congo review, page-4

This is a Reply to the Bloomberg article of 14 July

cheers
Levelhead


http://www.resourceinvestor.com/pebble.asp?relid=44529

In a 14 July press release carried by Bloomberg, the human rights activist group, Carter Center contends that the Democratic Republic of Congo should boost the integrity of mine contract negotiations before completing any of the 62 negotiations slated for this month. A major driver is that the third of world’s cobalt reserves that lie in the African nation.
Editor's note: This article derives from a response to a Resource Investor's article.

Business as usual in Africa is under fire. In Resource Investors’ 14 July article, Congo Urged to Improve Integrity of Mine-Contract Negotiations, RI’s that the Democratic Republic of Congo's (DRC) government must, proceed with the review of mining contracts and to do so in an open, accountable and legal manner. The RI coverage stemmed from a press release the same day from the human-rights activist group the Carter Center, and carried by Bloomberg, contending that the Democratic Republic of Congo should boost the integrity of mine contract negotiations before completing any of the 62 negotiations slated for this month. A major driver is the third of world’s cobalt reserves that lie in the African nation. Among the Center’s complaints are a lack of transparency of deals announced with China and individual companies, among which are BHP Billiton and Freeport McMoRan Copper & Gold.

The article mentions the “Carter Center is deeply concerned'' and that mining contracts will be renegotiated “without policy or procedures to guide this process or indication of whether requisite expertise will be secured.”

The Carter Centre and other NGOs (like Global Witness) have made many public comments about this matter. Should they not also apply the same basic questions they have asked (and are currently asking) of the DRC inter-ministerial commission that reviewed the mining contracts in the first place? There was a brief reference in the background section of the 14 July press-release by the Carter Centre, “the Carter Center welcomed the creation of the Commission and applauded the government's nearly unprecedented publication of contracts under review.”

Shortcomings There were significant downsides in this phase of the review, including the unrealistically short period afforded to the Commission, the lack of certain essential expertise, and the lack of transparency in relation to its mandate and deliberations. Nevertheless, The Carter Center believes that, “the Commission made a valuable and important contribution to the process.”

Really? How so? Apart from this brief comment, I have not seen anyone commenting on this very important and fundamental point. Why not? No one seems to have conclusively answered the following questions:

1. What was the composition of the Commission?

2. What were the backgrounds of the members of the Commission?

3. What was their capacity and expertise to undertake such an important and challenging task of reviewing the mining contracts?

4. Were there any institutions of “international standing,” such as the World Bank, international accounting firms and/or international banking institutions, assisting the Commission in their work?

From what I have read, I understand that the Commission capabilities and resources were very limited; and it did not have the capacity to do such work. The NGO Coalition and the Carter Center however, are taking the work of the Commission as "well done and reliable work.” But is it?

Global Witness’ justification for taking this view, according to its February 2008 article, appears to be that the Commission—according to a leaked report—has determined that:

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No contracts should proceed in their current form,
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Re-negotiations are needed on 37 of them, and
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Termination of 24 is appropriate.

It would appear the review by the Commission would not stand up to examination by a credible international entity.

A sham. In fact, it is now a commonly held view that it was a complete sham and was carried out by people that did not have the technical capability to do such an important job. Again, no one seems to be raising these points. Also I would like to know what expertise does the Carter Center have to give any opinions in relation to this? Their expertise and capabilities are in election processes, not reviews of mining agreements. Some of their people have been heard at conferences reinforcing the view that they are out of their depth in terms of their understanding of the mining industry.

In said article that the Carter Centre is complaining about the DRC government having not accepted the law firm proposed by the Carter Centre. Why should the DRC’s government agree to a law firm proposed by the Carter Centre especially since that law firm is the New York based firm Ropes & Gray. It is a firm that does not appear to have any substantial background in mining. One of the suggestions of Ropes & Gray is that the basis on which royalties to the Government must be changed from a Net Smelter Return (NSR) basis, i.e. after deduction of smelting and refining costs, to a Gross Revenue basis (before such deductions). They completely ignore the fact that an NSR basis is the norm for calculation of royalties and that the new DRC mining code (which was introduced in 2002 with the support of the World Bank) has royalties based on NSR. Who are these people to suggest that the new mining code should be changed so soon after its promulgation? Incredibly, since the Chinese have moved into the DRC, very little comment has been made as to their powerful influence on the DRC government and the subsequent timing, leaking and processes of the inter-governmental review.

I appreciate your time and I look forward to reading another article based on further investigation of these issues.