fall, page-7

Mine dispute, poll fears raise Congo risk premiums
Source: Reuters
18th May 2010

KINSHASA - Democratic Republic of Congo's political risk insurance premiums have risen 40 percent since a dispute over mining licences and are set to rise further as 2011 elections approach, a leading African insurance agency said.

The central African nation is recovering from years of war and corruption but has waded into problems since the global downturn hit its economy and it embarked in 2008 on a review of contracts for its lucrative mining sector.

"The cost of political risk has gone up 40 percent because of the risk of licence revocation," Stewart Kinloch, acting CEO of the African Trade Insurance Agency (ATI), told Reuters on Tuesday during a conference on investment in Africa.

Political risk insurance covers a variety of eventualities including the risk of war, expropriation including licence revocation, and risks linked to currencies.

Congo cancelled Canadian miner First Quantum Minerals' Kingamyambo Musonoi Tailings (KMT) project in August 2009 in a review of 61 mining deals and has since sought $12 billion in compensation, saying the deal involved fraud.

First Quantum started international arbitration in February, a process that can take years should it go to appeal.

"These guys have invested $500 million and what have they got to show for it?" asked Kinloch, saying the hike in premiums reflected market perceptions of investing in Congo and that both parties would do better to reach agreement.

Kinloch said the perceived risk of licence revocation had lifted typical annual political risk premiums in Congo from 2 percent to 2.8 percent of investment under cover -- a rise of 40 percent.


ELECTIONS TO PUT OFF INVESTORS

ATI covers political and export credit risk worth $2 billion in nine African countries and is rated 'A' Stable by Standard & Poor's, the second highest-rated institution on the continent after the African Development Bank.

It offers political risk cover on $300 million of investment in Congo, mostly in mining, telecoms and housing projects.

Investors in Congo also face threats from conflict in the east and across the north, as well as potentially widespread instability during elections due to take place in 2011.

ATI said the risk to lenders to African countries going into elections can be double that in western Europe, and that Congo's risk premiums were likely to rise during election time.

However, he said ATI strived to convince re-insurers that recent attacks on northern Congo from Ugandan Lord's Resistance Army rebels are far from Congo's southern copperbelt, where ATI covers $200 million of investment.

Foreign direct investment (FDI) in Congo is forecast to rise to $5 billion this year from $4.5 billion in 2009 due to growth in the mining and banking sectors, but analysts say it will fall back again to $4.5 billion in 2011 due to the elections.

"Even though we are working on improving our business climate, because of our elections investors won't want to come," Amisi Harady, director of investment promotion at Congo's ANAPI investment agency said by telephone.

Congo, which has asked the world's largest U.N. peacekeeping force to leave by 2011, will make efforts to mute any potential investment downturn by planning well for the elections, Finance Minister Matata Ponyo told Reuters.

"We think if political risk rises it will be low," said Ponyo, estimating the polls would cost $500 million to stage with an as yet undetermined government contribution.