CONGO-DRC: Guylain Gustave Moke's report exposes the Opacity of Joseph kabila Corruption Culture

CONGO-DRC: Guylain Gustave Moke's report exposes the Opacity of Joseph kabila Corruption Culture

The sudden death of Mr. Augustin Katumba Mwanke, Joseph Kabila's advisor, yesterday, has prompted me to publish my '' special report'' on the opacity of mining and oil licencing contracts in DRC, earlier than expected, since ''key information'' cannot be obtained anymore after his death, but also the ''threats'' that I am finding myself in with Joseph Kabila's dying reign.

The intensifying competition for commercial access to the world’s remaining deposits of oil, gas and minerals brings with it a serious risk of exacerbating corruption and violent conflict. My ''special report'' points to major concerns over opaque sales of mining assets in the Democratic Republic of Congo to offshore companies.

My special  report also includes a short case study from the Democratic Republic of Congo (DRC),where the issues surrounding access to mineral licences remain very live and real. In this case, the state mining companies sold off stakes in four mineral concessions in secret to companies which were based in offshore tax havens and therefore did not have to disclose their ownership. 

There are also serious concerns that the sales prices agreed were much lower than most reportedcommercial estimates.

Mining Sector

Despite a vast wealth of natural resources and a string of deals in recent years with international companies –including a US$6 billion mines-for-infrastructure swap with Chinese state-owned firms – the DRC’s citizens are desperately poor.

One in five children die before their fifth birthday and over half the population lives on less than US$1.25 a day. The country ranks bottom on the UN’s Human Development Index. It needs to earn

revenues from its natural resources sector to develop.

In July and August 2011, news came out that DRC’s state-owned mining companies Gécamines and Sodimico had sold stakes in four major mining sites – Frontier, Lonshi, Kansuki and Mutanda –

without making the information public. 

These deals were carried out in secret earlier in the year with companies that were based in offshore tax havens, and which could thus keep their ownership a secret.

The sale of stakes in Frontier, Lonshi, Kansuki and Mutanda stoked controversy not just because of the secrecy involved, but also because the sales prices agreed were much lower than most reported commercial estimates of their value.

The state mining companies conducting the sales have published virtually nothing in terms of financial information on what has happened to the sums officially received from the sales.

The whole episode, including the confiscation of Frontier and Lonshi, is worrying. Frontier is now in

disuse and, according to a donor source, is flooded with water. Before its confiscation, the company was the largest taxpayer in the DRC, contributing some US$70 million to state coffers and producing 84 per cent of the country’s copper ore exports.

Though it is commendable that the government published the contracts, this does not clear matters

up. Many questions remain, including over the sales price. The International Monetary Fund (IMF) was sufficiently concerned by the sales to write to the DRC authorities for clarification. 

Sodimico stated, in a response to the IMF that was published on the website of the Congolese Ministry of Mines, that the 30 per cent stakes in Frontier and Lonshi had been sold for a total of US$30 million.

 But Bloomberg, the business news service, has cited research by two London-based securities firms that valued the two mines at more than US$1.6 billion. If these estimates are accurate, then they would indicate that the stakes were sold for less than a sixteenth of their value.

This obviously raises profound questions about the rationale and commercial motives of the deal

which cannot be addressed purely by the reporting of revenue flows under EITI rules.

In such circumstances, and given the well-established risks of corruption in the DRC, there is an evident concern about the risk of embezzlement and significant losses of revenue to the country.

The UN report 2002, cited Joseph Kabila’s advisor Augustin Katumba Mwanke, the king spin of ‘’ all the secrecy around’’ the oil-mining contracts.  Mr Augustin Katumba Mwanke was, prior to his death, yesterday, the shadow or the hands of Joseph Kabila on government oil-mining contracts, at the expense of Congolese.

Contracts have not been published for the sale of stakes in the two other mines – 20 per cent of
Mutanda and 25 per cent of Kansuki. The stakes were sold to offshore companies associated with
Dan Gertler, a businessman who is an associate of President Joseph Kabila.

The sales price similarly raises questions. In October 2011, Gécamines reportedly confirmed the sale value of US$137 million for both stakes in the mines, although in a response to the IMF Gécamines suggested that this represented the value of the stake in Mutanda mine only.

Regarding Kansuki, Deutsche Bank said in a June 2011 report that Glencore’s 37.5 per cent stake was

worth US$313 million: at the same valuation, the 25 per cent sold by Gécamines would be worth more
than US$200 million.

In November 2011, a UK Member of Parliament Eric Joyce, who chairs an All Party Parliamentary

Group on the Great Lakes, raised general concerns over the secretive sales of mining assets in the DRC.

Speaking about his wider concerns about the natural resource sector as a whole in DRC, Joyce argued

that state losses could amount to approximately US$5.5 billion. 

He complained that there appeared to be “a systemic pattern of underselling Congolese mining assets to off-shore ‘shell’ companies incorporated almost exclusively in the British Virgin Islands (BVI), the ultimate beneficial owners of which are often unknown, with the result that the Congolese people do not benefit from the vast mineral wealth in their country”.

Oil Sector

Opaque asset allocation procedures have also characterised the oil sector in DRC. Two previously

unknown oil companies, associated with Joseph Kabila’s advisor ,Augustin Katumba Mwanke, Caprikt Ltd. and Foxwhelp Ltd., both also registered in the British Virgin Islands, were granted rights to two untapped oil blocks in north-eastern Congo by a June 2010 presidential decree. It is unclear on what basis the two companies were selected or who their beneficial owners are.

The oil, gas and mining industries can be very complex, covering many thousands of companies

from giant multinationals to tiny local firms. There can be big differences in licencing and contractual
arrangements, not just between oil, gas and mining but within each sector, between one country and
another and between different generations of contracts in the same country.

The allocation of oil or mining rights to companies by governments around the world is often at risk of being compromised by serious corruption, which brings with it a chain of consequences from entrenched poverty and development failures to political instability and armed conflict.

 Even where a country has adopted competitive bidding and taken some steps towards public

disclosure of the revenues that flow to the state from oil, gas or mining, there is still a risk that
corruption could take new forms, such as the abuse of the licencing process to favour shell
companies controlled by government officials or their proxies.

An ‘open’ bidding process has little meaning if its outcomes are decided away from the scrutiny of legislators, civil society groups and the public, or if the executive can override or ignore the rules in order to hand valuable public assets to companies whose beneficial ownership is highly opaque.

Conclusion

Two majors following step in licencing '' oil-mining'' contracts must the ''threshold'' of International guidelines to secure a ''fair and transparent'' process.

Firstly, all companies involved in bidding rounds for oil licences, or that hold oil licences should fully

disclose their ultimate beneficial owners.

Secondly, foreign companies should not go into partnership with local companies in any case where there is reason to suspect that the local company’s beneficiaries may include government officials who are taking advantage of their positions to enrich themselves.

My special research reveals two major problems in the government allocation of oil contracts:

1. Governments are not making clear the grounds for why a particular company is given a contract. In certain cases, they appear to allow certain companies special or preferential access to oil licences, leading to doubts about the integrity of the process.
2. Governments are awarding the licences to companies whose beneficial owners remain undisclosed. In certain cases, there are grounds for suspicion that some of the companies may be owned or controlled by government or their private sector proxies.

If citizens do not know why particular companies have been awarded natural resource licenses, it can lead to suspicions of wrongdoing, especially in country like DRC with track records of natural resource related corruption. Transparency is crucial for citizen’s ability to trust that there has been no conflict of interest to ensure that the DRC use their natural resource revenues for development and poverty reduction.

Unfortunately '' corruption culture'' is widespread in DRC under Joseph Kabila rule, which gives away to armed conflict in Eastern of the country, rape as '' weapon of war'' and complete divorce of trust between the ruling '' elite'' and the citizens.

The longest Joseph Kabila rules, the longest Congolese will suffer. Many political anaylysts argue that Mr Augustin Katumba Mwanke's death was indeed ' an inside job'' to clear the air, smooth the pressure from the IMF and World Bank. 

It evidently becomes harder to suss out the domage of '' this deceipt and corrupted culture'' of oil-mining contracts, after the death of Mr. Augustin Katumba Mwanke.