The Basics of the Chinese Deal

In the wake of this morning’s report by Bloomberg news we have to take a moment to lay bear how the game is really played and some of the reasons why Congo is likely to remain dependent and impoverished for at least another generation and maybe more.

As the Paris Club meets (although the affairs of the Congo are being determined, no Congolese official is a part of these talks or decisions in Paris) to decide upon the “forgiveness” of a portion of Congo’s illegitimate and odious $11 billion debt accumulated during the Western-backed dictatorial Mobutu era (1965 - 1997), the United States and Canada are apparently seeking “clarification” on the Freeport McMoran and First Quantum contracts; both of which are a part of the contract review process began by the Congolese government in 2007.

These are part and parcel of the contracts that experts reviewing the contracts on behalf of the Carter Center said that they had not seen such egregiously lopsided contracts in 30 years of assessing such contracts. These are the very same contracts that the United States and Canada have been silent on in spite of the plethora of independent studies that have clearly documented how lopsided and opaque they have been and the degree to which they exploit the people of the Congo.

As a result of the contract review process (2007 – present), the government canceled the First Quantum deal (First Quantum says it is still seeking a negotiated solution) and the Freeport McMoran deal is still unresolved. In our unpacking of the Chinese deal we will compare the Chinese deal with the Freeport McMoran contract in upcoming blogs in this series.

Anatomy of the Chinese Deal

The deal was established in the Fall of 2007, finally consummated in the Spring of 2008 and given the green light by the International Monetary Fund (IMF) in October 2009 after the restructuring of the deal to meet IMF terms. It is a mineral for infrastructure swap between the Congolese government and the Chinese government represented by a number of state companies. The basic principle is that the deal would provide the Congo with transport and social infrastructure in exchange for access to mineral resources.

Players: Gecamines, Sinohydro Corporation, China Railway Group, Metallurgical Group Corporation
Type of Partnership: Joint Venture
Equity: China 68 percent Congo 32 percent (Congo only receives 17% equity in its deal with American company Freeport McMoran)
Initial Value of the Deal: $9 billion
Renegotiated Value due to IMF pressure: $6 billion
Duration of Contract: Approximately 30 years

Stated Benefit to Congo:
4,000 KM road network
3,200 KM Rail system
31 Hospitals with 135 beds each
145 Health Centers with 50 beds each
49 clean water distribution centers
4 large universities
A Parliament building

Stated Benefit to China:
10.6 million tons of copper and 626,619 tons of cobalt

Year concessions expected to come into Production: 2013

Primary demand of the IMF: The deal had to be restructured so that the Congolese government would not assume any additional debt. As a part of the initial deal the Chinese had required the Congolese government would guarantee the repayment of the infrastructure investments in case the profits of the mining projects would not be sufficient to offset the costs of the development of the infrastructure projects.

IMF Promises as a result of the renegotiated Chinese deal: Paris Club would forgive most of the Congo’s $11 billion debt. IMF would provide Congo with $600 million for government operations under a new three-year “poverty reduction” agreement (2009 – 2011).