CITY FOCUS by ROB DAVIES: Congo dispute turns political

By Rob Davies for the Daily Mail
Updated: 17:07 EDT, 21 February 2011

'They think we're a bunch of monkeys running around in the jungle.' That was the rhetorical flourish of Bene M'Poko, the Democratic Republic of Congo's spokesman on a vitriolic dispute with miner First Quantum (FQM).

The Anglo-Canadian company is in the midst of legal action against DRC in the International Court of Arbitration, after a mining licence it owned, in partnership with the World Bank, was revoked.

The Kolwezi licence - in which FQM had already invested £460million - was subsequently sold to London-listed Eurasian Natural Resources Corporation (ENRC) for the knockdown price of £113million.

Mine man: Dan Gertler helps manage the country's natural resources, including the Kolwezi site

First Quantum cried foul, launching a separate suit against ENRC, which it accuses of acting in defiance of the international court's order preventing a sale while arbitration continues.

ENRC - controlled by the Kazakh government - insists the transfer went ahead before any such order was given.

Nonetheless, FQM boss Clive Newall declared himself ' disappointed that a FTSE 100 company such as ENRC has attempted to legitimise the illegal action of the DRC government'.

Now, the war of words has turned political.

The Foreign Office - which has become more supportive of British business abroad under the Coalition - says only that 'we encourage British companies trading in natural resources from the DRC to uphold high standards'.

But four MPs last week tabled a motion supporting FQM and hosted a well-lubricated event at Westminster, where Newall addressed a sympathetic crowd stirred by exotic tales of cabals and intrigue.

And at this weekend's G20 meeting, Chancellor George Osborne backed measures to force natural resources companies to publish what they pay, and to whom, in developing countries.

ENRC's investors are already on the case. Standard Life offloaded a small holding in protest, while BlackRock sought clear-the-air talks over the affair.

One major fund manager holding ENRC stock questioned 'whether these are the actions of a grown-up company'.

Adding a further layer of complexity is the ubiquitous presence of Israeli businessman Dan Gertler, a deeply religious diamond trader from Israel and a friend of DRC president Joseph Kabila. While there is no suggestion of any wrongdoing on Gertler's part, his importance to the DRC's management of its natural resources cannot be overstated.

It was through a series of complex transactions involving Gertler's companies in the British Virgin Islands - none of which have a connection to mining - that the Kolwezi licence was transferred to ENRC.

What's more, he had a preexisting relationship with ENRC, seemingly lending weight to FQM's argument that it was stitched up by a network of figures with connections in DRC's corridors of power.

But M'Poko insists that while Gertler is often portrayed in the media as lining his pockets with the DRC's wealth, he is beloved within its borders.

'Dan Gertler came to Congo when nobody believed in investing here,' the smooth-talking politician says. 'We can't reject a guy like that; he builds roads and hospitals, he is a friend of the Congo.'

Industry insiders question whether the deals Gertlerfacilitates for the DRC's rulers are quite so lucrative for ordinary people, given the country's history of endemic corruption.

But one thing is not in dispute: while Kolwezi collects rainwater, the world's most poverty-stricken nation is missing out on jobs and tax revenues that could feed and clothe whole families.

The DRC - so the Hollywood version goes - is denying wealth to its own people with the help of a firm that counts hundreds of Britons among its investors.

BUT a sob story that frames the argument only in black and white is starting to wear thin. The International Court of Arbitration in Paris has already ruled that Kolwezi will not be returned to FQM. The only matter up for debate is how much compensation it could get, with FQM pushing for a settlement 'in the billions'.

Furthermore, while ENRC's ethics may be in question for buying a disputed asset, it had taken legal advice beforehand and mining is a dirty business.

Some investors may be disgruntled, but even more are not: ENRC's share price is up 20pc since FQM pointed the finger.

And at the centre of the row is a war-ravaged nation still rebuilding its way out of tragedy.

In 2003, the DRC emerged from a civil war that left 4m people dead and devastated its already creaking infrastructure.

It will be some years before Congo develops safeguards on corporate governance of the scale of those constructed over decades in developed economies.

And if Western firms want access to African resource wealth it will be on terms laid down by African partners, many of whom have much work to do in creating a stable investment environment.

FQM has been desperately unfortunate, even shoddily treated by the DRC.

But it will win few friends by stamping its feet any further.