(GLOBAL WITNESS) WHAT PRICE WILL GLENCORE PAY FOR ITS MURKY DEALS IN DR CONGO?
Margot Mollat du Jourdin
Blog / 22 Jun 2018
Last week, mining giant Glencore settled two legal disputes threatening its assets in Democratic Republic of Congo, agreeing to pay hundreds of millions to opaque Congolese state-owned company Gécamines and sanctioned Israeli businessman Dan Gertler. These agreements raise fears that the company is willing to take significant risks and pay any price to safeguard its lucrative copper and cobalt mines in Congo.
The explosive news that Glencore would bypass US sanctions by paying Gertler in euros rather than dollars made headlines across the business press last week. It is hard to see this latest move as anything but a desperate and risky attempt by the Swiss commodities giant to extricate itself from of a mess of its own making.
Since 2012, Global Witness has warned about the risks of partnering with Gertler, a close friend of Congo’s embattled President Joseph Kabila. Yet for years Glencore defended its decade-long partnership with Gertler, ignoring repeated red flags and questions about the commercial justifications for some of their deals. Global Witness has called into question how the commodities trader enriched Gertler and protected his interests in mining deals.
Both Gertler and Glencore have consistently denied any wrongdoing in their business deals in Congo. Despite this, in early 2017 Glencore finally sought to distance itself from Gertler by buying him out of their partnerships in a billion dollar deal. But the relationship didn’t end there; Gertler is still entitled to receive contractual payments called royalties from both of Glencore’s projects in Congo. These are worth around €110m per year from 2019/20 and will continue for the lifetime of the mines.
In December the US Department of Treasury sanctioned Gertler and several of his companies following “hundreds of millions of dollars’ worth of opaque and corrupt mining and oil deals” in Congo. This compelled Glencore to halt royalty payments to Gertler, who immediately sued Glencore in London and Hong Kong courts for nearly $3 billion in damages for non-payment of royalties. It must have then become clear to Glencore how difficult it would be to disentangle itself from its Gertler deals.
After a couple of months of out of court talks, Glencore decided to risk the wrath of US authorities and resume paying the royalties, but in euros rather than dollars. The settlement means that Glencore will pump millions of euros into the pockets of an individual accused by the US of bribery and of “acting as a middleman for mining assets” on behalf of Kabila.
The news comes just months before controversial elections in Congo and rumours that Kabila, president since his father’s assassination in 2001, could ignore a constitutional clause that forbids him to stand for a third term. Kabila and his loyalists were accused of manipulating elections in 2006 and 2011; indeed, Congo has not had a peaceful transition of power since independence in 1960. Now, more than ever, Glencore should not be lining the pockets of Kabila’s billionaire friend, as there is a clear risk that money going to Gertler could be used in turn to affect the course of upcoming elections.
This royalties agreement came just days after another less-reported settlement with Congo’s state-owned mining company Gécamines, which had accused Glencore of piling excessive levels of debt on its Congolese subsidiary KCC. Gécamines, which owns 25% of KCC, threatened to dissolve the subsidiary until Glencore found a resolution.
As part of the agreement, Glencore has paid $150m to Gécamines for the “settlement of historical commercial disputes”; so far neither Glencore nor Gécamines has explained the underlying basis for this figure of $150m. This lack of clarity raises real concern that the payment may be no more than an over the table inducement to bring a quick end to the dispute.
Civil society organisations, including Global Witness, have repeatedly exposed Gécamines’ financial mismanagement and alleged corruption within the company. In light of Gécamines’ chequered recent history, it is vital that payments to the company have a legitimate basis and are used transparently. As long as Gécamines’ financial management remains shrouded in secrecy there is a significant risk that the $150m payment may not be used to develop Congo’s mining assets for the benefit of the Congolese people, as it should be.
Albert Yuma, the CEO of Gécamines, recently announced that the state miner plans to review its joint venture contracts with its partners. The Carter Center has extensively reported on how Gécamines signed or re-evaluated scores of contracts in the years preceding previous elections in 2006 and 2011, when conditions were ripe for revenue diversion. Given the context, Glencore should have taken into account the risk that major one-off payments to Gécamines could be diverted for political purposes.
Glencore’s agreements with both Gertler and Gécamines have resolved extremely serious disputes that could have seen Glencore lose its valuable investments in Congo’s copper and cobalt sectors. Glencore is desperate to hold onto these mining projects, and it’s not hard to see why. Cobalt is booming. Congo is the world’s largest supplier of the mineral, which is a vital ingredient in rechargeable batteries, and cobalt’s price has skyrocketed as the electric cars industry has emerged over recent years.
But that does not give companies carte blanche to make whatever payments necessary, to whomsoever necessary, in order to safeguard their investments. Companies profiting from minerals in Congo, like Glencore, must commit to supporting clean and transparent supply chains and take responsibility for any corruption risks involved in the deals they make. We cannot expect the full burden of this to fall on producing countries; all companies in the cobalt industry must take responsibility.
Moreover, Glencore cannot be allowed to get around important US anti-corruption measures and continue to pay Gertler massive royalty fees; unless the US responds by enforcing its sanctions, this sends a dangerous message that huge companies can act with impunity to protect their business interests.
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posted by MrK @ 1:14 PM
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