News / Africa

Congo-China Mines Deal Hits Rough Patch

One of few remaining miners digs out soil which will later be filtered for traces of cassiterite, the major ore of tin, at Nyabibwe mine, in eastern Congo, Aug. 7, 2012.
One of few remaining miners digs out soil which will later be filtered for traces of cassiterite, the major ore of tin, at Nyabibwe mine, in eastern Congo, Aug. 7, 2012.
Nick Long
Congolese media say a mines-for-infrastructure barter agreement between the Democratic Republic of Congo and a consortium of Chinese companies may be at risk because China's Exim Bank has reportedly withdrawn its support.

When the deal was announced five years ago it involved the Democratic Republic of Congo agreeing to give the Chinese consortium majority stakes in two of the biggest mines in the country, in exchange for $9 billion worth of infrastructure, including roads and a railway.

Under pressure from western donors, who objected to the DRC government’s offer of a state guarantee for the $9 billion when the Congo was asking them for massive debt relief, the deal was whittled down to $6 billion.

Five years on, people have been asking why there are still hardly any minerals coming out of the two mines and the infrastructure work has stalled. Media in Kinshasa have said it is because the bank that was supposed to finance the work, China Exim Bank, has pulled out.

Well kept secret

Those media reports drew on an academic article last month by Johanna Jansson, a Swedish academic.

"What happened was that Exim Bank wanted certain securities, which the Congolese and Chinese parties did not find reasonable, so Exim Bank pulled out. But the Chinese companies have remained committed," Jansson said.

China Exim bank withdrew its support from the project last year, Jansson said, but this seems to have been a fairly well kept secret.

Last week when Congo's prime minister, Matata Ponyo, was asked if Exim Bank had withdrawn from the project he said there was a problem to be discussed in depth with the Chinese partners.

Project status

On Monday, a government official said there was no problem between the DRC and China Exim Bank, but he stressed that it is up to the companies to find the finances.

"They have restarted work, so there is a financing arrangement, but I have not had time to confirm which bank is now in and what it looks like," Jansson explained when asked where the effort stands. "They were negotiating throughout 2012 with China Development Bank, and Bank of China and China Exim Bank, and when I was in Kinshasa up to end 2012 those negotiations were quite intense so I would think they have reached a financing arrangement with one of the banks by now."

Other observers do not agree that the mining company in the consortium, called Sinohydro, has restarted work on the project.  

Jean Pierre Muteba, spokesman for the civil society association of Katanga, where the two mines are located, said Sinohydro has done no work at the two mines since it finished a feasibility study two years ago. He said there is another company, CDM, which is doing some work there.

Muteba said CDM is a Chinese company that has started processing copper from the two mines and this might account for some people thinking the Sicomines project is back on track.

According to Muteba, the consortium has not done any work on the roads recently either.

Transparency

Another local activist, Jean Pierre Okenda, who works for the Extractive Industries Transparency Initiative, an international effort, said there needs to be more openness about the whole project.

He said there is no transparency in the infrastructure development program in Congo. The Congolese public, he says, does not know what infrastructure the Chinese companies are supposed to be building, nor do they know within what time frame.
 
But Jansson said there was never a time frame in the agreement and the figure of $3 billion to be spent on social infrastructure like roads is a maximum, not a firm commitment. This is not an aid project, said Jansson, it is a commercial deal.

"The contract provisions are such that the infrastructure will be constructed following the profitability of the mines," Jansson explained. "But the Chinese companies have advanced money, have been paying for infrastructure - quite significant amounts - before the mines started to produce, for goodwill basically."

The government announced recently that out of the potential $3 billion, the Chinese partners have so far spent $468 million on infrastructure, consisting of one hospital and two roads in the capital Kinshasa, one 90 kilometer road in Katanga, and another road of similar length in North Kivu.

The Sicomines contract also includes signature bonuses. Observers say it is not clear from government statements whether the second tranche of this bonus, $175 million, is supposed to go to the state mining company or to the national treasury.

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