Page 2 of 2 China has a Congo copper headache
By Peter Lee
Quixotically or determinedly, at the same time the Kabila government pursued
the China agreement it decided to renegotiate the Tenke Fungurume contract and,
in the process, pick a fight with the US and European Union countries that were
backing the project.
There was a rush of anxiety in the West about "resource nationalism", coupled
with concern that, if the DRC had ready recourse to Chinese support, it might
become emboldened in its dealings with Tenke Fungurume - perhaps even
threatening to modify the concession and re-allocate some of its reserves near
the Sicomines site for China to develop.
There was also a silence on the apparent inequities of the Tenke Fungurume
contract that contrasted with the widely and efficiently
disseminated expressions of concern by the IMF about the Chinese deal.
Intense US pressure and IMF carrots and sticks were apparently enough to get
the DRC to back down on Tenke Fungurume and allow the West's flagship resource
project to sail off unscathed - perhaps at the cost of the West's image as an
honest broker and true friend of the DRC.
On February 15, 2010, the DRC e-mailed Bloomberg [6]:
Freeport's
Congolese unit, Tenke Fungurume Mining Sarl, "has all the evidence" that its
contract is legal, the National Assembly's Economic and Finance Commission said
in the report e-mailed to Bloomberg News from the capital, Kinshasa. It
recommends that the government allow Tenke to expand its mine in order to
increase its payments of royalties and taxes. Though the renegotiation was
legal, the contract was "badly negotiated" by the government, the commission
said.
Tenke Fungurume problem solved!
So apparently, is the Victor Kasongo problem.
In a move seemingly designed to curry favor simultaneously with Western mining
interests and the IMF, Kasongo, the mining industry hard-charger characterized
by Richard Behar [7] as "By all accounts ... a sharp and honest reformer" is
gone.
Also gone is the office he held, all in the name of "efficiency", as
Businessweek reported on February 20 [8]:
Victor Kasongo, the vice
minister of mines, had his position cut.
The move reduces the number of ministerial positions in the government to 43
from 54 "for more efficiency," and aims to limit expenditures as Congo tries to
qualify for a World Bank and International Monetary Fund debt relief program, a
statement accompanying the order said. Kasongo was the public face of the
mines' ministry and the man behind the recent review of all of Congo's mining
contracts that resulted in the cancellation of a $553 million copper and cobalt
project with Canada's First Quantum Minerals.
China's problems
are, on the other hand, definitely not solved.
The IMF's obsession with working out debt owed to the Paris Club creditors has
done nothing to address the disposition of $5 billion of DRC debt held by
non-Paris Club entities including, to Beijing's horror, vulture funds, the
private investment firms and hedge funds that buy the liabilities of poor
countries on the brink of debt relief.
DRC's particular curse is FG Hemisphere, a fund that, for an undisclosed sum,
bought up $30 million worth of bad debt contracted by the Mobuto Sesi Seko
regime in 1980 with Tito's Yugoslavia on a failed hydropower scheme. Through
litigation, FG Hemisphere managed to grow this debt into an award of $100
million.
By virtue of the Hong Kong presence of a wholly owned subsidiary of China
Railways, one of the Chinese partners in Sicomines, FG Hemisphere obtained a
favorable judgment in Hong Kong blocking China from paying - or the DRC from
receiving - $100 in million signing fees for the copper project until FG's
award had been paid.
As usual, in the Western press there is considerably more handwringing about
the damage that the financial derivatives markets would suffer if the
activities of vulture funds were curtailed, than there is concern over the
economic and developmental travails of the DRC if the payment is delayed.
And there is no acknowledgement of the IMF's questionable judgment in fixating
on $6 billion the DRC owes the Paris Club creditors while neglecting to address
the problem of its exposure to $5 billion in liabilities in the hands of
non-Paris Club creditors and vulture funds.
As it deals with the hostility of the West and the IMF and the vagaries of
international financial litigation, China also has to deal with the risks in
the DRC's volatile domestic politics.
Gecamines, China's local partner in the Sicomines project, is slowly
disintegrating into a morass of corruption, dysfunction and reorganization. A
DRC parliamentary commission has alleged that $23 million of the first $50
million installment of the Chinese signing bonus has somehow gone missing.
Gecamines' chief executive officer Paul Fortin, who supported the China deal
over the market-based refinance plan advocated by the World Bank for the DRC
minerals sector, resigned in November 2009 after it became apparent that his
control was limited and he had no knowledge of the tens of thousands of tonnes
of copper allegedly diverted from his factories for private profit. Fortin was
replaced by an executive with close ties to President Kabila's inner circle,
who embarked on a major reorganization to establish presidential control over
the wayward enterprise.
With the departure of Kasongo and Fortin, the two most credible and capable
professional advocates of the China deal have left the scene.
Going forward, the crucial China dossier is now in the hands of Kabila and
China's fortunes are closely linked to Kabila, his "Cinq chantier" or "Five
Pillar" civil infrastructure initiatives and advisors that helps him navigate
the deadly waters of DRC politics.
When compared with the West's record of self-serving and destructive
interference in the DRC's affairs - and the immense corruption it engendered -
China still enjoys a more favorable reputation in the DRC.
As the former coordinator of the United Nations Group of Experts on the DRC,
Jason Stearns, told Asia Times Online:
There are, of course, Congolese
skeptics of the Chinese engagement, but others point out the advantages of
bartering mines for infrastructure. "You can't put a highway in your Swiss bank
account," goes a popular saying in the Congo.
Nevertheless, as
China looms larger in African economic life - and contributes its share of bad
behavior and economic disruption, it becomes a big political target.
Hostility to China and its cosy relationship with authoritarian rulers is
becoming a staple of opposition parties and open-society organizations in
Sub-Saharan Africa. The DRC is no exception.
A prominent open-society activist wasn't loath to invoke the monstrous colonial
reign of King Leopold II of Belgium over the Congo in characterizing the
Chinese deal. As the BBC tells us [9]:
"Our worry is that it is almost
totally opaque," says Katanga-based lawyer Georges Kapiamba, who eventually
obtained a copy [of the contract].
"It permits a group of Chinese to get more than the Congolese - it's not a
win-win contract."
Kapiamba says the deal amounts to a licensed plundering of DR Congo's resources
similar to that carried out under Leopold.
Kibale's opposition
is also ready to play the China card [10]:
Jean-Lucien Mbusa, speaking
on behalf of the main opposition, the Movement for the Liberation of the Congo
(MLC), said that the deal "forces us to sell off our national heritage to the
detriment of several generations".
Most unnerving, a demand to
renegotiate the China contract also appeared in a manifesto by Laurence Nkunda,
the ferocious Tutsi warlord who rampaged through eastern DRC last year and at
one time seemed to threaten the rickety foundations of Kabila's government.
In February 2010, China received a jolt of unfavorable publicity courtesy of
Kabila's ruling party as a parliamentary commission reported on Gecamines' $23
million problem of the missing signing fee.
Although there was no implication made that China was at fault, the story was
combined with circumstantial details of less-than-stellar Chinese performance
on unrelated cellular network and agricultural projects in a critical and
widely circulated report [11] by the newsletter Africa-Asia Confidential.
To demonstrate he is not in Beijing's pocket, Kabila let it be known that his
office was ready to crack down on potential Chinese profiteering:
The
Congolese shareholders say that they are getting tougher in negotiations.
Before, they had to "close their eyes" to certain details, such as feasibility
studies carried out by the same company that would later implement the project,
a practice that led to overestimating of costs. Since November 2009, the
quality control assignments of all infrastructure projects within the Sicomines
framework have been subject to international tendering.
As the
Congolese say, things will be getting tougher in 2010 as the DRC moves towards
its presidential election and the international jockeying for influence and
advantage in Kinshasa intensifies. China can only hope it can continue to
thread the needle and make it to 2014 - the year copper production starts -
with its project and political standing largely intact.
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