Letter to Paul Wolfowitz

Letter to Paul Wolfowitz

Paul Wolfowitz, President
World Bank Group
1818 H Street NW
Washington, DC 20433

27th February 2006

VIA US MAIL and FACSIMILE: 202-522-3031

Dear President Wolfowitz:

We are writing to call your attention to a number of urgent issues concerning the mining sector in the Democratic Republic of the Congo (DRC). The attached Memorandum and accompanying appendices provide an analysis of two of the most recent and controversial deals - the Kinross Forrest, Kamoto contract and the GEC, KOV contract. As explained below, these contracts display many of the flaws identified in the World Bank's original audit of joint venture agreements with Gecamines, the Congolese state mining company.

In 2001, the World Bank's Emergency Early Recovery Project set about the urgent task of reforming the badly managed and unproductive state-owned enterprises. To achieve this, the Bank's Private Sector Development and Competitiveness Project (PSDCP) set up a Steering Group for the Reform of Public Enterprises - COPIREP (Comité de pilotage de Réforme des Entreprises Publiques). At the same time, the World Bank agreed a strategy to re-launch Gecamines.

The first phase of the PSDCP was to reduce the workforce. The World Bank was to set aside a credit line of US$ 45 million to finance the massive retrenchment programme. In 2003 over 10,000 workers were shed with derisory compensation payments and, apart from a small PACT USAID agricultural project, almost none of the promised assistance programmes for the retrenchees has materialised.[1]

The second phase of the PSDCP was a complete restructuring of Gecamines. The World Bank appointed IMC Group Consulting Ltd (IMC) to audit and design the restructuring programme. In 2004, after an international tendering process, the French management consultancy, SOFRECO, was awarded the contract to manage IMC's restructuring plan. In its plan, IMC tried to ensure that SOFRECO's management team would be free of political interference. Within eighteen months, SOFRECO was expected to re-launch Gecamines and the programme was to be entirely self-financing.

Gecamines' copper production was expected to reach 100,000 tonnes per annum with an annual turn over of US$ 25 million. These projections were calculated on the basis that Gecamines' mines and facilities did not require new capital. The plan included the cancellation of some of Gecamines' controversial contracts. Production at Gecamines' Kolwezi mines and processing plants was also to be restarted under sound management. The restructuring programme was to start in July 2003 and be completed by December 2004. By January 2005, Gecamines was due to embark on a five-year plan under a new legal framework.

However, SOFRECO's work inevitably met strong resistance from those already in positions of power and/or with entrenched interests. In March 2003, the Transitional Government bypassed COPIREP and set up a parallel structure, the Steering Committee for the Restructuring of Gecamines (CPRG), outside the World Bank's programme.

As a result, not only did the World Bank plan get postponed until the start of 2006, but it was also devoid of any substance. Indeed, any mine or plant that would have enabled Gecamines to become commercially viable was systematically 'sold off' to private groups. With a complete lack of transparency, all the mines and factories at Kolwezi and Likasi, which represent the majority of Gecamines potential cobalt and refined copper reserves, were hastily assigned to private groups. Gecamines' senior management was allegedly under explicit orders from the government to dispose of Gecamines' assets and concessions without putting them out to international tender.

As a result, SOFRECO's work has been completely derailed. Turning Gecamines around is no longer a viable option since it has effectively been stripped of all its assets. The direct consequence has been the gradual disappearance of the Congolese State's most lucrative mining assets under World Bank supervision. Threats have been made against anyone who has attempted to denounce the contracts or thwart the illicit transfer of Gecamines' assets.

In addition, the Bank's DRC staff seemed to have turned a blind eye to the signing of a number of mining contracts that are extremely disadvantageous to the Congolese State. According to our legal advisors, certain contractual provisions between Gecamines and a number of private enterprises are inconsistent with typical mining contracts in Africa.

These contractual arrangements have significantly reduced the level of remuneration that Gecamines would normally have been entitled to expect. The contracts also ignore recommendations made by the IMC, which as noted above, was tasked with auditing and developing a strategy for restructuring Gecamines.

Furthermore, the contracts were ratified by the Transitional Government despite the findings and recommendations of the Lutundula Commission. Born out of the Inter-Congolese Dialogue to examine all agreements signed during the war, the Lutundula Commission called for the cessation of all negotiations that would result in Gecamines "being deprived of its installations and ore bodies".

Questions concerning the validity and propriety of these contracts have been raised with Bank staff in the DRC to no avail. We understand that as a condition of the latest loan agreement, Commission de validation des titres miniers (Validation Commission for Mining Titles) has been established. But what measures have been put in place by the World Bank to ensure that this commission will have any greater chance of success than its predecessors?[2]

We respectfully request that you instruct your office to conduct an internal inquiry to determine why IMC's recommendations have not been acted upon. We believe the inquiry should also examine why World Bank staff, who were supposed to be closely scrutinising the mining sector, allowed some of the DRC's most important copper and cobalt reserves to be awarded without an international invitation to tender and before the arrival of the International Management Committee (an oversight committee comprised of SOFRECO and Congolese officials).

We welcome consultations with your staff to address these general concerns about the World Bank's handling of the restructuring of Gecamines and the specific problems detailed in our memorandum with the Kinross/ Forrest and GEC contracts. With the DRC elections now scheduled for 18 June, we hope the Bank will address these issues expeditiously. We look forward to your response.

Yours sincerely,

Patricia Feeney
Executive Director
Rights and Accountability in Development
(+44) 1865-436-245
tricia.feeney@raid-uk.org
www.raid-uk.org

Luc Claessens
Director
Broederlijk Delen
(+32) 502-57-00
luc.claessens@broederlijkdelen.be
www.broederlijkdelen.be

Bogdan Vanden Berghe Secretary General
11.11.11
(+32) 536-11-11
bogdan.vandenberghe@11.be
www.11.be

Cc: Executive Directors, International Committee of Support for the Transition in the DRC

Mr. Ivan Rossignol, Competitiveness and Private Sector Development Project
Mr. Gobind T. Nankani. Vice President for Africa
Ms. Suzanne Rich Folsom, Director, Integrity Unit
Mr. Pedro Alba, Country Director for the DRC

Notes:

[1] Those who volunteered (for redundancy) would benefit from a large reinsertion aid programme designed to help each individual's circumstance. Each participant was to be dealt with on an individual basis by a consultant who would assess what the person knows how to do, would like to do and can do. On the basis of the choices expressed by the individual retrenchee, a training package, framework or system of support would be designed to help the retrenchee or a designated next of kin to either find a new job, become self-employed, take up a small-scale industrial, artisanal or commercial activity, or at a minimum, take up an agricultural activity to guarantee subsistence. (Citation: Gécamines, Programme de Restructuration, Volet Social, Rapport Final, Kinshasa, le 24 février 2003.)

[2] In the process of implementing the new mining code, all previous mining rights were supposed to be declared. Then new titles had to be issued by the Cadastre Minier. Given the risk of possible litigation, all disputes were to be settled by a validation committee, which was supposed to have been installed in 2003, but nominations to participate never materialised.