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 KINSHASA 00000579 002 OF 003 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