Democratic Republic of Congo President Joseph Kabila during a visit to the Federal Republic of Nigeria on September 28, 2010. The two countries are population and mineral resource giants on the African continent.
Originally uploaded by Pan-African News Wire File Photos
By William Wallis in London
Last updated: October 26 2010 17:03
Congolese demonstrators in Brussels last week protest against a dissident’s death in a Kinshasa jail
Western donors have begun withholding development aid from the Democratic Republic of Congo amid mounting concern over the mismanagement of the mining and energy sectors by Joseph Kabila, president, and some of his aides.
The recent resale of a copper project expropriated from Canadian company First Quantum and the reallocation of oil concessions claimed by Tullow Oil of the UK are among several deals jeopardising western support for the country’s recovery from years of conflict.
Congo has some of the richest mineral deposits in Africa. But commercial disputes have raised risk perceptions to “maximum”, according to Barclays Capital, while international arbitration could burden one of Africa’s poorest countries with billions of dollars in compensation claims, should Congo lose.
The country is broadly on track in its macroeconomic management, according to a recent review of the International Monetary Fund’s $550m programme.
However, the business climate has been plagued by high-level corruption reminiscent of the 32-year misrule of the late dictator Mobutu Sese Seko, against a backdrop of escalating violence in the east of the country and repression in the capital, Kinshasa.
“There is general discomfort about economic governance and the investment climate. Donors are asking questions before putting in more money,” said a senior donor official. “This is a country with great potential that needs substantial investment. It really needs to demonstrate it is doing everything as transparently as possible.”
Congo has fixed its 2011 budget at $6.7bn, with a financing gap of more than $3bn that Kinshasa hopes will be met by external creditors.
Donor officials said the World Bank had so far withheld $100m in budgetary support and suspended fresh project lending. Other donor organisations are beginning to follow suit, with the European Union withholding €50m ($69m) of budget funding.
Concerns about the investment climate could also lead the Paris Club of creditors to postpone the rescheduling of the country’s remaining $2.9bn of debt, western officials said.
“The World Bank Group has been concerned by the deterioration in economic governance and legal security in recent months. This deterioration threatens potential investment. It also risks undermining the effectiveness of government in mobilising both its domestic resources and donor supported funding,” said a World Bank spokesperson.
First Quantum was Congo’s largest taxpayer. However, the company has infuriated Mr Kabila by refusing to review its contracts covering concessions awarded during the war between 1998 and 2003. Dozens of other mining groups have renegotiated their deals – both under and across the table.
Mr Kabila reissued rights to the company’s tailings project at Kolwezi to businesses controlled by Dan Gertler, an Israeli magnate with whom he has a close relationship.
In August, a majority shareholding in Kolwezi and two other assets was sold on to Eurasian Natural Resources Corp, a company listed on the FTSE 100, for $175m and a $400m loan.
Congo, according to a western diplomat, had given verbal assurances to the World Bank and IMF that it would refrain from reassigning the disputed concession until a related case has been settled at the International Chamber of Commerce in Paris.
The World Bank and IMF boards are understood to have taken those assurances into consideration when finalising a $10.8bn write-off of historic debt.
By reallocating the concession, in which First Quantum had invested $750m, and seizing another mine, Mr Kabila is seen to have thumbed his nose at donor concerns.
The case has proved especially awkward for the World Bank, which had been relatively relaxed about governance in Congo, as its private sector arm, the International Financial Corporation, is a minority shareholder in the project.
“If the World Bank formally suspends funding, that could torpedo the relationship. So they are trying to concretely signal their displeasure without causing a rupture,” said a western official, adding that “getting it right without being taken for fools would be quite difficult”.
Concession to Kinshasa seals copper mine’s future
Freeport-McMoRan, the US copper mining group, has resolved a long-standing dispute with the Democratic Republic of Congo over control of a vast copper mine by giving cash and shares to the government, writes William MacNamara.
The Tenke Fungurume project, which could be ranked among the world’s top 10 new sources of copper, has been plagued by uncertainty since 2007, when Congo’s government decided to review all mining licences signed during the war in the country between 1998 and 2003.
More than a year of negotiations, thought to have involved the US government in support of Freeport, led to changes to the Tenke licence. Under the new terms, Gecamines, the state mining company, will own 20 per cent of Tenke, an increase from 17.5 per cent.
Freeport will pay $30m to Congo “in six instalments after reaching certain production milestones”, as well as $5m in “surface area fees”.
Freeport started producing copper at Tenke in south-eastern Katanga province in March 2009 and is still working towards full production. But until last Friday it did not have a clear licence.
Perception of risk surrounding the Tenke licence increased in August when Canada’s First Quantum Minerals was stripped of the last of its assets in Congo.
The “international outcry” caused by this dispute might have “accelerated the settlement by strengthening Freeport’s position and giving the government a greater incentive to show that it is not all bad”, said Chris Melville, an Africa mining specialist with Menas Associates.
Copyright The Financial Times Limited 2010.
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