NEW MANAGEMENT INSTALLED IN MINING PARASTATAL

UNCLAS SECTION 01 OF 02 KINSHASA 000216

SIPDIS

SENSITIVE

USTR FOR WJACKSON

E.O. 12958: N/A
TAGS: EMIN ECON EINV EAID PGOV CG
SUBJECT: NEW MANAGEMENT INSTALLED IN MINING PARASTATAL

REF: A. 05 KINSHASA 731

B. 05 KINSHASA 1195

1.(SBU) Summary. The GDRC has finally taken a significant
and long-delayed step in restructuring the mining
parastatal, Gecamines, a dominant Mobutu-era mining
operation. January 18, a new management team took over the
bankrupt Gecamines, though not to restore it to its former
monopoly status as a mining giant. Management faces
daunting challenges, including a significant external debt
load, years of salary arrears and bloated employee rolls,
and pressure to reexamine the partnership agreements entered
into during recent years of conflict. Gecamines must depend
on its private sector joint ventures to raise revenue, as it
possesses no capacity to do so on its own. Its continued
existence is based more on political considerations than
economic ones. End summary.

AN EXPANDED MANAGEMENT TEAM
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2. (U) After months of debate and preparation, a December 30
presidential decree (published January 5) established a new
management team and Board of Directors to launch the long-
awaited restructuring of Gecamines (copper/cobalt/zinc
mining). The management team took office January 18.
SOFRECO, a French consulting firm, is charged with the
management reform, pursuant to its eighteen-month contract
(funded by the World Bank) with COPIREP (the Congolese
agency responsible for restructuring public enterprises).


3. (U) The new management team includes three SOFRECO
representatives in the positions of CEO, Financial Director
and Deputy Technical Director. Paul Fortin, the CEO, is a
mining law expert who has worked for several mining
companies, including AngloGold Ashanti. Board members
include representatives of the offices of the President, of
the Vice President in charge of the Economic and Financial
Commission, and of the Ministries of Finance, Mines and
Portfolio.

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


4. (U) The new team faces many challenges in its attempts
to revive the company. (Note: In 1986, the DRC's annual
copper production peaked at 476,000 tons. 2004 copper
production was 12,000 tons, and 2005 production was 16,055
tons, despite Gecamines' optimistic estimates of 25,000
tons. End note.) Its substantial debt burden and limited
resources place it in a precarious position. According to
former Gecamines management, the parastatal has USD 1.7
billion in external debt and salary arrears of as much as
five years on a payroll that lists about 12,000 employees,
almost none of whom are actually working. A Gecamines
official told Econ FSN that 10,334 are part of the labor
force and 1,681 are executive staff.


5. (U) Gecamines has no capacity to raise revenue through
its own mining operations, as it did during the 1980s and
earlier. It has few known, exploitable concession areas,
only a handful of pieces of usable equipment (a few trucks
and large excavators) and none of its own functional
concentrators or processing plants. According to its late
2004 inventory, Gecamines owns interests in five
concentrators and nine processing plants run by other
companies.


6. (U) To raise revenue, Gecamines has entered into 24 new
exploration and exploitation concession agreements since
2003, including with Phelps Dodge, Tilwezembe/Global
Enterprise (a Dan Gertler-controlled entity),and Kamoto
Copper Company (a George Forrest-controlled entity)
(reftel B). However, among all the new partners, only the
tailings projects are currently producing any copper and
cobalt.

YET MORE PRESSURES
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7. (SBU) In addition to its huge financial problems,
Gecamines faces political pressure to unwind questionable
concession agreements awarded beginning in 1997.
Gecamines and other GDRC officials have contested several
agreements made during this period. A World Bank
consultative team has reviewed all of Gecamines' joint
ventures, as part of the IMF economic reform, and is
preparing its report. However, the provisions of the 2002
mining code establish the specific conditions under which
Gecamines' can alter or void contracts.

Comment
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8. (SBU) The new management team certainly has its work
cut out for itself if its intent is to justify Gecamines'
future existance on purely economic grounds. End comment.

MEECE