DRC’s ministry of mining says 90 percent of the country’s mining production is exported to China.
The country denounced slow pace of infrastructure construction the country needs, accusing the Chinese of not acting on their obligations.
Chinese firm Sicomines has attacked everyone trying to change the contract.
The Democratic Republic of Congo (DRC) has embarked on a definitive review of mining contracts awarded to a Chinese firm it co-owns with Beijing, but whose work and profits have formed continual concerns raised by the government on fairness.
Officials, in trying to end years of mistrust with Chinese investors involved, say they want to reach an amicable solution to ensure improved revenue for DRC while protecting Beijing’s businesses. It hasn’t panned out well.
DRC’s Finance Minister Nicolas Kazadi said the contracts in question are tilted towards the Chinese on all fronts promising Kinshasa will right all wrongs on tax obligations, which it argues were too lenient on the Chinese.
“Sicomines SA does not want to pay the $200 million it is being asked to pay, after making super-profit,” he said after a government audit report was published at the end of February.
They have to pay because it is so clear that this tax is not one of the taxes exempted in the contract,” he said referring to a company created to execute the contract signed in 2008.
It has been a tricky balancing act so far as talks between Kinshasa and Beijing over the matter often raised further public quarrels with Beijing vowing to protect the rights of its corporate citizens.
The mining sector in DRC represents the might of Chinese economic interests: 80 percent of the country’s exports in the mining sector are destined for China, with Chinese firms now dominating the scene as the destination for up to 80 percent of all the copper and cobalt mined in the DRC. The country’s ministry of mining also says 90 percent of the DRC’s mining production actually is exported to China.
Overall, Chinese companies have already cashed in earning at least $10 billion from contracts in the last decade while Kinshasa has benefited from only $822 million in terms of infrastructure, according to the report of the Inspectorate General of Finance released in February.
This contract, in particular, provided for exemption or a limited set of provisions on all taxes, duties, fees, customs, direct or indirect, domestic or import and export payable in the DRC.
Within the framework of the investment reform, advantages are granted to investors, President Tshisekedi has consistently argued since he was elected.
All this was legal as both parties consented and didn’t violate the Mining Code, which gives a free hand on determining levies. But DRC see it as immoral and accuse the Chinese of reneging on their obligations.
DRC’s National Assembly is backing the review, calling for strict control of the contracts signed between the country and certain partners such as the Chinese contract and many others,” Speaker of the DRC National Assembly Speaker Christophe Mboso said.
This decision to review was arrived at after controversial talks between the DRC government of President Felix Tshisekedi and the China Embassy in Kinshasa.
DR Congo President Felix Tshisekedi. PHOTO | FABRICE COFFRINI | AFP
The parties agreed to revisit the contract signed in 2008 between the DRC and Chinese companies for the development of mining sector and construction of infrastructure, hospitals and bridges.
The contract locally referred to as the “contract of the century” was initially worth $9 billion and the DRC as well as China met at the time IMF was opposed to the deal over possible debt. After strong pressure from the IMF, the contract was reduced to $6.5 billion.
DRC needed infrastructure but had no money. China had the money but needed minerals. Today, China has not even built one metre of rail in the DRC. Part of the deal had said China was to build 3,500km of roads, 3,500 km of railway infrastructure, 31 hospitals with 150 beds and 145 health centres.
All this for an estimated value of $6.5 billion for which they would be repaid in cobalt and copper deposits to be mined by the firm established after the contract, which was Sicomines.
It is owned by China Airways Corporation and Sinohydro on one side and the DRC government on the other as a minority shareholder in the ratio of 68:32.
A first meeting to agree on review was held between the stakeholders at the end of March after President Félix Tshisekedi denounced cases of the imbalance in the contracts, especially on commitments by signatories.
Vested interests
The DRC denounced the slow pace of infrastructure construction the country needs to develop its human and economic potential, accusing the Chinese of not acting on their obligations.
The DRC head of state based his comments on a February 2023 report of the General Inspectorate of Finances. Tshisekedi told a gathering there was a need to urgently re-balance commitments including timelines to guarantee the interests of the country.
The report of the Inspectorate General of Finance found a significant financial imbalance to the detriment of the DRC between advantages granted the Chinese party and commitments it has to meet, as well as the gains expected by the DRC.
The Inspectorate General of Finance accused Chinese investors of evading the obligation to finance the works.
According to the Inspectorate General of Finance’s report, Chinese firms since 2008 have earned $90.9 billion against their commitments of $6.2 billion. The report criticises “an imbroglio maintained in the repayment periods of the investments”.
“This imbroglio served to reduce the amount of infrastructure investments from $6.5 billion to $3.0 billion,” said Jules Alingete, head of the General Inspectorate of Finance after tabling the report.
According to the report, Sicomines has in 14 years mobilised a total of $4 billion in financing and has devoted only $822 million to the financing of infrastructure works, a rate of 18.38 percent of the total financing mobilised.
It also denounced the fact that the initial contract provided for DRC to repay for other investments that never took place.
The day after the publication of the report, the China embassy rejected the allegations terming it prejudicial and that its content did not correspond to reality. However, it proposed a friendly and reasonable dialogue to resolve the disagreements.
In addition, the government of China promised to defend the rights and interests of its firms.
“We want to see things as they were. We need to look at the past to see how we can improve the future. We should not see it as a way for us to bully the Chinese or say that there is some kind of mistreatment,” said Patrick Muyaya, spokesman for the DRC government.
Sicomines has attacked everyone trying to change the contract. It attacked the competence of the Inspectorate General of Finances and the procedure followed, saying the firm’s rights were violated. Sicomines contested the content of the report which it said ignores the mechanism put in place by the DRC through collaboration agreement and the right by Sicomines to be heard.
“The criticism and unjustified measures against Sicomines harm the proper functioning of this company and cooperation project, ultimately damaging interests of the country and DRC people,” it said last month.
