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Cablegate: Gdrc Publishes Mining Contract Review

VZCZCXRO3675
RR RUEHBZ RUEHDU RUEHGI RUEHJO RUEHMR RUEHRN
DE RUEHKI #0294 0851055
ZNR UUUUU ZZH
R 251055Z MAR 08
FM AMEMBASSY KINSHASA
TO RUEHC/SECSTATE WASHDC 7725
INFO RUEHXR/RWANDA COLLECTIVE
RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUEAIIA/CIA WASHDC
RHEFDIA/DIA WASHDC
RHEBAAA/DEPT OF ENERGY WASHDC
RUZEJAA/JAC MOLESWORTH RAF MOLESWORTH UK
RHMFISS/HQ USEUCOM VAIHINGEN GE

UNCLAS KINSHASA 000294

SIPDIS

SIPDIS
SENSITIVE

PASS TO OPIC (JIM WILLIAMS)

E.O. 12958: N/A
TAGS: ENRG EMIN PGOV CG
SUBJECT: GDRC PUBLISHES MINING CONTRACT REVIEW

1. (SBU) Summary. The GDRC Mining Contract Review Commission
published its final report on 61 mining contracts March 20, calling
for all contracts to be either terminated or modified. Companies
will have the opportunity to start negotiations or appeal decisions
with a GDRC task force, but details of that process are not yet
available. The Carter Center points to the report as reason to
support the entire mining sector review process. However, the
Commission carried out its work with very little transparency.
Majority U.S.-owned Tenke Fungurume Mining (TFM) is among the
projects slated for renegotiation, and has already begun discussions
with the GDRC. End Summary.

2. (SBU) The GDRC Mining Contract Review Commission, appointed by
President Kabila and set up by Minister of Mines Martin Kabwelulu in
April 2007, made public its report on the 61 mining contracts, all
signed with Congolese parastatals during and after the Transition,
on Thursday, March 20. The Commission, led by the Minister's Chief
of Staff Alexis Mikandji Penge, called for 15 of the 61 contracts to
be cancelled and 46 to be renegotiated. The Commission said none of
the contracts met international standards, and cited problems
ranging from the undervaluation of DRC state assets to the inability
of the GDRC to govern all companies equally because of "force
majeure" clauses.

3. (SBU) The Commission's report is the culmination of just the
first step in the process, and does not necessarily indicate which
contracts may ultimately be cancelled and which may be modified. A
high-level task force, including Kabwelulu and Vice Minister of
Mines Victor Kasongo, will analyze the Commission's report and guide
the ensuing discussions with each mining company.

4. (SBU) The Carter Center, a U.S.-based human rights NGO that
provided limited legal counsel to the GDRC during the review, called
for the international community and the mining companies involved to
support the review process. (Note: Carter Center representatives
find fault with the international and diplomatic community for not
thus far supporting the process, and the Center's role therein. End
note.) The Commission operated mostly in secrecy during the
preceding ten months and the Carter Center called on the GDRC to
establish clear criteria and a transparent process for the ensuing
contract renegotiations.

5. (SBU) Several large mining companies are targeted for contract
renegotiation, including De Beers, BHP Billiton, Anglogold Ashanti,
and U.S.-based Freeport McMoRan's TFM project. Kabwelulu sent
letters to most of the companies during the week of February 25
indicating the Commission's position, and TFM had already responded
by the time the review was published. In an assessment typical of
many of the concessions reviewed, the Commission called for the
share of TFM held by GDRC copper/cobalt mining parastatal GECAMINES
to be raised to 45 percent and for GECAMINES to be given more direct
control over day-to-day operations. Freeport owns a 57.75 percent
share of TFM, GECAMINES owns 17.5 percent, and Lundin Mining (a
Canadian firm) owns the balance.

6. (SBU) Comment: There has been little transparency in the review
process to date and the details of negotiations between companies
and the GDRC are likely to be equally opaque in most cases. The
Commission may have correctly recommended cancellation of those
concessions that had never been explored nor exploited, but other
recommendations appear to target legitimate companies, some already
in production, in an effort to turn a quick profit for the GDRC.
Some companies may decide to resort to international courts if they
cannot reach an agreement with the GDRC.

7. (SBU) Comment, continued: While the renegotiations will result
in some eventual gains for the DRC, the lack of transparency and the
anticipated lengthy process may have both a short and long-term net
negative effect on investor confidence and overall foreign direct
investment. High commodity prices, recent Chinese investments in
the DRC, and the temporary ban on all mining in the Walikale region
of eastern Congo (rich in tin and cobalt) are all complicating the
review process. End comment.

GARVELINK

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