DRC'S REVIEW OF MINING CONTRACTS

C O N F I D E N T I A L SECTION 01 OF 03 KINSHASA 000579

SIPDIS

SIPDIS

E.O. 12958: DECL: 05/29/2017
TAGS: EMIN EINV ECON PGOV CG
SUBJECT: DRC'S REVIEW OF MINING CONTRACTS

REF: KINSHASA 425

Classified By: EconOff W. Brafman for reasons 1.4 b/d.


1. (SBU) Summary. The Ministry of Mines has established an
intragovernmental commission to review 60 joint-venture
mining contracts. The commission expects to begin its work in
early June, although it must first establish a work plan and
internal rules, find funding and select experts. There has
been no public opposition to the review, and indeed much
support, but concerns exist as to whether it will be
transparent and have meaningful impact. End summary.

THE REVIEW COMMISSION
--------------


2. (U) In an April 20 decree, the Minister of Mines, Martin
Kabwelulu, established a commission to review the DRC's 60
joint-venture mining contracts. According to Kabwelulu's
Chief of Staff, these 60 comprise all joint-venture mining
contracts that currently exist in the DRC, whether concluded
pre- or post-Transition. The commission's mandate is to
examine the contracts and propose any revisions deemed
necessary to "correct any imbalances." This review will build
on the 2005 work of the Lutundula commission, the
parliamentary-group that examined pre-Transition mining
agreements. The resulting report, never officially published
or debated, calls for the renegotiation of agreements deemed
disadvantageous to the DRC.


3. (SBU) The partnerships subject to review include: 31 with
Gecamines (copper/cobalt mining parastatal),11 with OKIMO
(gold mining parastatal),and six with MIBA (DRC's diamond
mining parastatal). The Vice Minister of Mines, Victor
Kasongo, has prepared a document categorizing these 60
contracts as projects: 1) in production (four contracts); 2)
undergoing feasibility studies (six contracts); and 3) with
no feasibility study yet. Kasongo sub-divided the third
category of contracts between those with publicly-listed and
those with privately-held companies. Kasongo told EconOff he
considers many in the third category to be speculative deals,
particularly those not held by companies on a stock exchange.
(Note: The list does not include any agreements with
Sominki, a DRC gold mining parastatal that the GDRC contends
is now a private company. End note.)


4. (SBU) The commission will consist of about 30 members,
including representatives from the Presidency, the Ministries
of Mines, Finance, Budget, Justice, Portfolio, Industry, and
the Mining Registry (Cadastre Minier). Members will receive
a per diem. (Note: Kasongo claims this provision was
inserted over his objection. End note.)


5. (SBU) The commission was to begin work on May 15, but it
has postponed the first meeting to early June. Its mandate
lasts 90 days, with an option to extend this period. The lack
of any advance planing became evident during a May 14
discussion EconOff had with the chief of Staffs of several
ministries on the commission. What emerged is that the group
has developed no working rules or methodology, and it has no
source of funds or a place to meet.


6. (SBU) Indeed, the lack of funding could put a halt to the
entire project. Vice Minister Kasongo estimates the project
might cost USD 500,000. Aside from per diems, funding is
needed to cover the expenses of experts the commission
selects. The Presidency and the Prime Minister's office have
declined to provide funds, and Vice Minister Kasongo claims
the Mines Ministry cannot afford to do so. However, Kasongo
said he would discuss the issue further with Kabwelulu in
response to EconOff's comment that the international
community might not take the review seriously if the Ministry
of Mines and other GDRC institutions do not financially
support the effort.

THE EXPERTS
--------------


7. (C) A major decision the commission will face almost
immediately is the selection of expert consultants. Those
involved in the commission's work have discussed several
potential experts. The World Bank (WB) has offered the
services of a law firm it retained for other mining sector
work in the DRC. However, Ministry of Mines officials have
said they are not interested in this offer, citing the
concern that WB procedures may be too slow for the law firm

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to be available in time. A Swiss consulting firm (a member
of the Rothschild banking consortium) has offered to lend
expertise, and the Belgian government has offered access to
their government archives. Vice Minister Kasongo told EconOff
the Belgian offered other support - although he did not
specify what, and commented that he did not want to accept
this offer, implying that he thought it was just another
Belgian attempt to interfere in Congolese affairs.


8. (U) The Ministry of Mines is also talking to Carter Center
(CC) about possible assistance. Talks with the Carter Center
began in March, when Columbia University law professor Peter
Rosenblum came to the DRC at the CC's invitation to develop
good governance programming. Rosenblum's initial idea was to
map the existing mining contracts, but during a discussion
with the Mines Ministry, the project evolved into a proposal
to provide technical assistance for the review commission.
The proposed support includes helping develop working rules
and a methodology and offering advice on the selection of
expert consultants. The Kinshasa-based Carter Center
representative also told EconOff the Vice Minister of Mines
wants to identify a subset of contracts on which Rosenblum
and colleagues would focus its legal review.


9. (C) Contrary to Vice Minister Kasongo's public statements,
the Carter Center has not yet made any commitment, and is
somewhat hesitant to do so. One reason for its cautious
approach is that it does not yet have funds for this project.
Further, the organization does not want to risk its sound
reputation should the process not prove to be transparent.
Rosenblum is scheduled to return to the DRC in early June to
discuss the project further with the Ministry of Mines;
indeed, Vice Minister Kasongo said he delayed the
commission's first meeting to await Rosenblum's arrival.

THE REACTIONS
--------------


10. (SBU) Thus far, no stakeholder - including mining
companies, the World Bank, or the diplomatic and donor
communities - has publicly opposed the commission and its
pending review. EconOff is also unaware of any private
objection, at least to the principle of a review. A
consortium of advocacy NGOS, including the U.K. organizations
RAID and Global Witness, has been very vocally calling for
this review for several months, and is pushing for the GDRC
to renegotiate or revoke all the mining agreements under
review.


11. (C) Overall, concerns about the review focus on a more
fundamental inquiry - whether the GDRC is serious about this
undertaking. The motives and messages are mixed, as are
opinions about the review. Several public officials,
including Prime Minster Gizenga, have said this review is a
government priority for mining sector reform (reftel). Mines
Minster Kabwelulu has also publicly called for contract
review as has Gecamines CEO Paul Fortin. A Phelps Dodge
official who has spoken with several high-level government
officials told EconOff the company believes the GDRC's goals
are two-fold. One goal is to satisfy the demand for the
review among the Congolese and international community, while
the other main goal is to push out mining companies that are
mere speculators or are otherwise undesirable business
partners from the GDRC's perspective. Conversely, a World
Bank mining expert who has been preparing a report on the
DRC's extractive industries told EconOff he does not believe
the GDRC is serious about efforts reviewing contracts and
that a review is just for appearance's sake.

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


12. (C) The Ministry of Mines has done the right thing in
initiating a mining contract review after the installation of
the new government. Several factors risk derailing a
genuinely transparent and thoughtful process, however. First,
the disorganized manner in which the Ministry is assembling
the commission and its experts may result in chaotic process
that lacks credibility. Further, the commission's
recommendations may ultimately rest too heavily on an
analysis of whichs contracts appear disadvantageous to the
GDRC in hindsight - through the lens of currently high
commodities prices - rather than on sound legal or policy
foundations. Finally, a strong possibility exists that
highly-placed government officials will seek to manipulate
the process to benefit their own financial and political

KINSHASA 00000579 003 OF 003


interests. End comment.
MEECE