After pulling out in 2012, China Exim Bank has revived its financing deal for mining and infrastructure projects.
The Democratic Republic of Congo's (DRC) 'China deal' – using the profits from a copper and cobalt mine to finance infrastructure and mining investment – is central to President Joseph Kabila's development plans.
In 2013, officials announced that progress was not being made because of a conflict over the financing structure, but the multibillion-dollar deal with China Exim Bank has now been reinstated.
Implementation of the infrastructure projects will continue after two years of standstill.
A well-placed Chinese source who requested anonymity says that preparatory work on the mining site started in April 2013, and the government has confirmed that the mine will begin production by the end of 2015.
Mine to reimburse credit
First signed in 2007, the deal brings in a credit line on commercial terms to finance a mining project and infrastructure projects, mostly comprising roads in Kinshasa.
The credit line is due to be reimbursed with profits from the mine that is operated by a Sino-Congolese joint venture named Sicomines.
It includes the Chinese state-owned enterprises China Railway Engineering Corporation and Sinohydro and the private company Zhejiang Huayou Cobalt.
The Congolese parastatals Gécamines and the Société Immobilière du Congo hold a 32% stake.
The Sicomines agreement has been troubled since its early days.
Civil society groups criticised the circle around President Joseph Kabila for non-transparent management of the agreement, and it was revised in 2009 following concerns from the International Monetary Fund (IMF) that it burdened the DRC with unsustainable debt.
To satisfy the IMF's demands, the amount of infrastructure financing was capped at $3bn and the sovereign guarantee that had covered the mining loan was removed.
The infrastructure projects remain covered by the sovereign guarantee, however.
In 2013, Moïse Ekanga of the Bureau de Coordination et du Suivi du Programme Sino-Congolais (BCPSC) revealed that there were problems related to the deal.
China Exim Bank had pulled out as the financier in early 2012 after some of its demands had not been met.
Namely, the bank insisted on taking over the Congolese side's 32% share and mortgaging the Chinese parties' 68% stake until reimbursement was completed.
The bank also considered the 25-year reimbursement period too long and found it problematic that the law that was to secure generous fiscal advantages for Sicomines had not been approved by the Congolese parliament.
As the bank pulled out, the Chinese parties had to reimburse the approximately $1bn that the bank had already disbursed towards the infrastructure and mining projects.
For many Western observers, this was a revelation. Few analysts thought that there could be such disagreement between Chinese corporate actors.
The idea of a monolithic China following a coordinated plan for its overseas ventures remains deeply embedded in the view of the Western media. The pullout was not the end of the road, however.
In March 2013 when the events were reported, the parties had already been back at the negotiating table for several months.
Ekanga has confirmed to The Africa Report that China Exim Bank "has resumed the financing since last year for the mining project and [since] this year for the infrastructure projects".
According to Ekanga, the bank went back to the negotiating table in late 2012 because of the competition offered from China Development Bank and the Bank of China, which had started negotiations with the Chinese parties to the Sicomines deal.
In policy circles there has been widespread concern that Chinese loans may cause a new cycle of indebtedness for African countries.
However, the principal goal for China's banks is to ensure commercial viability and, like most banks, they will only disburse loans if they have firm guarantees for reimbursement. The bank has not explained why it decided to return.
But, the adoption by the Congolese parliament in February 2014 of the law safeguarding the tax exemptions provided to Sicomines is likely to be one of the reasons for this. ●