CREC contributes to $1.07 billion interest-free loan for Phase 1 and Phase 2 of Sicomines Copper and Cobalt Mining Project

Project narrative

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). It specified that two tranches of infrastructure financing—reportedly worth $3 billion each—would be disbursed and that subsidiary loans approved under the first tranche and second tranche would carry the following terms: a 25-year maturity and an interest rate of 6-month LIBOR plus 100 basis points (or 3.839% at the time of the agreement). 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. 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. The mine's dressing system completed a successful trial operation on March 28, 2021. Then, on July 15, 2021, another major Phase 2 milestone was achieved when a roasting oven was fired. Another significant milestone was achieved in March 2023 when the Busanga hydroelectric power plant, which delivers electricity to the Sicomines mining complex, was put into operation. Upon completion of Phase 2, the mine’s annual copper output is expected to reach 250,000 metric tons (if it runs at full capacity). According to the Sino-Congolese Program Coordination and Monitoring Office (BCPSC), by the end of 2020, the $2.13 billion China Eximbank mining loan had achieved a 98% disbursement rate ($2,088,350,000 out of $2,130,000,000). In total, the loan disbursed $175 million in 2009, $265.3 million in 2010, $7.93 million in 2011, $190.65 million in 2012, $208.91 million in 2013, $526.2 million in 2014, $154.68 million in 2015, $18.74 million in 2016, $11.26 million in 2017, $6.8 million in 2018, $45.76 million in 2019, and $477.11 million in 2020. According to BCPSC, Sicomines SARL made debt service payments (worth $550.14 million) on the $2.13 billion China Eximbank mining loan between 2009 and 2020: $8.28 million in 2009, $19.997 million in 2010, $20.49 million in 2011, $7.22 million in 2012, $25.31 million in 2013, $54.31 million in 2014, $68.96 million in 2015, $72.28 million in 2016, $69.61 million in 2017, $66.11 million in 2018, $62.7 million in 2019, and $74.4 million in 2020. BCPSC also reported in 2020 that Sicomines SARL was scheduled to make the following debt service payments on the China Eximbank mining loan between 2021 and 2025: $106.8 million in 2021, $106.8 million in 2022, $106.8 million in 2023, $106.8 million in 2024, and $82.8 million in 2025. The total amount outstanding under the $2.13 billion China Eximbank mining loan was $1,702,814,509 as of December 31, 2020 and $2,088,350,000 as of December 31, 2021. According to the Direction Générale de la Dette Publique (DGDP) within the Congolese Ministry of Finance, the borrower made principal payments under the $1,070,000,000 interest-free shareholder loan agreement worth $0 during calendar year 2020 and $148,977,360.00 during calendar year 2021. The loan's principal amount outstanding was $487,872,271.91 as of December 31, 2019, $739,350,671,91 as of December 31, 2020 and $590,373,311.91 as of December 31, 2021.