advantageous for the private companies and failed to reflect the resources and facilities (such as installations and other infrastructure) contributed by Gécamines. One of the key Lutundula recommendations was that its mandate be extended to review, in addition, all contracts signed by the transitional government since 2003. ―The transitional government‖, the report said, ―has not done any better than those who held

    state power during the period of the wars of 1996-1997 and 1998. On the contrary, the draining of the country‘s natural resources and other forms of wealth has increased under the cover of the impunity guaranteed by the constitution to those in governmental positions.‖ The political regime

    at the time the 1+4 guaranteed the mortgaging of natural resources.

The World Bank investigation

    Following the findings by the UN panel of experts on the illegal exploitation of the DRC natural resources, the World Bank spearheaded in 2002 the drafting of a new mining code for the DRC to replace the text of 1981 that governed the mining and oil extraction in he DRC. The main reason given was that the old mining code was appealing the investors and it had instead negative impact on the survival of companies. The objective of the new mining code as stipulated was not to ensure that mineral benefit the Congolese people. It is not surprising therefore that most dubious mining contracts were signed when the World Bank was involved in mining sector

5 Andy Hoffman, Congolese government deals Blow to Katanga’s Hostile suitor. http://www.theglobeandemail.com

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reforms in the DRC. The new mining code is regarded as a sensible document aimed at attracting

    foreign investment and building a competitive industry.

It is logical that an argument could be made that all contracts awarded prior to the mining code

    needed to be renegotiated to match them with principles obtained in the code. But the World

    Bank has been reluctant to push and support the government and companies to proceed and

    renegotiate the contracts. This is different from the World Bank position I Zambia where it has

    gone one and encourage the government to proceed with contract revision. (In Zambia copper

    has serious been depleted; also, in Zambia there aren’t any more state owned companies.

    In the DRC Most of the dubious contract are with state companies. I think the World

    Bank is afraid that a movement for nationalization of these companies could emerge in

    the process.)

     But the problem is that despite the existence of the new mining code the DRC government

    awarded new contracts in violation of the mining code. Congolese critics, following the

    revelations of dubious contracts signed after the new Code was drafted argue that the World

    Bank led mining code is a western instrument designed to expose the Congolese mining sector to

    a total takeover from western companies.

    The World Bank, in a confidential memorandum, in 2006, recognised that it run the risk of being

    seen as an accomplice in the awarding of mining contracts by the Congolese government in an 6 At the beginning of 2006 the integrity department of environment that lacked transparency.

    the Bank undertook an investigation into the accusations of bad management and governance

    leveled against its agencies in monitoring how millions of dollars of the Bank in the DRC have

    been managed by the transitional government. The audits of these investigations have never been 7published.

    But, the government awarded these contracts after the Bank, through the International Mining

    Consultants (IMC), had already completed a study and proposed how to reform Gecamines

    before any negotiation could take place. The main recommendations from the IMC were that the

    Board of directors of Gecamines be replaced because most of its members were political

    candidates and that joint venture contracts be re-evaluated extensively before negotiations.

The Commission

Creation

    ? The Minister of Mines signed the Memorandum for the revision of mining contracts on

    the 20(N?/CAB.MIN/Mines/01/296/2007 du 20 Avril) for the review of mining

    contracts.

6 La Banque Mondiale mise en doute sur son rôle dans les contrats miniers par Dino Mahtani à

    Kinshasa. article original : "World Bank faces tough questions over role in Congo mining contracts"

7 The money was destined to support the process of desarmament and reintegration and reconstruction.

     8

? The commission itself was set up on the 20 April 2007.

? The commission had the timeframe of three months to complete the work --from the thth of May to the 15 of July 2007. 15

    8The nature, mission and composition of the commission

    Nature

    ? The commission was put in place to review mining contracts.

    ? It was an ad hoc technical structure without any legal status.

    ? It operated under the supervision of the ministry of mines.

    Mission

    ? To examine join venture contracts entered into by the state or public

    companies or mixed pubic/private companies with private investors in the

    mining sector and to determine the impact of these contracts on the

    restructuring of the public companies and the national development.

    ? To propose, if necessary, modalities of their revision with a view to

    correcting any imbalances observed.

    Composition

     It had 28 members

    ? The Directeur de Cabinet (Principal Private Secretary);

    ? 2 advisors from the ministry of mines ;

    ? 2 delegates representatives from the Presidency ;

    ? 2 delegates from the prime Minister‘s office ;

    ? 2 delegates from Ministry Finance ;

    ? 2 delegates from Ministry in Charge of the Budget;

    ? 2 delegates from Ministry Justice ;

    ? 2 delegates from Ministry without Portfolio

    ? 2 delegates from Ministry in charge of Industry;

    ? 4 delegates from General Secretary of Mines

    ? 4 delegates from Cadastre Minier ;

    ? 4 delegates from technical institutions (CTCPM).

    The commission was answerable/ or reported to ministry of mines.

    Why to Renegotiate Mining Contracts

    8 Internal rule of the Interministerial Commission of minimg contracts revision, 2007, p1

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    ? The moral argument starts from the position that Congolese have suffered so much

    under corrupt local elite and scrupulous companies. Congolese have never controlled

    and benefited form their resource. The time is ripe, with a democratically elected

    government in place, for Congolese to reclaim control over their resource.

    ? The human rights based argument runs directly from the moral argument. The

    extraction of natural resources, including mining in the DRC must be done in

    accordance with national, regional and international legal, norms and standards of

    good governance, transparency, accountability and respect for Human Rights.

    ? The United Nations through its resolution 1803 which set the Principle for Permanent

    Sovereignity, recognizes the existence of states sovereignty over their resources. It

    requires states to exercise this sovereignty in the interest of the people. It calls for

    “ The rights of the people and nations to permanent sovereignity over their natural

    wealth and resources must be exercised in the interest of their national development 9and of the well being of the people of the State concerned.

    The risk of renegotiating mining contracts

    The renegotiation of mining contracts has not remained without controversy.

    ? The commitment of the Congolese leadership to a genuine process has always been

    questioned both inside and outside Congo;

    ? The honesty of the World Bank and IMF to engage and support the process has also

    been questions.

    ? The moral obligation of companies to accept that unfair contacts that they hold be

    changed is also being challenged. Miners continue to insist that their work is crucial to the

    development of a prosperous economy in the DRC and any mistake in the renegotiation

    could chase away investors.

    Position of civil society

    ? For many, the decision symbolised the beginning of a new era in the DRC. This is why

    Congolese civil society supported by international organization in general believe that the

    process is important if the DRC is to benefit from its resources.

    ? The renegotiation of mining contracts does not present a risk to investment. What creates

    risk is uncertainty and lack of clarity on the part of government. Investors need to be

    briefed on what government expectations are.

    9 Permanent Sovereignty over natural resources, G. A. Res. 1803 (XVII),art.1,17UN.GAOR Supp. (No.17) at

    15,U.N.Doc.A/5217(1962)

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