Identifier
Created
Classification
Origin
06KINSHASA1621
2006-10-20 09:44:00
CONFIDENTIAL
Embassy Kinshasa
Cable title:  

GECAMINES' CHIEF HAS UNREALISTIC VISION

Tags:  EMIN ETRD PGOV CG 
pdf how-to read a cable
VZCZCXRO5438
RR RUEHMR RUEHRN
DE RUEHKI #1621/01 2930944
ZNY CCCCC ZZH
R 200944Z OCT 06
FM AMEMBASSY KINSHASA
TO RUEHC/SECSTATE WASHDC 5002
INFO RUEHXR/RWANDA COLLECTIVE
RUCNSAD/SOUTHERN AFRICAN DEVELOPMENT COMMUNITY
RUEAIIA/CIA WASHDC
RUFOADA/JAC MOLESWORTH RAF MOLESWORTH UK
RHMFISS/HQ USEUCOM VAIHINGEN GE
C O N F I D E N T I A L SECTION 01 OF 02 KINSHASA 001621 

SIPDIS

SIPDIS

E.O. 12958: DECL: 10/17/2016
TAGS: EMIN ETRD PGOV CG
SUBJECT: GECAMINES' CHIEF HAS UNREALISTIC VISION

REF: A. KINSHASA 1500

B. KINSHASA 216

Classified By: ECONOFF WBRAFMAN FOR REASONS 1.4 b/d.

C O N F I D E N T I A L SECTION 01 OF 02 KINSHASA 001621

SIPDIS

SIPDIS

E.O. 12958: DECL: 10/17/2016
TAGS: EMIN ETRD PGOV CG
SUBJECT: GECAMINES' CHIEF HAS UNREALISTIC VISION

REF: A. KINSHASA 1500

B. KINSHASA 216

Classified By: ECONOFF WBRAFMAN FOR REASONS 1.4 b/d.


1. (C) Summary. Paul Fortin, CEO of the DRC's copper and
cobalt mining parastatal, Gecamines, remains optimistic about
the future of Gecamines, perhaps overly so, given the grave
challenges his organization faces. Rather than try to
resurrect a nearly moribund mining company, Fortin may have
more positive results by focusing on managing the significant
profit-making potential of several of Gecamines'
joint-ventures. End summary.


2. (SBU) EconOff and Economic Analyst met with Gecamines'
CEO, Canadian lawyer Paul Fortin, at Gecamines' office in
Lubumbashi, Katanga on September 27. Fortin discussed some
of Gecamines' controversial contracts, its current assets and
liabilities, and his vision for helping Gecamines to recover
from its economic misfortunes.

CURRENT JOINT-VENTURES
--------------


3. (C) Gecamines now has about 40 joint-venture concession
agreements, with a range of terms and types of partners.
Fortin was circumspect, though a bit glib, in discussing
these existing mining agreements, particularly those entered
into prior to the installation of the transition government
in June 2003, and more recently, under former President
Laurent Kabila. Many have questioned the legality of these
contracts, notably in the DRC's Parliamentary Lutundula
Commission report, which examined nearly all of them.


4. (C) When asked whether he thought some of the
pre-transition contracts were entered into illegally, Fortin
said that some companies had "paid a bit more" to get
agreements with the former government of Laurent Kabila.
However, he did not seem bothered by the borderline legality
of sweetheart deals. He explained that, in retrospect,
Gecamines made some bad deals because of the DRC's pressing
need for cash during conflict years. Moreover, the currently
high commodity prices were unforeseen at the time. For
example, the price of copper has nearly doubled in the last
year. Fortin did say many of the contracts with Gecamines
will be re-examined, but that he hopes that a governmental

commission will perform this task, instead of a politicized
parliamentary commission.

NEW DEALS ON HOLD
--------------


5. (C) Gecamines has entered into one deal and launched one
tender offer since Fortin's tenure began in January 2006
(reftel A),although the World Bank has asked Gecamines and
other DRC parastatals and agencies to suspend entering into
any new contracts during the remainder of the government
transition. This request has been made to allow for complete
examination of existing agreements and to prevent the signing
of any other questionable transactions. The one deal was
completed in late March with COVEC, a Chinese mining company
that obtained a 62 percent interest in a now-closed copper
Katanga copper mine known as Luisha. Fortin said that the
joint-venture, begun before he became CEO, includes a USD 60
million COVEC loan to Gecamines.


6. (C) Gecamines' tender offer is for rights to Kipushi, a
copper/zinc mine in Katanga, despite Gecamines' dispute with
South African company Kumba Resources and Canadian company
First Quantum over rights to Kipushi (reftel B). Fortin says
that in 2001, Gecamines and Kumba (later joined by
Adastra/First Quantum) entered into what amounted to an
"agreement to agree" to exploit Kipushi. However, he says
that Kumba/First Quantum never took any steps beyond
conducting a feasibility study of very little value, and that
the parties never reached any further agreement. Fortin said
that he obtained legal advice that supports his decision to
launch the tender.

MANY CHALLENGES
--------------


7. (C) Fortin also discussed the many management challenges
he faces at the helm of Gecamines, including its heavy debt,
its employees' demoralization, his two sets of bosses and
overloaded payrolls. Most significant is Gecamines'
precarious financial situation. Fortin says that Gecamines is
currently USD 3.4 billion in debt, most of which is due to
commercial creditors, but some of which is due to its

KINSHASA 00001621 002 OF 002


remaining 10,000 employees for salaries and benefits. Fortin
acknowledges that Gecamines must further reduce its employee
rolls. There is so little work that many do not even bother
showing up regularly. However, he said that Gecamines cannot
afford to pay the severance packages for all the employees
that should be laid off, and that, therefore, it is easier to
keep them on the payrolls. A reliable NGO contact involved in
the mining sector told EconOff that Gecamines has increased
the frequency with which it pays it employees to about every
other month.


8. (C) Fortin described Gecamines as a psychologically and
organizationally "paralyzed company" and its employees
"easily frightened (and) shamed" after years of neglect.
Before the late 1980s, Gecamines was a significant regional
source of pride and employment and a key driver of the
national economy. Fortin said that having two sets of bosses
also complicates the management structure. He must report to
the presidency, and to SOFRECO, the consulting firm that
directly hired and placed Gecamines' current management team
under contract with COPIREP, the WB-funded DRC agency
responsible for parastatal reform.

FORTIN'S PROPOSED SOLUTIONS
--------------


9. (C) Fortin offered several solutions for easing Gecamines'
woes, including obtaining external debt relief, increasing
production and export, and launching a public offer of
Gecamines' stock. He said that he has hit walls in his
attempts to get the GDRC to help pay Gecamines' bills,
despite its promise to form a commission to address the
issue. Hence, Fortin seems to have resorted to passing
around the hat to pay debts, for example asking EconOff
during the meeting for USG assistance and solutions. Fortin
hopes to get additional World Bank funding to help pay
severance packages, as it did for about 10,500 Gecamines
retirees from 2003 to 2004, and would like (comment:
unrealistically) to obtain debt relief through the Paris or
London Club processes. In addition, Fortin says that his
ultimate goal is to partially privatize Gecamines via an
Initial Public Offering, reducing the government share to 55
percent.


10. (C) Despite the formidable challenges, Fortin is
optimistic about Gecamines' future. He noted that its 2006
copper production (almost exclusively from tailings) has
increased over 2005's total of 16,000 tons. He is confident
this trend can continue, even though the company is producing
a fraction its 476,000 ton maximum in 1986, and is limited by
outdated equipment, technology and staff expertise. (Note: It
is unclear whether it is improved management or increased
commodity prices that are driving Gecamines' increased
production. End note.) Fortin said that Gecamines must
continue to exist as a mining entity not only because of its
potential revenue, but also because Gecamines is part of the
DRC's patrimony and a source of regional pride - a common
rationale for keeping alive many DRC parastatals, such as the
barely-surviving MIBA, the diamond mining parastatal based in
Mbuji-Mayi, Eastern Kasai. Fortin claims Gecamines revenues
may be the only way to fund social development projects for
many of its employees and retirees, despite the fact that
mining, companies, the USG, the UK and other donors are
increasingly engaged in that task.

COMMENT
--------------


11. (C) Rather than trying to remake Gecamines, the region
and the country may be better served if Fortin eliminates the
company's mining operations and focuses only on its role as a
holding company. Political and economic conditions do not
suggest that Gecamines should do otherwise. End comment.
MEECE