[Sino-Congolese Programme] China Eximbank provides $2.61 billion loan to increase the production capacity of the copper and cobalt mine at Kolwezi (Linked to Record ID#73145, #73204, #91873, #100887, #100888, #450, and #91875)

[Sino-Congolese Programme] China Eximbank provides $2.61 billion loan to increase the production capacity of the copper and cobalt mine at Kolwezi On September 17, 2007, a consortium consisting of China Eximbank, China Railways Construction Company (CREC), and Sinohydro and the Government of the Democratic Republic of Congo signed a “protocol d’accord” (or “项目换资源协议”).

According to the terms of the agreement, CREC and Sinohydro would be granted a 68% equity stake in a new joint venture (JV) named the Sino–Congolais des Mines (Sicomines SARL), and a Congolese parastatal called Générale des Carrières et des Mine SARL (Gécamines SARL) would own the other 32%.

In exchange, the CREC and Sinohydro would provide the Government of the DRC with turnkey public infrastructure projects (worth $6.56 billion) financed by China Eximbank. The terms of lending were not identified in the “protocol d’accord”.

Then, on April 22, 2008, a “convention de collaboration” (Chinese name: 关于刚果民主共和国矿业开发和基础设施建设的合作协议) was signed by the Government of the DRC and Sinohydro (on behalf of Sicomines).

Principal repayments were not scheduled to commence until 2018, which implies a grace period of 10-years.

The proceeds from these loans would be disbursed to the Chinese contractors responsible for individual infrastructure projects.

The April 2008 agreement also specified the ownership structure of the Sicomines joint venture: CREC would hold a 43% equity stake in the joint venture, while Sinohydro would hold a 25% equity stake, Gécamines would hold a 20% equity stake, and Mr. Gilbert Kalam Babanika (who was eventually appointed as deputy head of Sicomines) would hold a 12% equity stake.

On June 28, 2008, an amendment to the agreement was signed, which changed the ownership structure of the joint venture, such that CREC was given a 28% equity stake, Sinohydro was given a 20% equity stake, China Metallurgical Group Corporation was given a 20% equity stake, Gécamines was given a 20% equity stake, and Mr.

Gilbert Kalam Babanika was given a 12% equity stake.

On September 11, 2008, a second amendment was signed, which further changed the ownership structure of the joint venture, with CREC holding a 33% equity stake, Sinohydro holding a 30% equity stake, Zhejiang Huayou Cobalt holding a 5% equity stake, Gécamines holding a 20% equity stake, and Mr. Gilbert Kalam Babanika holding a 12% equity stake.

Additionally, as part of the April 22, 2008 “convention de collaboration,” the consortium of Chinese companies reportedly agreed to provide $2.982 billion via (1) a $32 million loan to Gécamines to cover its initial capital injection to Sicomines (the total registered capital of Sicomines in 2008 was $100 million); (2) a $50 million loan to Gécamines to procure supplies; (3) a $870.1 million, interest-free shareholder loan (prêt d’actionnaire) a shareholder loan for the development of the copper and cobalt mine at Kolwezi; and (4) and a $2.0299 billion loan from China Eximbank (with a fixed interest rate of 6.1% and a 25-year maturity) for the development of the copper and cobalt mine at Kolwezi.

Ultimately, however, it provided financial commitments worth $3.28 billion through (1) a $1.07 billion interest-free shareholder loan (prêt d’actionnaire) from China Railway Engineering Corporation (CREC), Sinohydro Corporation and Zhejiang Huayou Cobalt to Sicomines SARL; (2) a $2.13 billion (buyer's credit) loan from China Eximbank (with a fixed interest rate of 6.1% and a 25-year maturity) to Sicomines SARL; (3) a $50 million loan from Sicomines SARL to Gécamines; and (4) a $32 million loan from Sicomines SARL to Gécamines.

Record ID#73204, Record ID#100887, and Record ID#100888 capture the respective contributions of China Railway Engineering Corporation (CREC), Sinohydro Corporation and Zhejiang Huayou Cobalt to the $1.07 billion interest-free shareholder loan. Record ID#73145 captures the $2.13 billion loan from China Eximbank.

The $50 million loan from Sicomines SARL to Gécamines is captured via Record ID#91873. The $32 million loan from Sicomines SARL to Gécamines is captured via Record ID#91875.

The Congolese government initially agreed to provide a sovereign guarantee for both the ‘infrastructure loan’ and the ‘mining loan’ from China Eximbank.

Another unique feature of the April 22, 2008 agreement was the inclusion of a $350 million signing bonus from the consortium of Chinese firms.

However, following pressure from the IMF and civil society, an amendment (Avenant No. 3 à la Convention de Collaboration Relative au Developpement d’un Projet Minier et d’un Projet d’Infrastructures en République Démocratique du Congo du 22 Avril 2008) was made to the “convention de collaboration” in October 2009.

It reduced the size of the infrastructure loan from $6 billion to $3,003,830,000 and reportedly removed the sovereign guarantee for the copper and cobalt mining loan from China Eximbank, while leaving the sovereign guarantee for the infrastructure loan in place.

China Eximbank was not a party to this amended agreement, which specified that if the floating (market) interest rate on the infrastructure loan (LIBOR plus 100 basis points) rose higher than the rate (4.4%) referenced in the April 22, 2008 “convention de collaboration”, an expanded consortium of Chinese firms (CREC, Sinohydro, and Zhejiang Huayou Cobalt Company Ltd) would assume responsibility for the additional interest payments.

The profits from the investment by SICOMINES SARL in the copper and cobalt mine at Kolwezi would be used to repay the loans that finance the costs of developing the copper and cobalt mine and the unrelated infrastructure projects.

However, nearly four years after the October 2009 amendment was signed, the Congolese parliament had still not ratified it and China Eximbank became concerned about the risk of non-repayment.

In order to limit its risk exposure, China Eximbank suggested that it take over Gécamines’ 32 percent ownership stake and that the Chinese consortium’s 68 percent ownership stake be mortgaged until the infrastructure and mining loans were repaid.

The Congolese government rejected these proposed changes, and China Eximbank responded by rescinding its funding in early 2012. Then, the Chinese firms began negotiating with two alternative financiers: China Development Bank and Bank of China.

In July 2013, China Eximbank reversed its decision to halt funding for development of a copper and cobalt mine in Kolwezi.

China Eximbank and Sicomines SARL signed an additional loan agreement [contract identification number: 1410101062013211511] worth $2,610,000,000 in 2013 to increase production capacity at the copper and cobalt mine in Kolwezi. The loan carried an interest rate of 12-month LIBOR plus a 3% margin (rather than 6-month LIBOR plus a 1% margin).

However, its other borrowing terms (maturity, grace period, fees) are unknown.

On April 8, 2017, shortly before Congolese President Joseph Kabila left power, a fourth amendment to the “convention de collaboration” was signed (Avenant No. 4 à la Convention de Collaboration Relative au Developpement d’un Projet Minier et d’un Projet d’Infrastructures en République Démocratique du Congo).

It was reportedly negotiated in secret and without the knowledge of the Congolese Ministry of Mines.

It exempted Sicomines SARL from paying customs and taxes and effectively allowed for the payment of dividends to the shareholders of Sicomines SARL before loan repayments were made to its external creditors.

Then, in 2020, Sicomines SARL signed a pre-financing agreement (also known as pre-export finance facility, PXF, and commodity prepayment facilty agreements) worth $1,771,048,731.89 with its Chinese state-owned shareholders (CREC, Sinohydro, and Zhejiang Huayou Cobalt Co., Ltd). The loan carries an interest rate of 6-month LIBOR plus a 2.7% margin.

Its other borrowing terms (maturity, grace period, fees) upon which Sicomines SARL borrowed are unknown.

However, it is known that the borrower was responsible for securing and repaying these debts (including principal and interest) via mineral export receipts.

It is also known that the borrower failed to make scheduled principal and interest repayments worth $16,876,728.33 during calendar year 2021 and the loan's principal amount outstanding was $816,260,535.91 as of December 31, 2020 and $833,137,264.24 as of December 31, 2021.

In December 2021, the DRC’s EITI multi-stakeholder group (ITIE-RDC) published an evaluation of the Sicomines agreement.

It concluded that the agreement presented "an unprecedented harm in the history of the DRC." It claimed that a biased feasibility study was used as a basis for the investment decision, copper reserves were undervalued, many infrastructure projects remained incomplete, and the fourth amendment to the “convention de collaboration” diverted profits to shareholders rather repaying lenders on a first-priority basis.

Months before the December 2021 publication of the ITIE-RDC report, Congolese President Félix Tshisekedi expressed a desire to renegotiate unbalanced contracts in favor of “win-win deals." Prompted by public debate surrounding the Sicomines project and ITIE-RDC’s findings, he instructed his government -- including a government auditor called the Inspection Generale des Finances (IGF) – to investigate the 2008 “convention de collaboration” and its corresponding amendments.

He also disbanded the BCPSC.

The findings of ITIE-RDC evaluation were later corroborated by an IGF audit, which provided a basis for the Congolese Government to renegotiate the “convention de collaboration” with CREC, Sinohydro Corporation and Zhejiang Huayou Cobalt.

A February 2023 IGF audit claimed that CREC, Sinohydro Corporation and Zhejiang Huayou Cobalt had earned approximately $10 billion in profit, while the Congolese Government received loan disbursements worth less than $900 million for infrastructure projects.

It also admonished Sicomines SARL for contracting the $1,771,048,731.89 pre-financing (PxF) facility in 2020, calling it an opaque form of borrowing and a violation of the DRC’s Foreign Exchange Regulations and Mine Regulations. Then, in May 2023, Tshisekedi traveled to China to discuss the future of the Sicomines agreement.

In January 2024, Tshisekedi was sworn in after a winning second five-year presidential term following a landslide electoral victory in December 2023.

When he took the oath of office on before a packed crowd at Kinshasa's iconic Stade des Martyrs, he announced that billions of dollars would soon be available thanks to a renegotiation of the controversial Sicomines deal.

Without providing further details, he announced “the upcoming allocation of funds from the envelope obtained as part of the renegotiation of the Sicomines project [...] which should reach a total amount of $7 billion." Then, on March 14, 2024, a fifth amendment to the “convention de collaboration” (Avenant No. 5 à la Convention de Collaboration Relative au Developpement d’un Projet Minier et d’un Projet d’Infrastructures en République Démocratique du Congo du 22 Avril 2008) was signed.

Under the terms of the fifth amendment, Gécamines is entitled to receive royalty payments worth 1.2% of all copper and cobalt sales and market 32% of extracted minerals, while the Chinese owners of Sicomines SARL are entitled to sell the remaining 68% of extracted minerals.

The fifth amendment also authorizes Sicomines SARL to borrow an additional $5,808,000,000 for infrastructure projects over a seventeen-year period (2024-2040) -- including a $624,000,000 borrowing in 2024 and $324,00,000 annual borrowings between 2025 and 2040 -- so long as the international price of copper is equal to or greater than $8,000 per ton.

Construction of the copper and cobalt mine in Kolwezi began in April 2013 and the first phase of the mining project was completed on November 6, 2015. The first phase of the mining project achieved full-capacity production and became profitable in April 2016. The second phase commenced at some point between August 2019 and May 21, 2020.

Upon completion of the project’s second phase, the mine’s annual copper output is expected to reach 250,000 metric tons (if it runs at full capacity).

According to the Direction Générale de la Dette Publique (DGDP) within the Congolese Ministry of Finance and Sicomines SARL, the borrower made principal and interest payments to China Eximbank under the $2,610,000,000 loan agreement worth $261,428,542.23 during calendar year 2018, an unknown amount during calendar year 2019, $275 million during calendar year 2020, and $267 million during calendar year 2021.

However, it also failed to make scheduled principal and/or interest payments worth $22,651,931.70 during calendar year 2021.

The loan's principal amount outstanding was $1,878,696,921.85 as of December 31, 2017, $1,610,337,708.68 as of December 31, 2019, $1,354,761,750.61 as of December 31, 2020 and $1,110,413,682.31 as of December 31, 2021.