Questions and Answers: Mining Sector

November 15, 2007

1. What has been the Bank’s involvement with the commission established to “re-read” the mining contracts?
2. What is known of the recommendations made so far by the commission?
3. Does international practice recognize the right to review and adjust contracts as is now the case in DR Congo?
4. What should happen if a contract is cancelled?
5. What studies and/or information has the Bank made available to the government on mining and has this been used?
6. What is the Bank’s overall view of the partnership contracts and commission’s review and recommendations pertaining to them?
7. Should the government release the commission’s report and recommendations?
8. Will the Bank assist the government in renegotiating the agreements or in subsequent discussions with the companies?
9. What will happen if the recommendations of the commission demonstrate that the contracts are the result of corruption?
10. What risks does this ongoing review in DR Congo expose parties/stakeholders to?
11. What is the status of the Extractive Industries Transparency Initiative in DR Congo?
12. So far, what activities have the Bank conducted in the mining sector?
13. Are MIGA and the IFC involved in the mining sector?

1. What has been the Bank’s involvement with the commission established to “re-read” the mining contracts?

The government has not requested the Bank’s assistance with respect to the commission’s work and the Bank not been directly or indirectly involved in the commission’s work.

2. What is known of the recommendations made so far by the commission?

The report of the commission has not yet been published and the Bank has not seen a copy of an official version of the report. It is our understanding that the commission’s report and recommendations will be transmitted to the Government through Minister of Mines. The government will then decide how best to proceed with subsequent discussions with the companies with a view to dealing with any perceived deficiencies. We cannot confirm, but press reports and comments by civil society organizations have suggested that the report recommends that two-thirds of the contracts reviewed be renegotiated and that the remaining one-third be cancelled.

3. Does international practice recognize the right to review and adjust contracts as is now the case in DR Congo?

International practice (as well as, in some cases, the contracts themselves) does recognize the right of contracting parties to modify the agreements by common accord, in light of changing circumstances. However, any decisions to annul, renegotiate, amend, or adjust mining contracts should not be contemplated lightly.

4. What should happen if a contract is cancelled?

To the extent that a partnership agreement has been cancelled for cause (as, for instance, non performance of work obligations) and such cancellation results in the freeing up of a mineral resource, the Government should conduct a tender operation to ensure transparency and best market value for the resource.

A minimum expectation is that any changes to contracts will be discussed between the Government and private partners in a professional and transparent manner, according to established and published objectives and criteria, with due respect for the rights and obligations of the parties, and in full cognizance of the need to retain credibility in order to continue to attract investment capital on the international markets.

The Government also needs to guard against possible corrupting influences or inappropriate practices within the commission itself and in subsequent discussions with the companies. This is a serious issue for which unfortunate precedents exist in DRC, as evidenced by the unauthorized fees exacted by the Commission de Validation des Titres.

5. What studies and/or information has the Bank made available to the government on mining and has this been used?

The Bank partially funded the work of the Lutundula commission as well as legal and financial reviews of the some of the Gecamines contracts. Funding for these studies, conducted by independent and technically qualified consultants, was provided under the terms of various IDA operations in the country. The Bank does not know to what extent the commission has made use of these studies or their recommendations.

6. What is the Bank’s overall view of the partnership contracts and commission’s review and recommendations pertaining to them?

We have shared any concerns we have relative to the partnership contracts and the work of the commission directly with the Government within the framework of our ongoing and excellent dialogue with the authorities.

7. Should the government release the commission’s report and recommendations?

This is a decision for the government to make. We note that the government has not yet endorsed the commission’s findings or recommendations. Moreover, there are serious legal implications which the government must consider prior to releasing provisional reports of this nature.

8. Will the Bank assist the government in renegotiating the agreements or in subsequent discussions with the companies?

At the present time, neither the government nor the companies have asked for the Bank’s assistance in this regard.

9. What will happen if the recommendations of the commission demonstrate that the contracts are the result of corruption?

The Bank does not know what will happen as this is a decision for the government to make. But, if suspicions of corruption are a factor in these agreements, the Bank would recommend that the government seek appropriate recourse through the judicial system in DR Congo.

10. What risks does this ongoing review in DR Congo expose parties/stakeholders to?

• The commission’s re-reading of the contracts has already had a destabilizing effect on the international markets where companies raise capital for investments in DR Congo.
• Financial institutions and underwriters of mining investments have been waiting to see what happens while the contracts have been under review and will delay longer to mobilize finance for development as long as the government is discussing with the companies fundamental adjustments to the contracts.
• Many agreements have international arbitration provisions which, if applied, could lock the Government and their partners in the mining sector in years of costly arbitration proceedings.

11. What is the status of the Extractive Industries Transparency Initiative in DR Congo?

DR Congo endorsed the EITI in March, 2005. In January 2006, President Kabila signed a decree which created a permanent committee for implementation of EITI. This initial decree has been updated and modified recently to take into account changes in the government structure. The various structures which have been put into place by the decree, under the auspices of the Ministry of Plan, are being formed. The Bank will support through trust fund grants the implementation of the EITI.

12. So far, what activities have the Bank conducted in the mining sector?

The Bank’s involvement in the sector dates back to 1999. We have supported the preparation and adoption of the Mine Law of 2002 and its regulations, the establishment of the mining cadastre service, training and logistical support to various government agencies responsible for the sector, and the restructuring of Gecamines. A major review of the mining sector has been completed and will soon be released. The Bank is planning for a mining technical assistance project starting end 2008 and will begin preparation of the project soon.

13. Are MIGA and the IFC involved in the mining sector?

Yes, MIGA has provided a guarantee to ANVIL, an Australian company, for their copper production project in Katanga. Allegations have been made that ANVIL provided logistical support to military units involved in a counter rebellion action in October 2004, and that a crackdown resulted in a massacre in the town of Kilwa. An independent report on this incident was published by the Compliance Advisor Ombudsman in November 2005. The IFC has a fiduciary interest in the KMT ( Kolwezi tailings) project which is now controlled by a joint venture between Gecamines and First Quantum.