MAC: Mines and Communities

DR Congo's missing millions

Published by MAC on 2010-02-23
Source: Africa Asia Confidential

Eight months ago the World Bank/IMF told DR Congo's government to "ease off" on a deal with China, under which the Peoples' Republic would provide US$9 billion for infrastructure funding, aimed at bolstering China's access to DR Congo's vast store of minerals. See:

Although the total amount was capped by a third, many millions of dollars have since flowed into the African state without being accounted for.

This has led to accusations of massive theft by some Congolese citizens - one in which Chinese entrepreneurs themselves may have been involved.

Kinshasa's missing millions

Africa Asia Confidential

February 2010

Evidence of grand corruption is mounting in Beijing's showcase $6 billion barter deal with the Kinshasa government.

Over US$23 million in signature bonuses payable on China's $6 billion Sino-Congolaise des Mines (Sicomines) deal with the Kinshasa government have been stolen according to a probe by a commission set up by the National Assembly.

The stolen monies were part of some $50 mn. that Chinese companies were due to have paid to Congo's mining parastatal, Gécamines, the Commission Economique et Financière reported in late January.

These findings follow growing concerns in recent weeks about the accountability of natural resource deals by Chinese companies in Angola and Kazakhstan. Ahead of national elections in 2011, Congo's President Joseph Kabila is demanding better value for money: more jobs for Congolese workers and fewer imported Chinese workers.

The Commission said that Chinese contractors in the Sicomines consortium, which includes the China Railway Group and Sinohydro, paid $50 mn. Commission President and ruling party member Modeste Bahati Lukwebo criticised the collusion of some senior officials in Gécamines with ‘local justice officials in Lubumbashi'.

This complicity ‘facilitated the loss of $23,722,036 of the $50 mn. intended for Gécamines,' claimed the report, signed by five deputies of the Assembly. The $50 mn. is just a part of the $350 mn. entry fee that the Chinese consortium agreed to pay for signing the $6 bn. ore-for-infrastructure joint venture deal which was concluded on 22 April 2008 by Minister of State for Infrastructure Pierre Lumbi Okongo, China Railway's Li Changjin and Sinohydro's Fan Jixiang.

The deal gave the Chinese companies access to mining concessions which hold 10.6 mn. tonnes of copper and 626,000 tonnes of cobalt, which are currently estimated to be worth $100 billion, in exchange for the construction of railways, roads, schools and hospitals. The Chinese consortium added a new partner in July 2008, giving China Metallurgical Group a 20% stake. The Sicomines joint venture formed by the Congolese and Chinese parties is now controlled by China Railway (28%), Sinohydro, Gécamines and China Metallurgical Group (20% each) along with Congo Simco (12%), which is a joint venture between the state-owned Entreprise Minière de Kisenge Manganèse and Gécamines.

The Commission complained that Pierre Lumbi had refused to be interviewed. Other bodies under Lumbi's authority, including the Agence Congolaise des Grands Travaux (ACGT), which oversees the large Chinese-backed infrastructure projects, also refused to appear before the Commission.

The Chinese companies were prepared to meet Commission members, but referred most questions to company officials who are in China or to the Kinshasa government itself. The Commission has not accused Sicomines of wrongdoing in the missing $24 mn., but instead blames the Congolese government and Gécamines management. The investigation is nonetheless embarrassing for the Chinese parties, who risk further political and public scrutiny of the Chinese deals with Kabila's government.

The importance attached by the Presidency to relations with China and to the Sicomines deal is shown by the sidelining of the Foreign Ministry: officials responsible for Asian affairs [who] claim to have very little information about developments regarding the agreement. The ACGT and the Bureau de Coordination et de Suivi du Programme Sino-Congolais (BCPSC), the two agencies established under the Ministry of Infrastructure by presidential decree to manage the Sino-Congolese collaboration, do not readily share information with the rest of the government.

Disagreements on the construction side of the Sicomines deal are intensifying. Clause 11.2 specifies that the Chinese parties shall to the greatest extent possible turn to Congolese companies for the contracting of infrastructure work and equipment. This should ensure technology and skills transfers but, according to a manager of the BCPSC, it has not been properly run. There have not been many opportunities for such subcontracting, and there is little interest from the Chinese side.

There are problems in the mining side of the Sicomines agreement. The feasibility study for the mines is ready and the next step is to build a hydroelectric plant near Busanga in Katanga to supply electricity. Sinohydro put in a bid for the dam's construction, but it was judged too high and the ACGT/BCPSC may launch an international tender if it does not lower its price. ACGT and BCPSC directors claim that the balance of power has changed.

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.

Although the implementation of the Sicomines agreement is moving ahead, several projects involving Chinese companies or finance have stalled. One of those deals is the biofuels project involving the Chinese telecommunications company ZTE. In 2007, when the Memorandum of Understanding between ZTE and Congo's Ministry of Agriculture, Fisheries and Livestock farming was signed, it was estimated that the biofuels project, worth $1 bn., would require 3 mn. hectares of oil palm plantations in Equateur, Bandundu, Orientale and Kasai-Occidental provinces. In 2008, 250 hectares of fertile land were offered to ZTE. The Agriculture Minister has twice received delegations from ZTE to discuss this. The last time was in March 2009, but three years after the MOU nothing has been done and according to the Ministry of Agriculture ‘nobody talks about it anymore'.

The large-scale development of national telecom networks has slowed down. The cable stretching between Moanda and Kinshasa was completed in December 2009 by China International Telecommunication Construction Corporation. Clear plans for the extension of these fibre-optic networks across Congo were outlined by the Ministry of Posts and Telecommunications, but no binding agreement has been signed.

The second telecom project by Huawei was delayed by the widening of the Boulevard du 30 Juin by China Railway Engineering Corporation. Huawei's deadline was originally December 2009 but has been extended to February 2010. On plans to expand the telecoms project to the capitals of the other ten provinces, Huawei has put in a request to the Posts Ministry for the project's continuation and the response is due later this year.

Africa-Asia Confidential reported in 2009 that talks were underway with the China Development Bank and Sinosure to finance four universities and the renovation of N'Djili airport, as well as the road leading there, in Kinshasa. The contractor was supposed to be Changda Highway Engineering Corporation.

None of these projects had materialised because the CDB did not accept the concessions offered to them in Potopoto in Katanga and had pulled out of talks in late 2009. The CDB was the financier behind Sinosure, so the deal involving the latter also fell through.

Cooperation with the CDB has so far been unsuccessful. Initially, Kinshasa had asked China Export-Import Bank to finance Congo's infrastructure development in what became the Sicomines deal. The CDB rejected the mineral concessions on offer then, too. We hear that CGCD [the China Guangdong Chang Da consortium] is conducting its own talks with the CDB, hoping to revive the deal. Meanwhile, CGCD representatives are still in Kinshasa, working on a Chinese government-backed road restoration project in a residential area close to the Université de Kinshasa.

CGCD's strategy is part of a trend among Chinese companies in Congo. There is certainly business to be had, and given the distance, representatives enjoy a degree of freedom vis-à-vis their head offices. They can thus take on extra business without necessarily providing headquarters with all the details, which means opportunities for extra revenue.

BCPSC officials claim that Chinese partners to the Sicomines agreement misuse the exemption from import taxes. The company then uses its less expensive building materials to carry out projects outside of the Sicomines deal.

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