Just thought these two articles might be of interest.KKRChina...

Just thought these two articles might be of interest.

KKR



China strikes biggest barter deal
1 May 2008
Trade Finance

China has struck a deal with the Democratic Republic of Congo (DRC) which will see up to $9 billion worth of investment coming from the Chinese being repaid with deliveries of copper and cobalt. The transaction is one of the biggest barter deals ever seen and is a masterstroke by the Chinese desperate to secure supplies of base metals to feed their production industries.

Under the terms of the deal, the DRC will get investment in infrastructure and a copper mine based in Kolwezi in the southern copper belt province of Katanga amounting to an immediate $3 billion, and the first tranches of money are understood to have been disbursed already. The mine, formerly owned by the Belgian Forrest Group, which is completely flooded at the present time has proven reserves with a known value and is expected to take three years to bring into production with another $3 billion of investment. It will take two years alone to pump water out of the mine site.

The project will be developed through a joint venture between the DRC's state-owned mining company Gecamines and Chinese companies signing the deal, China Railway and Engineering Company (CREC) and Sinohydro. When ore production begins the Chinese side will disburse a final $3 billion on roads railways and hospitals.

In the details of the document DRC will eventually get 2,393 miles of roads, 1,996 miles of rail, 32 hospitals, 145 health centres and two universities in overall general infrastructural development.

For the Chinese payment will come with the delivery of 10 million tonnes of copper and 400,000 tonnes of cobalt. The DRC has 10% of the world's copper reserves and a third of the world's cobalt. With cobalt being used for heat resistant alloys particularly in jet engines and batteries, China's demand has for the material has risen dramatically. In 1997 China was importing 843 tonnes of cobalt, but by 2007 this had risen to 12,200 tonnes. The Chinese expect to recoup their investment within 10 years.

One commentator has described the deal as such: "It's a barter deal, breathtakingly simple in its basic conception, but devilishly complicated in the detail." While the Chinese Ambassador to the DRC, Wu Zexian, describes the deal as: "It's a win-win deal. It's not aid but business."

The deal was negotiated by Paul Fortin, CEO of Gecamines, who apparently spent two months in a Beijing hotel room while the deal was being hammered out. When interviewed by the BBC in a Newsnight programme in March, Fortin was asked if the Chinese had struck a hard bargain. He responded, saying: "We negotiated for two months. They did strike a good bargain. I wouldn't say a hard bargain."

He also noted that it was imperative to find the Chinese a mine with a known value, and of the mine in question a lot of drilling has taken place so the geology is well known. "We've done years of geological research and assessment, so we know the numbers. This gives the Chinese the confidence to disperse the money rightaway."

As in many other situations where there is a Chinese 'national interest', the funding will come through China Exim Bank. Supporters of the deal point out that China Exim is taking on risk that no Western financial institution would.

The DRC's deputy mining minister, Victor Kasongo, points out that: "We've been mining for two centuries but people only see minerals going out. It will be the first time the people will see what those minerals have done for them." He adds: "It was difficult for us to access capital markets. And the way the West views risk here is very different from the way the Chinese do."

Critics have said that the deal is too opaque. But Fortin stated: "This is a business not a social service. We are days away from the Chinese disbursement of hundreds of millions of dollars." While other critics have said the deal looks like daylight robbery and that even at a current market face value the 10 million tonnes of copper alone that the Chinese will get is worth around $40 billion. Countering this

Fortin says this is too simplistic an assessment, as a lot of factors need to be taken into consideration including the tremendous operating costs and interest rates. When asked if the deal was better for the Chinese than for the DRC, he responded: "What can I do if I don't have the Chinese."


China/Congo: Huge Congo-China mining deal questioned
19 May 2008
Thai News Service

Section: Regional News - A huge mining deal between the Democratic Republic of Congo and China is getting extra scrutiny as critics say it does not provide enough benefits for ordinary Congolese. But the government says it is crucial to the country's development. Ricci Shryock has more from VOA's West, Central Africa Bureau in Dakar.

The $9 billion deals call for China to loan $6 billion for infrastructure development and $3 billion for helping revamp the mining sector in exchange for access to mining interests, including cobalt and copper fields.

Opposition leaders from the Movement for the Liberation of the Congo say the Congolese government's contract with China is not a good deal.

The secretary-general for the opposition-party lawmaker Francois Mwamba says his party wants a mining deal with China, but it thinks the current revenue split that gives 32 percent to Congo's national mining company Gecamines and 68 percent to the China Railway Group is unacceptable. Mwamba says the government must re-negotiate with China to receive more revenue.

After opposition leaders called for a re-negotiation, the Congolese government agreed to review the contracts after one year and make possible adjustments.

Congo's Deputy Minister of Mines Victor Kasongo says the opposition is not looking at the whole picture. Kasongo says that figure just takes into account dividends and Congo will actually receive more than 60 percent of total money made.

"The state of Congo will get money from taxation and royalties and so on," he said. "If you add all these things, and you see that in total it is 63 [percent] for Congo and 37 [percent] on China side."

Kasongo adds the infrastructure and jobs that the Congolese people will get in exchange for giving China access to millions of tons of Congolese copper and hundreds of thousands of tons of cobalt is part of what he calls a second phase of development.

"The European Union has helped the Congo," he said. "That was phase one. The second phase has to build the country. The Western world did not have all that level of money to do that, so now we got the assistance coming from the Asian country.

Deals like these are common in developing countries says Tim Armitage, a London-based economist with Global Insight who specializes in Sub-Saharan Africa.

"It is potentially a very promising idea, because it secures, 'A', the loans that are necessary to develop the Congolese infrastructure, and 'B', provides a method of repayment," he said. "However, the risks lie in the current government's ability to control the deal."

Armitage says the only reason the deal would not benefit the Congolese is if the African government does not follow through with its on-the-ground tasks, such as making sure Congolese are employed in the mines and infrastructure runs smoothly. - VOA