China’s $5.5bn roads-for-minerals deal seems to offer a lifeline to Joseph Kabila’s cash-strapped government, and the shock news is that there will be much more to come as Beijing takes over the DRC president’s ‘cinq chantiers’, writes Jon Marks in Kinshasa.

The World Bank’s decision to allocate up to $296.7m to the rehabilitation of Democratic Republic of Congo’s exhausted electricity network pointed to an upturn in traditional donors’ willingness to support projects in DRC following President Joseph Kabila Kabange’s re-election in 2006. But Western aid is dwarfed by the announcement of a roads-for-minerals bilateral countertrade deal, in which the People’s Republic of China will build roads, health and other essential infrastructure – key elements in Kabila’s much vaunted ‘cinq chantiers’ (five priority areas for work to rebuild DRC).

According to a range of sources who talked to African Energy in Kinshasa, there is much more to come. Details remain scant, but the $5.5bn deal involving The Export-Import Bank of China (China Eximbank) and malfunctioning parastatal mining company Gécamines represents only the first phase of a huge Chinese investment in DRC: one figure bandied about is $19bn, involving several packages – all secured by natural resources – one involving electricity and other energy.

China Development Bank (CDB) on 11 October signed a co-operation agreement with the Ministry of Infrastructure and Public Works – which is playing a key role in the new Chinese deals – marking its entry onto the stage. CDB, previously only China-focused, is planning a huge sortie into Africa (AE 114/1). It has the financial muscle to quickly push ahead with the next phase of Beijing’s DRC strategy.

One well-informed source had heard figures going eventually as high as $45bn, with China effectively taking over key sectors. It is unclear whether the PRC’s record so far of implementation elsewhere in Africa and even its mighty foreign reserves could afford this given commitments elsewhere, but the clear message is that China has arrived as number one player in one of Africa’s natural resources giants.

Publicly, the DRC government is anxious to show there is room for everyone, but ministers do little to hide their feeling that Western donors have tied them up in conditionalities when they should have been providing the post-conflict economy – parts of which are still at war – with a ‘Marshall plan’ to allow reconstruction. Companies already in the country have not done enough, ministers argue – one reason why mining contracts are being reviewed and some nascent oil industry deals have been delayed – and if the Chinese step in to help, then so much the better.

This view was summed up by Roger Bossise Kataala, director of infrastructure at the Ministry of Infrastructure and Public Works – which is playing a key role in the new Chinese deals. He told Spintelligent’s IPAD Central Africa 2007 conference in Kinshasa on 9 October that “when a country comes out of war it needs a Marshall plan, like Germany had or South Korea, but this hasn’t really happened here. We’ve opened up to all partners but it’s only the Chinese who have really responded.”

Huge needs

DRC’s infrastructure needs are huge. As Office National des Transports (Onatra) director general Daniel Bikindu Ditomene told IPAD, “colossal investment is needed to create a functioning multi-model transport system, but our infrastructure is decrepit and obsolescent.” There is also a huge human resources problem, with an ageing workforce and lack of training.

Bikindu said “we are very interested by the Chinese, especially as they have entered talks to rehabilitate 69.5km of railway, as a start.” Also on the agenda in the initial Chinese agreement is the rehabilitation of thousands of kilometres of roads – an absolute priority in a country where minerals are being flown from Katanga and other producing areas to regional ports for export.

One source told AE the Chinese had made an initial commitment to build the planned, but so far unfinanceable, container port at Banana.

Energy is also on the agenda in coming phases – although which projects have yet to be defined. Société Nationale de l’Electricité (Snel)’s plans for new hydropower capacity beyond the Inga site are one obvious target (see below).

There is also speculation that Chinese companies could buy their way into DRC’s nascent oil search. International companies across the resources sector are looking on nervously.

London-listed SOCO International is among companies awaiting presidential approval of agreed contracts with La Congolaise des Hydrocarbures (Cohydro).

Tullow Oil is seeking clarification of claims the government has decided to withdraw its Blocks 1 and 2 contracts on the western side of Lake Albert, with Kinshasa looking into claims that its signature bonus was paid incorrectly (AE 121/7). Tullow has played down the affair, but the signals from Kinshasa seem to echo what is going on in the mining industry.

Mining companies are even more nervous than IOCs, given the extent of their investments so far and the current process of reassessing contracts by the government’s Commission de Revisitation des Contrats Miniers.

Ministers at IPAD were keen to tell the many mining companies present that they had nothing to fear: the government was not looking to ‘renationalise’ or take away their contracts; nor was the revision process going to be used to give Chinese investors minerals rights now held by Western companies – provided their operations conformed to the law.

To add to the reassuring noises, the government in the past two months has shown new interest in joining the Extractive Industries Transparency Initiative – and is expected soon to get EITI observer status.

The government believes, however, that many companies have not met their commitments. “We are revising contracts because some are just ridiculous,” Mines Minister Martin Kabwelulu Labilo said on 10 October. He cited Tshikapa, which urgently needed work on its airport. Firms exploiting mines in that region “are only paying 1% [to the government] but still they won’t help to rebuild the airport.”

Officials pointed to the terms laid out in minerals extraction contracts – including timetables for the start of exploration and development work, environmental and social investment targets – which were not being met.

Kinshasa-based Western donor, diplomatic and corporate sources told African Energy that, in recent private meetings, officials close to Kabila had signalled a much tougher line. Several major mining houses said they were “scared” of problems ahead. Sources said they were surprised how the Commission had focused its attention on some of the better corporate citizens, rather than companies known for their rather more controversial connections.

A senior minister, in a recent private meeting with a European government visitor, said the investigations were only “the first phase” of a process – in phase two the government was planning to hire major international law firms to investigate contracts more closely.

Key players are said to include Planning Minister Olivier Kamitatu Etsu, the smooth Deputy Mining Minister Victor Kasongo Shomary and Kabila’s controversial former minister of state, now without a formal role, Augustin Katumba Mwanke. All three have been closely involved in the Chinese deal.

Kabwelulu was careful to note that the Chinese deal with Gécamines involved “non-attributed” deposits. It could revolutionise the industry given the scale of Chinese ambitions – but this would not be to the detriment of other partners.

Kabwelulu told African Energy that the Chinese deal was well-adapted to creating a financing structure for cash-strapped Congo. “It is an inter-Chinese deal in that [China Eximbank] will provide credits, half to go to the mines development and half to the Ministry of Public Works to finance projects. The mines will be developed by joint ventures, and the dividend from those new companies will finance the public works.”

Kabwelulu added: “This can work for others too, we’ve only started with the Chinese. What we don’t want is the sort of partnerships we’ve had up until now, which was nothing but exploitation with companies building only small roads etc.”

Critics say the deals will favour Chinese over other companies, and will come at a very heavy cost for DRC.

According to Kasongo, “these are inter-Chinese deals backed by our reserves. Each party in the contract will be remunerated in line with their contribution.” The aim now, the vice minister said, “is for all deposits to be put into production, with or without their existing partners."