Paradise Papers Research Raises Questions Over Glencore’s $440m Congo Discount

Glencore man­aged to get a $440m dis­count in the Congo.

Paradise Papers

Mining com­pa­nies now con­trolled by com­modi­ties giant Glencore won $440 mil­lion in dis­counts on pay­ments in 2008 to a Democratic Republic of Congo-con­trolled cop­per min­ing com­pa­ny – a mas­sive finan­cial loss for the des­per­ate­ly poor nation, accord­ing to a new report based on the Paradise Papers.

The $440 mil­lion loss to the DRC, where more than a third of adults are illit­er­ate, was almost as large as its total expen­di­tures on edu­ca­tion at the time.

Elisabeth Caesens, direc­tor of the Brussels-based non­prof­it Resource Matters, found that Katanga Mining Ltd. arranged to pay sub­stan­tial­ly less than mar­ket rate to obtain min­ing con­ces­sions from Gecamines, the state-con­trolled min­ing com­pa­ny, as part of con­tract rene­go­ti­a­tions for min­ing projects. Katanga includes the com­pa­nies that ben­e­fit­ed from the dis­counts and is now con­trolled by Glencore.

The Paradise Papers allowed us to look behind the scene and fol­low the nego­ti­a­tions of some of the most impor­tant con­tracts,” said Caesens, who used pub­lic doc­u­ments and dis­clo­sures by ICIJ and its part­ners from the Paradise Papers, a mas­sive leak of doc­u­ments from an off­shore law firm and others.

The Paradise Papers showed that dur­ing indus­try-wide rene­go­ti­a­tions Gecamines ini­tial­ly said it would charge Katanga $585 mil­lion to par­tic­i­pate in the min­ing venture.

Katanga, in which Glencore then had an small inter­est, found the $585 mil­lion pay­ment unac­cept­able, inter­nal com­pa­ny min­utes reveal. Katanga approached Dan Gertler, an Israeli busi­ness­man with a minor­i­ty inter­est in Katanga, for help. The pay-to-play amount was reduced to $140 mil­lion, accord­ing to com­pa­ny minutes.

Glencore declined to com­ment on the report. In a pre­vi­ous state­ment, Glencore said the agree­ment to pay $140 mil­lion was reached before Gertler’s involve­ment. Lawyers for Gertler have pre­vi­ous­ly told ICIJ that Katanga didn’t receive pref­er­en­tial treat­ment as a result of Gertler’s involve­ment and that all nego­ti­a­tions were legit­i­mate and arms-length.

The 21-page report zooms in on a series of dis­counts secured on the min­ing ven­tures that total $440 mil­lion. In the most strik­ing case, one of the two com­pa­nies that were part of Katanga Mining paid $5 mil­lion to obtain rights that would have typ­i­cal­ly cost $240 mil­lion, based on the indus­try aver­age paid by oth­er com­pa­nies at the time, the report says.

In anoth­er case dis­cussed by Caesens, the min­ing ven­ture secured 4 mil­lion tons of cop­per with­out pay­ing addi­tion­al mon­ey to the state-owned min­ing com­pa­ny. In yet anoth­er dis­count, the DRC min­ing com­pa­ny grant­ed the ven­ture a favor­able deal by using a less com­mon mea­sure­ment of cop­per reserves that could have saved the ven­ture $60 mil­lion, accord­ing to the report.

Congo is one of the poor­est coun­tries in the world,” Caesens said. “Social ser­vices are min­i­mal to non-exis­tent. At the time, $235 mil­lion rep­re­sent­ed more than the country’s year­ly bud­get for pri­ma­ry and sec­ondary education.”

While more than a dozen oth­er min­ing com­pa­nies work­ing in the same cop­per-cobalt rich region paid an aver­age of just under $33 per ton of cop­per, Caesens found, the min­ing project now man­aged by Glencore paid 73 cents per ton.

The dol­lar amounts of sign­ing bonuses.

That is pro­por­tion­al­ly 48 times low­er than what vir­tu­al­ly all oth­er investors agreed to,” Caesens wrote.

The Paradise Papers indi­cate that Gertler may have played a role in obtain­ing the larg­er dis­count. In March 2009, Gertler attend­ed a meet­ing with DRC min­ing com­pa­ny rep­re­sen­ta­tives to dis­cuss a range of issues, accord­ing to min­utes from a Katanga meeting.

All out­stand­ing points were dis­cussed there and Dan Gertler led the dis­cus­sion before leav­ing the meet­ing,” min­utes stat­ed.

Less than one week lat­er, at a Switzerland hotel, Katanga exec­u­tives, includ­ing a senior Glencore man­ag­er, con­firmed that it would pay $140 mil­lion, rather than the $580-plus orig­i­nal­ly sought for the min­ing con­ces­sions, accord­ing to board min­utes from the Paradise Papers. The costs would be divid­ed between two of Katanga’s projects in pay­ments of $135 mil­lion and $5 mil­lion, accord­ing to the minutes.

The Resource Matters report comes amid grow­ing pres­sure on Glencore and its oper­a­tions in the DRC.

Last month, Glencore and Katanga announced that three direc­tors had stepped down after an offi­cial inves­ti­ga­tion by the Ontario Securities Commission in Canada, where Katanga is based, prompt­ed an inter­nal audit that found “mate­r­i­al weak­ness­es” in the company’s finan­cial report­ing controls.

Canadian author­i­ties are also review­ing Katanga’s com­pli­ance with dis­clo­sures under bribery and anti-cor­rup­tion laws, the com­pa­ny said.

In an inter­view, Switzerland’s jus­tice min­is­ter said the Paradise Papers rev­e­la­tions would fur­ther pres­sure the coun­try to reform is com­modi­ties sec­tor and evoked new leg­is­la­tion to force com­pa­nies to “play by the rules.”

By Will Fitzgibbon

Paradise Papers Research Raises Questions Over Glencore’s $440m Congo Discount

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