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Mining investor says Congo is cleaning up its act

Source: Tue, 8 Apr 2014 15:33 GMT
Author: Reuters
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In this 2013 file photo, an excavator is used at the bottom of Congolese state mining company Gecamines' Kamfundwa open pit copper mine REUTERS/Jonny Hogg
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KINSHASA, April 8 (Reuters) - Democratic Republic of Congo has improved its business environment but plans to raise mining taxes could deter investors in a country where massive infrastructure challenges remain, the CEO of a major foreign miner said.

Pieter Deboutte, manager of the Fleurette company that holds Israeli billionaire Dan Gertler’s mining and oil interests in Congo, said Prime Minister Augustin Matata Ponyo had made progress in tackling corruption and improving government administration.

Congo has huge deposits of gold, diamonds, copper, cassiterite and coltan that attract investors from across the globe but has been unable to lift its 60 million people out of poverty due to mismanagement, graft and conflict in its east.

The country ranks 154th among 177 nations on Transparency International’s corruption perceptions index. Ponyo, who served for two years as finance minister before taking over as premier in 2012, has won praise from investors and multilateral lenders for curbing inflation and the national debt.

“Ponyo has done a good job introducing more strictness in government,” Deboutte told the Reuters Africa summit. “There is corruption everywhere - and of course it is here - but everything is professionalising now."

Deboutte cited the arrival of foreign companies from outside the mining sector - such as the telecommunications giant Orange ORAN.PA - as signs of growing international investor interest in the country of 60 million people.

Congo's economy grew by 8.5 percent last year - and is predicted to pick up speed in 2014 - thanks largely to record copper production of 942,000 tonnes, which made it Africa's largest producer.

Gertler has interests in Kamoto Copper Co (KCC) and MUMI, both in partnership with commodities giant Glencore Xstrata GLEN.L, in the copper-rich Katanga province. KCC is set to expand output to 300,000 tonnes of copper this year.

 

LOSING INVESTORS

Despite the sector’s strong performance, Deboutte said Congo risked losing mining investment by pushing through a new law that would raise royalties tax and reduce stability clauses, in the face of strong resistance from companies.

Notes from talks with mining investors, seen by Reuters, show Congo is seeking to raise royalties on copper and cobalt from 2 to 4 percent, and gold from 2.5 to 3.5 percent.

The government is keen to tap new revenue streams, partly to help pay for elections in 2016 when President Joseph Kabila is scheduled to step down. Deboutte, however, said the government should be patient as tax revenues were poised to jump in any case over the next three years due to rising production.

“If the mining code was applied as proposed before discussions with the chamber of mines, it would certainly limit investment in the sector over the next five years,” he said.

Miners in Katanga complain of an energy deficit, inadequate roads and almost non-existent rail links hampering production.

Fleurette is financing a $320 million deal with Congo's national electricity company (SNEL) to rehabilitate hydropower generators in an effort to secure power supply for their operations.

“Those megawatts will come on-stream in 2016. In the meantime, we are still exposed,” he said.

Anti-corruption campaigners criticise Gertler for close ties to Kabila and an opaque network of offshore companies that control his Congo interests, saying he has flipped assets bought at knock-own prices. Gertler has consistently denied this.

After sustained criticism, Fleurette has sought over the last two years to promote the Gertler Family Foundation, a charity that assists education, health and food security programmes. “That’s partly because of the reputational aspect, but it’s also something we love to do," Deboutte said.

(Editing by Daniel Flynn and Dale Hudson)

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