The Government received a record USD 2 billion in 2014, despite falling commodity prices.
Restoring the mining sector
The recently published EITI Report shows a more resilient mining sector, characterised by increased production, employment and revenues. The USD 2 billion in government revenues in 2014 stands in stark contrast to the paltry USD 400 million that the government reported it received from the oil, gas and mining sector, when EITI implementation began in 2007.
At the height of the commodity boom before the 2008 financial crisis, the mining sector, which used to be the backbone of the DRC’s economy, was in parlous state. Decades of conflict, political instability, corruption, looting and mineral smuggling had decimated the mining sector and left the government with large liabilities for its state owned enterprises (SOEs) that had become practically insolvent.
The first EITI Report was even more shocking. Much of the reported revenues in 2007 came from a few oil and gas companies producing less than 20 thousand barrels per day, while the sprawling mining sector, with minerals ranging from copper, cobalt, diamonds and gold to tin, tantalum, tungsten and zinc, accounted for less than USD 70m of revenues. Apart from a slight decrease in 2009, due to low commodity prices, the following seven EITI Reports have shown a steady increase in government revenues and a shift from oil and gas to mining. The mining sector surpassed the oil and gas sector in 2010 when 63% of the USD 875 million came from mining companies.
Increase in investment, production, employment and government revenues
New investments in the mining sector led to a significant increase in production from 2010 to 2014, while oil production remained relatively stable. The Kipoi and Kamoto mines, which contain exceptionally high grades of copper (3% or five times the industry average), were producing at full capacity in 2014. The rapid expansion of production capacities were partly due to relatively low operation costs afforded by the high grade of copper and a competitive fiscal regime.
The country’s largest tax payer in 2014, Kamoto Copper Company (KCC) was 75% owned by Katanga Mining (listed at the Toronto stock exchange, KLM), 25% by the government of the DRC through its SOEs (Gecamines (20%) and SIMCO (5%)). KCC's production tripled from 52,000 tonnes of refined copper in 2010 to 151,000 tonnes in 2014. The EITI Report showed that the company produced USD 1 billion worth of minerals and metals in 2014 and paid USD 343 million in taxes to the government.
Mutanda Mining, (MUMI), a joint venture of Glencore (69%) and Fleurette Mumi Holding (31 %), was the second largest tax payer in 2014. Glencore is listed on the London Stock exchange, GLEN, and Fleurette group is owned by Dan Gertler, an Israeli billionaire. MUMI produced USD 1.6 billion worth of mineral and metals in 2014 and paid USD 210 million in taxes, royalties and dividends to the government.
Production of cobalt and copper began at Tenke Funkurume (TFM) in the second quarter of 2009 and increased rapidly from 120,000 tonnes of refined copper in 2010 to 192,000 tonnes in 2014. TFM is also the world’s largest producer of cobalt, with 13,000 tonnes of output in 2014. A joint venture of Freeport McMoran (56%), Lundin (24%), and the government of the DRC through Gecamines (20%), TFM produced USD 1.6 billion worth of minerals and metals in 2014 and paid USD 205 million in taxes, royalties and dividends to the government.
Gold production quadrupled from 6,000 to 24,000 kilos in 2014, mainly due to the launch of mining operations at the Moto goldfields by KIBALI Gold Mines, a joint venture of AngloGold (45%), Randgold (45%) and the Government of the DRC though its SOE SOKIMO (10%). The project is the country’s first large industrial scale gold mine and represents USD 2.5 billion in investments, according to its partners.
The 2014 EITI Report stated that the oil, gas and mining sector employs about 110,000 people, noting that not all companies disclosed employment figures. Most of these employees are Congolese nationals.
Audit, reconcile, recommend, publish, implement, monitor and repeat
The Government of the DRC has used the EITI effectively to engage the relevant stakeholders, identify and implement needed reforms and monitor compliance with various regulations applicable to the industry. Through the EITI process, companies, government and civil society organisations meet regularly to determine whether companies are paying their dues and whether these payments are being transferred to the state treasury.
Early in the EITI reporting process, the EITI DRC executive committee noted that the supreme audit institution, which had the mandate to audit all government agencies, did not have sufficient capacity to audit government agencies in accordance with international standards. The executive committee tasked the Inspection General of Finance (IGF) to systematically audit all government agencies collecting revenues on behalf of the government, prior to the EITI reconciliation process. IGF’s audit reports have become an effective tool for identifying irregularities and investigating discrepancies. The executive committee hires an Independent Administrator (IA) to collect and reconcile data from government agencies and companies and produce an EITI Report. Moore Stephens produced the last four EITI Reports from 2011 to 2014. These reports include information about licenses, beneficial ownership, production, export, employment, tax and social payments and the overall contribution to the economy from the oil, gas and mining sectors (95 % of total exports, 28 % of government revenues, 22 %of GDP, and 11 % of formal employment in 2014).
Significant progress has been made, but more work still needed
Consolidate a highly fragmented tax administration system
While the industry is dominated by a few large companies, the government apparatus to collect taxes and regulate the industry remains highly fragmented. The eight largest mining companies that paid more than USD 5 million to the government accounted for 90% of annual revenues; yet, more than 20 government agencies and SOEs collect 53 separate revenue streams, from oil, gas and mining companies at the central and local levels. The multitude of taxes, which require individual monitoring, and the proliferation of government agencies amplify the administrative burden for companies and raise the cost of collecting taxes for the government. For example, only 72% of all collected revenues went to the treasury in 2014. 10% or roughly USD 200 million went to provincial governments and local communities, while SOEs and other government agencies collecting taxes on behalf of the government withheld 18% of collected revenues. While this represents a significant improvement compared to previous reports (in 2011 for example, a few SOEs withheld 25% of all collected revenues).
Disclosure of information on beneficial owners can be improved
The 2014 report includes details on the identity of the beneficial owner (name and nationality, in some cases date of birth, date of acquisition of shares, number of ID cards and address or contact information). Disclosure of information on beneficial ownership by mining companies continues to improve. Most of the 105 mining companies provided full disclosure of their legal and beneficial owners. However, progress in the hydrocarbon sector is still limited to few companies. 5 out of 12 oil companies still failed to disclose any information about their beneficial owners, including Perenco, the country’s largest tax payer from the oil and gas sector.
Information about the ownership of some companies, such as KANSUKI, was redacted in the report. In the case of COMILU (Compagnie Miniere Luisha), an employee of Gecamines acquired 280 shares. In a letter to Moore Stephens, the employee stated that he acquired these shares to “facilitate” business relations with the Chinese company CREG, which acquired the remaining shares from Gecamines. The 2012 and 2013 reports recommended that the government speeds up implementation of beneficial ownership disclosure and “takes the necessary measures for creating and making publicly available a beneficial ownership register of companies operating, investing or participating in bids in the extractives sector, including the identity of beneficial owners and the level of their participation”.
Improving coverage of artisanal and small scale mining (ASM) and forestry
EITI-DRC published two studies on the extension of the scope of the EITI process to the ASM and forestry sectors in September 2015. Both reports highlighted the scarcity of data and governance challenges in these informal sectors. The studies mapped out the key actors involved and recommended a gradual approach to extend EITI reporting to the ASM and forestry sectors. Both reports are available on the EITI DRC website.
Embedding EITI reporting in government systems
In October 2015, the Government of the DRC, in collaboration with UNEP and the World Bank launched a pilot project, MAP-X, with the aim of embedding EITI reporting in government systems. The Ministry of Finance already publishes quarterly reports of government revenues from the extractive sector, which are later reconciled by the independent administrators in the EITI Reports.
The 2014 EITI Report can be downloaded here.