GDRC PUBLISHES MINING CONTRACT REVIEW

UNCLAS KINSHASA 000294 SIPDIS SIPDIS SENSITIVE PASS TO OPIC (JIM WILLIAMS) E.O. 12958: N/A TAGS: ENRG EMIN PGOV CG SUBJECT: GDRC PUBLISHES MINING CONTRACT REVIEW ¶1. (SBU) Summary. The GDRC Mining Contract Review Commission published its final report on 61 mining contracts March 20, calling for all contracts to be either terminated or modified. Companies will have the opportunity to start negotiations or appeal decisions with a GDRC task force, but details of that process are not yet available. The Carter Center points to the report as reason to support the entire mining sector review process. However, the Commission carried out its work with very little transparency. Majority U.S.-owned Tenke Fungurume Mining (TFM) is among the projects slated for renegotiation, and has already begun discussions with the GDRC. End Summary. ¶2. (SBU) The GDRC Mining Contract Review Commission, appointed by President Kabila and set up by Minister of Mines Martin Kabwelulu in April 2007, made public its report on the 61 mining contracts, all signed with Congolese parastatals during and after the Transition, on Thursday, March 20. The Commission, led by the Minister's Chief of Staff Alexis Mikandji Penge, called for 15 of the 61 contracts to be cancelled and 46 to be renegotiated. The Commission said none of the contracts met international standards, and cited problems ranging from the undervaluation of DRC state assets to the inability of the GDRC to govern all companies equally because of "force majeure" clauses. ¶3. (SBU) The Commission's report is the culmination of just the first step in the process, and does not necessarily indicate which contracts may ultimately be cancelled and which may be modified. A high-level task force, including Kabwelulu and Vice Minister of Mines Victor Kasongo, will analyze the Commission's report and guide the ensuing discussions with each mining company. ¶4. (SBU) The Carter Center, a U.S.-based human rights NGO that provided limited legal counsel to the GDRC during the review, called for the international community and the mining companies involved to support the review process. (Note: Carter Center representatives find fault with the international and diplomatic community for not thus far supporting the process, and the Center's role therein. End note.) The Commission operated mostly in secrecy during the preceding ten months and the Carter Center called on the GDRC to establish clear criteria and a transparent process for the ensuing contract renegotiations. ¶5. (SBU) Several large mining companies are targeted for contract renegotiation, including De Beers, BHP Billiton, Anglogold Ashanti, and U.S.-based Freeport McMoRan's TFM project. Kabwelulu sent letters to most of the companies during the week of February 25 indicating the Commission's position, and TFM had already responded by the time the review was published. In an assessment typical of many of the concessions reviewed, the Commission called for the share of TFM held by GDRC copper/cobalt mining parastatal GECAMINES to be raised to 45 percent and for GECAMINES to be given more direct control over day-to-day operations. Freeport owns a 57.75 percent share of TFM, GECAMINES owns 17.5 percent, and Lundin Mining (a Canadian firm) owns the balance. ¶6. (SBU) Comment: There has been little transparency in the review process to date and the details of negotiations between companies and the GDRC are likely to be equally opaque in most cases. The Commission may have correctly recommended cancellation of those concessions that had never been explored nor exploited, but other recommendations appear to target legitimate companies, some already in production, in an effort to turn a quick profit for the GDRC. Some companies may decide to resort to international courts if they cannot reach an agreement with the GDRC. ¶7. (SBU) Comment, continued: While the renegotiations will result in some eventual gains for the DRC, the lack of transparency and the anticipated lengthy process may have both a short and long-term net negative effect on investor confidence and overall foreign direct investment. High commodity prices, recent Chinese investments in the DRC, and the temporary ban on all mining in the Walikale region of eastern Congo (rich in tin and cobalt) are all complicating the review process. End comment. GARVELINK