Sunday, October 21, 2007

KASONGO: “Nobody doubts that we have minerals…we need to show that we have law and order…”

SOURCE: TIMESONLINE—“Mining firms face Congo crackdown”

The Democratic Republic of the Congo (DRC) is one of the most mineral-rich countries in the world. Until recently, the DRC was also troubled by recurrent political strife. Now the government under President Joseph Kabila is seeking to get its affairs in order by routing out corrupt deals of the past.

Victor Kasongo is the DRC’s deputy mines minister, and he’s launching an investigation into whether mineral licenses granted to foreign mining concerns during periods of "near-anarchy" are in fact valid. Says Kasongo: “[s]ome of the contracts will need serious thinking, serious negotiation to get all the parties’ agreement. And some, I am sure, will be found to be simply unlawful.”

Licenses granted to at least nine concerns are being investigated. The DRC has hired international fraud investigators to assist the government in this endeavor. Investigators have found situations where licenses were granted by warlords rather than the DRC government and where a mining interest would simply announce its acquisition of a mining claim—with no action or negotiations to support such a statement.

Aside from the interest in ensuring the underlying legality of deals, it also appears that the DRC has additional interests in ensuring that deals are properly drafted and negotiated: the royalties due the DRC are consistently low in relation to what they should be based on the market. The DRC currently receives $32M USD in royalties each year when it should be receiving closer to $162M USD.

Additionally, as political stability in the DRC attracts investor attention, big interests have shown a willingness to make deals that might actually provide some benefits to the country and its people.

For example, China recently closed an $8.5 billion USD deal with the DRC for cobalt and copper stores expected to be worth some $14 billion USD. While the deal has sparked some controversy, it is notable that the sum agreed to by the Chinese is intended to provide benefits to the DRC that were not present in the deals struck during the chaotic period when the country was in a state of “near-anarchy.”

Specifically, China agreed to pay for “a 2,000-mile road between the northeast region and the southern border, and a railway link of similar length to join the southern mining heartland and the DRC’s sliver coast on the Atlantic. Further money would go into schools and clinics and into rebuilding decrepit state-owned mining facilities.”


Do international investors who take advantage of political instability to strike lucrative—but legally suspect—deals have a legitimate reliance interest in the same?

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