boilingspot: New fight for Congo's riches

Scores of lucrative mining concessions handed out by President Joseph Kabila are in doubt after a report questioned their legality. Will a programme of renegotiation finally allow a beleaguered nation to exploit its huge mineral wealth? Nick Mathiason reports

It is one of the world's most resource-rich countries, with huge deposits of diamonds, gold and copper. For a decade, the Democratic Republic of Congo was torn apart as factions backed by neighbouring countries wreaked murderous havoc on Africa's third-biggest country. Three million died.

As war subsided in all but the eastern region of this vast nation, a new regime led by Joseph Kabila signed dozens of valuable mining contracts with Western concerns based in the southern Katanga region. Only now are the implications of those contracts coming to light.

'The losers, of course, are not the companies who willingly entered into questionable arrangements, but the Congolese people,' says Patricia Feeney, executive director of Rights and Accountability in Development, a renowned expert in Congolese mining.

A commission formed by the Congolese government to investigate several legal and financial aspects of the impoverished central African nation's mining industry published a hard-hitting report this year. It has worried international extraction concerns, which fear their potentially lucrative concessions may be adversely affected. The report has prompted the Congolese to renegotiate 60 of the biggest gold, diamond, copper and zinc contracts. Fresh talks with those concerned are due to begin next month.

Of these 60 concessions, half focus specifically on the World Bank-sponsored privatisation of Congo's most important state mining company: Gecamines. That privatisation scheme packaged up mines that were sold off to private consortia, with Gecamines retaining a minority interest in each component business.

Once the biggest company in Africa, Gecamines' production plunged during the kleptocratic dictatorship of President Mobutu Sese Seko (1965-97). Even so, Gecamines accounts for around 80 per cent of the war-torn country's export earnings. And in private hands with fresh investment, huge mineral deposits are to be exploited in vast quantities. This is why the new contracts are so valuable - and significant.

The Gecamines contracts were signed by some of African mining's biggest names. They include Nikanor, co-founded by diamond dealer Dan Gertler, known to have close links with Kabila, and Beny Steinmetz, an Israeli billionaire. Nikanor has since merged with Canadian-listed Katanga Mining. It did not wish to comment on the recent developments.

Another big player is Freeport McMoRan, a US mining giant that extracts more copper than any other company in the world. It inherited its Gecamines interests after buying the companies that scooped concessions after privatisation. The Freeport holdings have been described as a priority for renegotiation. William Collier, a vice-president at the firm, says: 'We received a letter from the Ministry of Mines seeking our comment on modifications to our contract and have responded. Our contract was negotiated transparently, complies with all laws, was approved by the government and we believe the terms are fair and equitable. We are working with the Ministry of Mines to resolve these matters and continue with our project development activities.'

The Congolese commission revealed how government officials appeared to have given away lucrative mineral rights. As warring militias negotiated a peace settlement, a frantic race to secure resources, which have rocketed in price, pitted powerful interests against each other.

The process to unpick the joint ventures has been fraught. The Observer has seen documents and spoken to investigators who express frustration at delays and obstructions created by government and Gecamines officials, who have been described as hostile to investigators. The evaluation was to have started in January 2004, but the government ensured there was a 14-month delay.

By the time assessors began their probe, they found nearly all the priority joint-ventures had been renegotiated, or that agreements that should have been in the preliminary stage were finalised. Agreements were not put out to international tender.

The report claimed that Gecamines had 'alienated' the majority of its mining rights without ensuring it received 'just' compensation, and that it has insufficient control over many contracts so has no influence over technical or management decisions. This means it cannot insist on obligations being met.

The DRC, according to its own inquiry, sold contracts that ceded mining titles and rights. It would have been better, the report argues, to have agreed leasehold agreements. It found that the ability to defend the country's interests under international arbitration was 'weak' and that, having given so much away, the incentive for private firms to come to the table is almost non-existent.

Crucially, international investigators report they did not have access to key documents so it is not possible to determine the exact extent of mine boundaries, licences and reserves. There is also a strong indication from the report that Gecamines was in a far weaker position in 2006 than in 2003, when a similar audit was completed.

The report discussed issues associated with 'transfer pricing' - selling minerals between connected arm's-length companies to avoid tax. This led to much less revenue flowing back into DRC coffers. Feeney says: 'The report shows that the majority of Congo's copper and cobalt assets were disposed of, not in the frenzy of war, but coolly and deliberately once relative peace had been established, with a complete lack of transparency. It's ironic that the same Congolese political elite that hurried to conclude the deals, with a flagrant disregard for their own laws, are now using the expert legal advice they once shunned as a lever to renegotiate the mining contracts.

'The challenge for the UK and other governments is whether they will take a principled stand and investigate and, where there is evidence, prosecute companies implicated in the corrupt deals.'

The World Bank does not want to annul or revoke agreements but to quietly renegotiate them. Though Kabila undertook the review, he is keen not to frighten overseas investors; it was the initiative of his prime minister, Antoine Gizenga, an old-style socialist. Mining executives say that the Congolese parliament is increasingly attempting to modify contracts.

The report was completed last year. Its contents were kept secret for months. In the interval, Kabila was invited to see President George Bush. Released four months ago, the report examines virtually every mining contract signed, including those with De Beers and BHP Billiton, as well as lesser-known outfits from Russia and Israel which are all co-operating with the government in a bid to find agreement. But only weeks later, the pressure on the mining companies was hugely intensified when China announced a $9bn deal with the DRC that will see the building of 2,400 miles of road, 2,000 miles of railway, 32 hospitals, 145 health centres and two universities. In return, it will get 10 million tonnes of copper and 400,000 tonnes of cobalt.

This arrangement appears to indicate the new Congolese government, with an alternative outlet for its minerals, suddenly holds all the aces in its game with the extraction corporations.