A State Affair: Privatizing Congo’s Copper Sector A State Affair: Privatizing Congo’s Copper Sector One Copenhill 453 Freedom Parkway Atlanta, GA 30307 (404) 420-5188 Fax (404) 420-5196 www.cartercenter.org Contents Foreword ..................................3 Contract Review and the Parallel Treasury ..30 Executive Summary.........................4 Setting the Stage for Contract Review (2003–2006) Gécamines: A Parallel State: ....................31 Uncovering the Deals and Revenues of Revisitation: Upping the Ante (2007–2010) ..33 Congo’s State-Owned Copper Broker ........5 After the Review: Keeping the Parallel Case Studies: Congo’s Lucrative Treasury Alive (2009–Ongoing) ...........36 Mining Deals ...........................9 Assessing the Benefits of Gécamines’ Contracting. 45 About This Report.........................12 Donors’ Unease .........................46 Report Structure ........................13 Transformation into a “Commercial” Company: Background and Methodology .............14 Cementing the Parallel Governance Track...49 Mining Code Reform and the Restricting Governmental Oversight Parallel Mining Registry....................16 to a Small Group of People ...............50 Haphazard Privatization (1995–2001) . 16 Spending Partnership Revenue ............54 Mining Code: A Common Framework for Masking the Parallel Track ...............70 All Investors and Operators (2002–2003) ....20 Gécamines Comes Back Through the Conclusion and Way Forward ..............73 Back Door (2003–2004) ..................21 Endnotes . .78 The Pre-electoral Privatization Case Studies .............................102 Wave (2005–2006) ......................23 Keeping the Parallel Mining Registry List of Abbreviations .....................103 Alive (2007–Ongoing) ...................26 Cover: The Lubumbashi tailings are the legacy of a century of mineral exploitation in the Democratic Republic of Congo copper belt. The hill still contained a panoply of mineral riches when it became one of Gécamines’ first assets to attract private investment in the late 1990s. 2 Foreword The Democratic Republic of Congo is among efforts to enhance transparency and increase revenue the world’s richest countries in terms of natural for the country’s treasury. Based on a comprehensive resources, but its people remain among the world’s review of thousands of corporate records, contracts, poorest. In particular, the DRC’s mining sector public statements, and articles and more than 200 has attracted billions of dollars in private invest- interviews, the report examines Gécamines’ role ment, but these deals have generated limited public as a key gatekeeper to outside investors in the benefits. Poor governance has allowed the country’s DRC’s copper and cobalt mines and describes how largest state-owned mining company, Gécamines, to Gécamines manages the income from these transac- engage in opaque mining deals that fail to serve the tions with little public oversight. Specifically, of the public interest. US$1.1 billion that Gécamines was contractually Over the last 10 years, the Carter Center’s entitled to between 2011 and 2014, US$750 million extractive industries governance project has worked cannot be reliably tracked to Gécamines’ accounts. collaboratively with government, civil society, and Gécamines’ portfolio still includes vast stretches private sector actors to advance greater transparency of land in the copper belt and minority stakes in and improved governance in the DRC’s mining about 20 joint ventures. To safeguard these mineral sector. Our work has contributed to the disclosure of resources, prompt action by the DRC government, more than 100 mining contracts and the inclusion civil society, and the international community is of additional data in the DRC’s Extractive Industries needed to implement a robust accountability system Transparency Initiative reports, allowing public for Gécamines and other state-owned companies. scrutiny of more than US$1 billion in previously Immediate actions required include publication of undisclosed revenue. In collaboration with Congolese recent mining contracts and audited financial state- civil society partners, we have used this information ments of state-owned companies, disclosure of how to evaluate the fiscal and human rights impacts of state-owned companies’ revenues have been spent, mining projects and called for reform of mining sector and strict enforcement of state-owned companies’ law, policy, and practice. compliance with asset sale oversight requirements. On several occasions, I have directly engaged the The DRC has the potential to overcome the country’s leaders by pressing for greater transpar- legacy of mismanagement and corruption that ency and accountability in the extractive industries. has plagued its extractive industries. I call on its Despite some progress, serious problems remain. The political leaders to work with the private sector, civil current political climate presents increased risks society, the international community, and others to of obscure revenue flows. Prior to both the 2006 ensure responsible stewardship of the DRC’s natural and 2011 elections, deal making by state-owned resources. The Carter Center remains a committed mining companies accelerated, generating significant partner in this vital effort. proceeds that have been difficult to trace. In this context, it is troubling that Gécamines has refused to publish contracts for several mining deals that may have generated more than half a billion dollars Jimmy Carter since 2015. 39th President of the United States and Co-founder This in-depth report by The Carter Center details of The Carter Center how Gécamines has sold off assets while resisting 3 Executive Summary The Carter Center’s in-depth report, “A State Gécamines continued to act as a gatekeeper to Affair: Privatizing Congo’s Copper Concessions,” is Congo’s copper and cobalt assets, despite the promul- the culmination of the Center’s analysis of mining gation of a mining code meant to liberalize the sector. sector trends in the Democratic Republic of Congo The revenues Gécamines receives as a result of its (DRC) since the end of the Zaire era 20 years ago, gatekeeper role — royalties, bonuses, rents, and other with a strong focus on the DRC’s key state-owned contractual fees — are evaluated in “Contract Review mining company, Gécamines. The report draws and the Parallel Treasury” and are found to add up on the Center’s detailed analysis of the mining to approximately US$262 million per year from contract review process in the DRC following the 2009–2014. 2006 elections and includes a broader economic The next section, “Transformation Into a and political analysis of mining privatization in the ‘Commercial’ Company: Cementing the Parallel former Katanga province, a region particularly rich in Governance Track,” shines a light on what copper and cobalt. The study is based on systematic Gécamines has and has not done with those research on the activities of both Gécamines and its revenues. It suggests that the explanation that most most important partnerships, including a review of of Gécamines’ revenues are allocated to reviving the over 100 mining contracts, at least 1,000 corporate companies’ own production is overstated at best and documents, and data from the Extractive Industries that some US$750 million cannot be reliably tracked Transparency Initiative (EITI) covering 2007–2014. to Gécamines’ own partnership accounts. The Carter Center also conducted more than 200 Despite their rhetoric to the contrary, the interviews and submitted over 800 detailed questions DRC government and Gécamines’ practices are in letters that offered right-of-reply to more than often at odds with reform efforts designed to make 30 companies, institutions, and individuals cited in the company more competitive, better run, and the report. Relevant references to documentary and more accountable, the report shows. The Carter other evidence are made throughout the main body of Center presents recommendations to confront this the report. disparity and improve Gécamines’ transparency and This report assesses Gécamines’ central role in accountability, such that it better contributes to privatizating the sector. The report is complemented the development of the DRC and the welfare of the by four case studies analyzing the evolution of specific Congolese people. mining projects: Tenke Fungurume Mining (until recently held and operated by Freeport-McMoRan), Gécamines: A Parallel State: Kamoto Copper Company (a Glencore project), Uncovering the Deals and Mutanda Mining (a Glencore project), and the Revenues of Congo’s State- former projects of First Quantum Minerals (now held Owned Copper Broker by Eurasian Resources Group). These studies illustrate the overall trends of the sector in greater detail and Over the past two decades, business ventures seeking shine a light on the decisions and practices that have to invest in the DRC’s copper and cobalt sector deprived the DRC and its people from the benefits of have had to deal with a key gatekeeper and the Gécamines’ dealmaking. most important state-owned mining company, the The section titled “Mining Code Reform and Générale des Carrières et des Mines (Gécamines). the Parallel Mining Registry” demonstrates how Once a leading producer, Gécamines started 4 A State Affair: Privatizing Congo’s Copper Sector privatizing its assets in the mid 1990s, selling off its the company’s factories and mines, Gécamines’ most valuable mineral concessions, in