Chinese contracts add to demands on DRC power

DRC and a Chinese consortium have signed a multi-billion dollar convention covering mining and infrastructure projects. The figures involved are vast, underlining the growing domination of Chinese interests in Congo, which has left western companies fearful that their mining and other projects could be in jeopardy, for lack of power, as well as from threatened contract reviews and revisions, writes François Misser with Jon Marks.

Viewed from Kinshasa and some western capitals, there seems to be only one game in town nowadays: the Chinese contract – the latest involving minerals reserves valued at $80bn-85bn. Not only is the potential extent of the Chinese penetration of the Democratic Republic of Congo economy frightening Western interests, it has been the subject of heated debate in the National Assembly and local press, following the presentation by Infrastructure Minister Pierre Lumbi of the so-called convention of collaboration, signed on 22 April with a consortium including China Railway Group Ltd and Sinohydro Corporation. Pointing to the deal’s importance, President Joseph Kabila’s People’s Party for Reconstruction and Development (PPRD) felt the need to organise demonstrations in support of the contract.

The Chinese partners have formed a joint venture (taking 68% of the equity) with mining parastatal Gécamines (34%) to exploit the Dikuluwe, Mashamba, Cuvette Dima and Synclinal D deposits in Katanga, which together hold an estimated 10.6m tonnes of copper and 626,619 tonnes of cobalt reserves. At current prices, these deposits’ value is estimated at $80bn-85bn. The project has an estimated duration of 25 years, divided into three phases. During the first phase, all the JV’s profits will go to reimburse mine development and to build a first tranche of the infrastructure DRC hopes will radically change for the better the lives of its citizens. The list includes 3,800km of roads, 3,200km of railways, 5,000 houses, 32 hospitals, 145 health centres and two universities. This underlines the extent to which China is using infrastructure-for-resources deals as the centrepiece of a publicly unstated policy of becoming the dominant player in DRC.

Power dispute

The contract also has immediate implications for the power sector, as the list of projects proposed by Beijing includes the construction of two hydropower dams, at Katende in Western Kasai and Kakobola in Bandundu province, and the rehabilitation and extension of the Kinshasa and Lubumbashi distribution networks.

These projects could be interpreted as showing how DRC can now turn to Chinese friends when it falls out with other partners. The decision to include them in the ‘convention of collaboration’ followed a dispute between Kabila’s government and South Africa’s Clackson Power, a pioneer of installing power in DRC, which had signed an agreement in 2004 to build the Great Katende dam, with projected capacity of 19.8MW, comprising six 3.3MW turbines. Its other project (6MW with a possible extension to 9.6 MW) was planned near Kikwit.

In principle, Great Katende should have been completed in June 2006, but that has not been the case as the partners fell out. Kabila instructed the Congolese embassy in Pretoria to take the matter to the South African courts in late 2007, because he considered that his government has invested up to $5m to no avail. Clackson justified its decision to stop work in early 2006 by arguing that the parastatal Société Nationale d’Electricité (Snel) had failed to pay its share of the project and that the government only disbursed $2m.

Mining demand grows ever stronger

Even if Chinese investors build the Katende and Kakobola HPPs, they will be confronted with the challenge of finding adequate power supply for their huge mining investments in Katanga. Indeed, the convention – a copy of which has been analysed by African Energy – does not mention any particular investment in that area.

There is now a serious risk of minerals-related power project bottlenecks in Katanga, which as one donor source said on 22 May, “is suffering from a whole number of individual project commitments which do not exist in a coherent regulatory framework.” African Energy has previously listed Snel’s agreements with mining companies, and since these agreements were reached the actual levels of demand have soared further (AE 125/6).

Katanga Copper Company – grouping Nikanor, long-established DRC player Forrest Group, Kinross, Glencore and Gécamines – which operates the Kamoto project in Kolwezi, has signed a contract with Snel to secure the supply of 70MW during the project’s launch phase, and plans to increase its offtake up to 145MW in 2009-10. A memorandum of understanding has also been signed by Snel and the DRC Copper and Cobalt Project (DCP) grouping of Nikanor, Glencore and Gécamines for the supply of 100MW from Q1 2009 and another 100MW when the company later reaches its full 400,000 t/yr copper production capacity.

US mining giant Freeport McMoran has announced plans to start initial 40,000 t/yr production at the Tenke-Fungurume mine as soon as mid-2009 (to reach 115,000 t/yr of copper and 8,000 t/yr of cobalt at maturity), and has also signed long-term power purchase agreements with Snel. This includes a “significant investment” to refurbish and maintain one of the nearby Katanga hydro plants. But the bill is growing: in April, Freeport estimated it would have to invest $170m more than planned for additional infrastructure, including expanding generation capacity and improving power reliability. It has consequently decided to raise a loan for Snel (which is not credit-worthy) to fund investment in regional power infrastructure.

Freeport wants to avert the threat of a power crisis at this major investment. In its Tenke-Fungurume feasibility study completed in February 2007, GRD Minproc Ltd identified a total available capacity of 420-430MW for Katanga, including the supply from 125MW from the Inga grid in Bas-Congo. The rehabilitation of one 65MW turbine at the Nseke hydropower station, of two 25MW machines at Nzilo and three 10MW units at Mwandigusha could add 145MW to the Katanga grid.

It remains to be seen whether this will be sufficient to meet mining sector demand. It is not known yet when the China Railway/Sinohydro project will come on stream. But the Chinese plan copper output of 200,000 t/yr at the beginning of their project’s commercial phase, and plan to increase production up to 400,000 t/yr afterwards.

The respected chairman of local employers’ federation Fédération des Entreprises Congolaises (FEC), Albert Yuma, last February urged the DRC authorities and foreign institutional partners to expand generation capacity through medium-size projects in the provinces, rather than focusing only on the giant Inga Falls schemes (AE 137/1). Otherwise, many development projects, including key mining ventures, would simply not happen, Yuma argued.

Developer MagEnergy’s apparent problems at Inga, discussed below, further add to the Katanga mining industry’s problems, as the Canadian firm was expected to build with the 350MW Busanga HPP in the province. This looks remote while the dispute over Inga II is unresolved.

Transmission tender

On the plus side, in mid-May, the World Bank said that tenders had been launched for a 300MW increase in the capacity of the transit corridor between Inga and southern Africa via Katanga and Zambia, for supply through the line to reach 500MW.

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