KOLWEZI, Democratic Republic of Congo (Reuters) - When it was signed in 2007, China’s $6 billion ‘minerals for infrastructure’ deal in Congo stirred fears among Western countries that Beijing’s hunger for resources would erode their influence and saddle the vast central African country with unmanageable debt.
Eight years on, as Sicomines prepares to produce its first copper after long delays, the main lesson from the giant project is that investing in one of Africa’s most chaotic countries is a messy and frustrating business, no matter who you are.
While most mining projects in Congo go years before paying significant taxes under the mining code, Sicomines was meant to have an immediate economic impact. The government says the deal has already produced at least $800 million in infrastructure investment.
Chinese firms Sinohydro Corp [SINOH.UL] and China Railway Group Limited are building roads and hospitals in exchange for a 68 percent stake in the Sicomines copper and cobalt mine, one of the largest in Africa with about 6.8 million tonnes in proven reserves.
China’s state-run Exim Bank and smaller Chinese banks are stumping up $3 billion for infrastructure plus a further $3 billion to develop Sicomines, with all the loans to be repaid with mining profits.
Yet production from the mine has been delayed and targets scaled back. Rather than unlocking Congo’s massive resource potential for China, the project has underscored the deterrents to investment, from crippling power shortages to asphyxiating bureaucracy and corruption, said Johanna Malm, a researcher at Roskilde University in Denmark and expert on the contract.
“I think the Chinese ... are very hesitant to come into Congo after everything that has happened with Sicomines – after all the fuss, the problems, all the different things they struggled with.”
Congo, which extracted more than 1 million tonnes of copper for the first time in 2014, is Africa’s top producer. Industry giants including Freeport-McMoRan Inc. and Glencore have invested heavily in the sector since a peace deal drew a line under a 1998-2003 war that had killed millions.
But foreign investment has struggled to leave a mark in an impoverished country that ranks 184th of 189 countries on the World Bank’s “Ease of doing business” index, and second from bottom in the U.N. Human Development Index.
The southeastern province of Katanga, heartland of the copper industry, receives only about half the power it needs from the national grid, forcing companies to produce their own.
Jean Nzenga, Sicomines’ deputy director, said the lack of power had obliged the roughly 13 sq mile (34 sq km) concession to halve its initial annual output target to 125,000 tonnes.
Even at that level, the mine is guaranteed less than a third of the 54 megawatts (MW) it needs. Work on a 240 MW dam has been delayed by red tape and remains at least five years from completion, Nzenga added.
The start of production has also been slowed by the need to pump out more than 160 million cubic meters of water from the two pits, abandoned years ago by the Congolese state miner Gecamines, Nzenga said.
Concerns about Congo’s unstable political and business environment at one stage threatened to sink the deal, Malm said.
Despite a sovereign guarantee behind the infrastructure loans, which many Congolese fear will burden the country with debt, Exim Bank halted disbursements in 2012. It only returned to the table after reportedly receiving additional financial guarantees.
For many activists, the culture of secrecy ingrained in the mining industry represents the most serious problem.
In 2013, the Africa Progress Panel, chaired by former U.N. secretary-general Kofi Annan, said Congo had missed out on at least $1.36 billion in revenues between 2010 and 2012 by selling state mining assets below their value. Critics say Sicomines has brought the opacity to new extremes.
Outside the reinforced barbed wire that encircles the vast Sicomines concession in Katanga’s mining hub of Kolwezi, local residents say they only learned about the contract three years after it was signed, when workers came to conduct a land survey.
A February report by the African Association for the Defence of Human Rights (ASADHO) accused the government of failing to monitor infrastructure projects in Kinshasa, which it says have been poor-quality and overpriced.
Some Congolese activists say the man tasked with implementing the contract, Moise Ekanga, a close ally of President Joseph Kabila, runs what amounts to an opaque shadow government answerable only to the head of state from his yellow offices near the banks of the Congo River in Kinshasa.
“Even the minister of mines cannot ask Mr Ekanga a question about that project,” said Jean Pierre Okenda, an adviser in Katanga to the Dutch-based development organization Cordaid.
Ekanga did not respond to requests for information.
Nzenga, however, said that Ekanga’s Bureau for Coordination and Monitoring of the Sino-Congolese Program worked with ministries and agencies to track infrastructure disbursements. He urged critics to reserve judgment until Sicomines starts production.
Oscar Melhado, resident representative of the International Monetary Fund, said the contract required closer monitoring, but that he was encouraged that authorities had started to disclose more information.
“We don’t have to single out anyone,” he said. “If we do that for China, we have to do that for (Freeport-McMoRan’s) Tenke Fungurume. We have to do that for Glencore.”
Editing by Daniel Flynn and Kevin Liffey