sharing in governance of extractive industries

European bank freezes Glencore loans over 'tax evasion.' - Business Day


By Ron Derby and Ricky Smith

THE European Investment Bank (EIB) has frozen all new loans to commodities trader Glencore and its subsidiaries, it said yesterday, citing "serious concerns" over corporate governance.

The European Union’s (EU’s) lending institution provided a $50m loan to Mopani Copper Mines, a Zambian subsidiary of Swiss-based Glencore, in 2005, to help pay for the modernisation of a copper smelter.

Mopani has been accused by non- governmental organisations and European parliamentarians of tax evasion and of causing pollution.

European parliamentarians have also called for the suspension of funding for all mining projects in Africa — which will probably be welcomed by China, Russia and India, analysts said.

Glencore has denied the bank’s allegations, which stem from a leaked version of a pilot audit report commissioned by the Zambian tax authorities.

The company owns 70% of Shanduka Coal.

The company’s acting MD, Cobus Loots, said yesterday all of its funding was local and he was in no position to comment on Glencore.

It also has shareholding in Xstrata, whose spokeswoman Alison Flynn said: "Xstrata is independent from Glencore, so there is no impact."

The EIB said in a statement yesterday it had commissioned an investigation into Glencore’s Mopani operation.

Any conclusive proof of tax evasion would lead to local penalties and could trigger early repayment of the loan .

"We welcome the EIB taking a close look at Mopani, since we are confident that we will be completely exonerated," a spokesman for Glencore said yesterday.

"The allegations are based on an incomplete, draft desktop study that was circulated in Zambia several months ago. We publicly refuted the draft conclusions of this document at the time."

But the European Investment Bank said its concerns went "far beyond" Mopani, repeating comments made in a letter to a group of parliamentarians who last week called for EU financing for mining projects in Africa to be suspended.

"Due to serious concerns about Glencore’s governance, which has been brought to light recently and which go far beyond the Mopani investment, the president of the European Investment Bank has instructed the services to decline any further financing request from this company or one of its subsidiaries," it said.

The bank invests in mining projects in Africa as part of EU development co-operation policy. Other projects include the Ambatovy nickel project in Madagascar and the Tenke Fungurume mining project in the Democratic Republic of Congo.

The group of more than 50 members of the European Parliament called last week for a moratorium until "adequate standards and regulations" are brought in. It said the European Investment Bank was ill- equipped to monitor mining projects and to deal with related risks.

If this call was heeded, investors from China, India and Russia could quickly step in to provide funding, further eroding Europe’s presence in Africa.

"I would safely predict that the decision would have no binding effect on the availability of funds," Iraj Abedian, founder of Pan African Advisory Services, said yesterday. "China, India, Russia would provide alternative funding for the resources sector. What Europeans consider poor governance is fairly common for them."

Glencore ’s shares were down 1,5% yesterday, underperforming a 0,9% rise in the sector .


Available: http://www.businessday.co.za/articles/Content.aspx?id=144508

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Comment by Henry Mugisha Bazira on June 8, 2011 at 15:38

In light of EIB limited capacity to monitor mining projects and to deal with associated risks in Africa, the Bank could invest invest in creating multistakeholder (including civil society, private sector & community members) forums to monitor mining contracts and report to the Bank, like those being established by the World Bank. This could prove to be the most effective and efficient approach of monitoring the impacts of mining and other projects where the Banks are constrained.

The writer is the Executive Director of Water Governance Institute (WGI) and Chairperson of the Civil Society Coalition on Oil & Gas (CSCO), Uganda


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