Congo defends US$6 bln China deal, awaits funds

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The Democratic Republic of Congo and China have defended a US$6 billion deal for copper mining and infrastructure projects which some say could leave the poor central African nation out of pocket.

The deal was reduced from US$9 billion last year after the IMF raised concerns that it could plunge the poor central African nation deeper into debt and delayed a multi-billion dollar debt forgiveness deal pending its revision.

Detractors still say the accord, one of a growing number signed between China and African states, lacks transparency and could ultimately be to Congo’s detriment, Reuters reports.
“We don’t lose — we earn everything,” said Moise Ekanga, Congo’s coordinator for the Sino-Congolese Cooperation Agreement, in an interview setting out terms of the accord.

Ekanga said the copper mine in southern Katanga province would be funded via a $1 billion injection of equity from the Chinese side as well as a US$2 billion loan repayable at 6.1 percent interest once production slated for 2014 starts.
“In the first year we should produce 50,000 tonnes of copper, but two years later they can produce 200,000 tonnes a year as part of a renewable 25-year production permit,” he said.
“The guaranteed 19 percent rate of return applies only to the US$1 billion equity invested in the mine … so it’s a very good deal for us,” he said.

Ekanga said Congo was still waiting for China’s Eximbank, which is lending US$5 billion of the overall US$6 billion, to accept a feasibility study on the mine and to release the cash needed to start development.
“There is a quite huge bureaucracy so we can’t say when. It’s a super machine,” China’s ambassador to Congo Wu Zexian told Reuters, referring to Eximbank. China has become a major investor in African energy and mineral resources, which it needs to feed its booming economy.

RE-ELECTION DRIVE

Under the accord, future copper production is due to pay back the $3 billion loan tranche for infrastructure spending at a rate of LIBOR (London Interbank Offered Rate) plus 100 basis points, Ekanga said.
“We take 66 percent of (the profit) to pay back the infrastructure and the mining investment and the balance leaves 34 percent which will be shared out between the shareholders,” he said, meaning the arrangement would result in the Chinese state and companies combined taking 89 percent of the mine’s profits.

Congo will take a 32 percent share in the Sicomines joint venture, running the mine with two Chinese firms — China Railway Construction Corp and Sinohydro — that together will take the other 68 percent in return for US$1 billion of equity funding.

Ekanga said that while the mine chief executive would be Chinese, the deputy will be Congolese and the board chairman will switch every two years between a Congolese and a Chinese. Two or three Congolese will be employed on the infrastructure side for every one Chinese, he added.
“It’s a contract perfectly balanced, you can see the results already. This cooperation benefits everybody,” said Wu.

But neither official gave details on the timeframe over which the loans were due to be paid. Others remain unconvinced about the benefits to Congo.
“A lack of information about the most basic elements of this deal mean that it’s impossible for Congolese to judge whether it is fair or not,” Lizzie Parsons of Global Witness told Reuters by email, adding that the contracts should be made fully public.

President Joseph Kabila is slated to seek re-election in November 2011 and needs funding to revamp dilapidated rail and road infrastructure that makes transporting everything from copper to vegetables complex, long and expensive.



Ekanga said Congo has yet to choose the full list of infrastructure projects to be treated under the deal, but added it had so far spent US$500 million on eight projects and is seeking US$300-400 million more before the end of the year.