Generating "ripple effects" in DR Congo

Disclosure of record high mining revenues spurs scrutiny and debate.

Two reports published in December 2013 show a record US $1.4 billion in government revenues from the oil, gas and mining sector in 2011, which is up by 60% from the year before. The reports identified areas of improvements in the tax systems, state-owned companies, and the management of government revenues.

These figures were disclosed as part of the DRC’s implementation of the EITI Standard. Implementation of the EITI requires full disclosure of payments made by oil, gas and mining companies to the government.

Jonas Moberg, Head of the International Secretariat, said: “DRC has made important and impressive strides towards transparency of its mining revenues. In few countries is achieving transparency more challenging, yet more necessary. Continued engagement by leaders in government, private sector and civil society has been and will continue to be essential.”

Shedding light on previously opaque State Owned Enterprises (SOEs)

Half of collected revenues (49%) from the mining sector went into the state budget in 2011, One-third (34%) of all revenues remained within the ten companies owned by the government. These State Owned Enterprises (SOEs) are tasked to manage the government’s shares in private companies and undertake their own commercial activities. The two largest SOEs in the DRC are Gecamines (GCM) and Cohidro.

The reports document the widely alleged lost revenues due to under-pricing of state assets by SOEs like Gecamines. According to the Africa Progress Panel’s 2012 Report “the DRC lost at least US$1.36 billion in revenues from the under-pricing of mining assets that were sold to offshore companies.” The reports showed that Gecamines sold 20% of its shares in the Mutanda mines (with estimated production of 110,000 tonnes of copper per year) to Rowny Assets Limited, registered in the Virgin Islands, and 25% of its shares in the Kansuki mines to Biko Invest Corp, also registered in the Virgin Islands in 2011. Two companies registered in the DRC, Mumi and Kansuki, on behalf of their partners in the Virgin Islands, disclosed the payment of US $189 million to Gecamines for the acquisition of these assets in the EITI Reports. Gecamines confirmed receipt of the payment, but did not include evidence of this payment to the Treasury.

Jean Claude Katende, member of the EITI Board representing civil society organisations, said “the EITI reports confirm our suspicions of a high risk of corruption within the state-owned enterprises. Furthermore, ASADHO, one of the organisations member of the Coalition Publish What You Pay wrote to the President of the Republic to protest against the diversion of funds at the DGDA/Katanga [custom office], asking him to take the necessary measures to ensure that individuals involved in illegal activities are held accountable.”

Increased accountability of tax collecting agencies

Investigations into discrepancies identified in the 2010 Reports led to significant improvement in auditing practices of government agencies. DRC’s 2010 Report showed a that a government agency (DGRAD) collected US $88 million from mining companies but did not include evidence of transfers to the Treasury. The publication of the report led to an extensive investigation by the auditor general’s office (IGF), which recovered US $70 million. As part of the preparation of the 2011 report, the EITI-DRC, tasked the IGF with the mandate to audit all government accounts that received revenues from the oil, gas and mining sector. The 2011 reporting led to detailed verification of 700 payments.

Elisabeth Caesens, Program Manager at the Carter Center in Lubumbashi, said: “EITI has generated ripple effects that some countries can only dream of. [Through the 2011 report process,] the quality of the debate on extractive revenues has increased; suggested solutions are becoming more specific. This constructive, proactive and vibrant interaction is something all parties seem eager to preserve going forward.”

Rising production amidst scrutiny of “conflict minerals”

Industrial mining continued to expand in 2011, while the artisanal mining sector contracted due to mineral smuggling, and increased pressure for certification of conflict minerals.

According to the US Geological Survey (USGS), DRC is the world-leading producer of cobalt, with 54% of the world production and 45% of total reserves. Black copper, which has a copper content of between 80% and 98%, was produced by numerous companies in the Katanga Province. Refined and unrefined copper production increased by 38% and 25% respectively in 2011. The production of zinc doubled, while output of silver, diamond and gold increased significantly over the same period. The export of the “conflict minerals” tantalum, tin and tungsten (3T) decreased significantly, due mineral smuggling and a government ban on mining in the eastern provinces Maniema, Nord-Kivu, and Sud-Kivu. Demand for these minerals decreased further due to strict requirements of certification of conflict-free minerals by the US government, as mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act, also known as provision 1502.

The reports show that management of the country’s extractive sector was highly fragmented due to a multitude of state actors and a bureaucratic taxation regime. More than 60 different revenue streams were collected by various entities each year, making control difficult and the entire process less efficient.

Jonas Moberg commented: "DRC’s EITI has spelled out concrete recommendations and reforms which will improve governance and accountability. Some of these could be included in the ongoing reforms of the hydrocarbon and mining codes."

DRC’s EITI membership was temporarily suspended in April 2013 for failure to achieve EITI compliance following two validations, which is the quality control mechanism of the EITI. These two reports seek to address the main corrective actions agreed by the Board before lifting the suspension. Significant progress has been made in improving the quality of the Reports with a clearer and a more comprehensive scope. The number of companies reporting more than doubled from 58 to 143 in the last two reports. The disclosed figures are now more reliable, because of a systematic audit of state entities by the inspector general’s office.

 

For more information about DRC's EITI, visit the country page on the EITI website or contact Bady Balde.