Wednesday, 30 October 2013

How the DRC government resignation could leave room for massive detournment of Congolese assets (Mining)



This article was originally published here
Democratic Republic of Congo Prime Minister Augustin Matata Ponyo forbade sales of state assets and the signing of new contracts while the country awaits a cabinet reorganization, according to a letter to his ministers.

Government officials should be prepared to hand over their posts after Congolese President Joseph Kabila said he plans to create a new government of “national cohesion,” Ponyo said in an Oct. 24 letter obtained by Bloomberg and confirmed by the government. Kabila’s announcement marked the end of a national conference last week to promote unity and reconciliation in Africa’s second-biggest copper producer.

During the transition, there is a “prohibition on the sale, transfer, or disposal of state assets,” it said. The order applies to all state-owned companies, while officials are also forbidden from concluding new financial engagements and procurement contracts, according to the letter.
Gecamines, Congo’s state-owned mining company, is facing pressure from advocacy groups including Kofi Annan’s Africa Progress Panel after announcing it may sell its shares in Glencore Xstrata Plc-controlled Kamoto Copper Corp. Between 2010 and 2011, the company sold stakes in several of its joint ventures at prices well below market value, costing the country hundreds of millions of dollars, the 10-member panel said in March.
Publish What You Pay, a London-based campaign, and a group of Congolese non-governmental groups monitoring the mining industry called for Gecamines to undertake a new tender process if it decides to sell the stake in KCC, which may become Congo’s biggest copper producer next year.
Offshore Company

In an Oct. 24 statement, the groups also question Gecamines’ plan to create an offshore company to separate its profitable joint venture stakes from its nearly $1 billion debt. The company hopes to use the entity to attract financing for a $2.8 billion development plan.
The groups “fear that this subsidiary will only serve to launder funds that could be embezzled by Gecamines’ officials since it will be difficult for Congolese authorities to control the subsidiary,” according to the statement.
Congo’s new government will be made up of members of the presidential majority and of opposition parties, as well as representatives from civil society, Kabila said on Oct. 23.

Several of the country’s opposition parties, who still challenge the validity of Kabila’s 2011 re-election, boycotted the conference. Kabila also faces a violent rebellion in eastern Congo and insecurity in copper-rich Katanga province.
Congo was the world’s eighth-largest producer of copper last year and is the biggest source of cobalt, used in rechargeable batteries.

To contact the reporter on this story: Michael J. Kavanagh in Kinshasa at mkavanagh9@bloomberg.net

To contact the editor responsible for this story: Antony Sguazzin at asguazzin@bloomberg.net


As a reminder, read this story:
Gecamines, the Democratic Republic of Congo’s state-owned copper-mining company, must publish contracts and revenue from recent asset sales under the terms of a government economic program backed by the International Monetary Fund, the multilateral lender said.

Gecamines sold its stakes in two mining projects run by Baar, Switzerland-based Glencore International Plc to companies associated with Israeli businessman Dan Gertler earlier this year. Gecamines didn’t announce the deals publicly at the time and has declined to publish full details of the sales or transfer the proceeds to Congo’s Treasury.

“The obligation to report such information covers all state-owned enterprises, unless such enterprises are explicitly excluded from the program,” IMF Country Director in Congo Samir Jahjah said in an e-mailed response to questions today from Kinshasa, the Congolese capital. “At this time, there are no such exceptions under the DRC’s program.”

Congo holds 4 percent of global copper reserves and is among the world’s largest producers of cobalt. The Central African nation, recovering from more than four decades of dictatorship and war, is in the second year of a three-year, $561 million loan program backed by the IMF to reduce poverty and spur economic growth.

“An important objective” of the program is to generate more revenue to address Congo’s health, education and infrastructure needs, Jahjah said. An “important source” of this revenue is natural resources, he said.

‘Best Practices’

“To generate this revenue, the natural-resource sector must be managed more effectively, in line with international best practices,” Jahjah said. “These practices include strong governance and transparency.”

The IMF asked the government for information on recent asset sales by state-owned companies in its periodic review of Congo’s adherence to its loan program, Jahjah said, without identifying the specific deals. On Sept. 16, both Gecamines and state-owned miner Sodimico sent letters in response to IMF inquiries about recent asset sales by the two companies. The letters were published on the website of Congo’s Mines Ministry.

The controversy over the sales by Gecamines and Sodimico delayed the IMF’s release of the next instalment of its loan to Congo, le Potentiel, a Kinshasa-based newspaper, reported today, citing people it didn’t identify.

No Delay

Jahjah denied there had been a delay in a mobile-phone message today. “The review is proceeding on the timetable envisaged,” he said.

In its response to the IMF questions, Gecamines said it disagreed with an IMF suggestion that the proceeds from a $137 million sale of its share in the Mutanda copper and cobalt project should be transferred to state coffers, in accordance with Congolese law. After the copper and cobalt miner became a commercial company in December, such laws didn’t apply, it said.

“According to the 2008 law on public enterprise restructuring, proceeds from asset sales should go to the Treasury,” Jahjah said.

Albert Yuma, head of Gecamines’ board, had his mobile phone turned off when called for comment today and didn’t respond to a text-message request for comment. Finance Minister Matata Ponyo was out of the country and could not be reached for comment, according to a person who answered the phone at his office.

To contact the reporter on this story: Michael J. Kavanagh in Kinshasa at mkavanagh9@bloomberg.net.

To contact the editor responsible for this story: Paul Richardson at pmrichardson@bloomberg.net.

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