THE BLOG
04/27/2010 05:12 am ET | Updated May 25, 2011

Dams, Rivers and Stolen Millions in the Congo

The Democratic Republic of Congo's bad luck is to be rich in resources. Foreign investors are pouring billions of dollars into large extractive projects such as mines and hydropower dams. In a classic case of the resource curse, these projects are not promoting the country's long-term development, but attract short-term profiteers, conflict, and corruption. In the latest example for this trend, the World Bank has just reported huge delays and cost overruns for the rehabilitation of the Inga 1 and 2 hydropower dams. Other projects are being swallowed by the morass of Congo's resource curse at the same time.

The Inga 1 and 2 dams were built on the Congo River in the 1970s and 1980s as part of a failed industrialization scheme. Operating at only 40% of capacity, the projects turned into white elephants and contributed heavily to the country's spiraling debt crisis. As my colleague Terri Hathaway discovered on a visit to the site, the people who were displaced by the dams were never properly rehabilitated, and are still fighting for just compensation after several decades.

In 2003, the World Bank committed $179 million towards the reconstruction of a transmission line from the Inga dams to Southern Congo. A few years later, the World Bank, African Development Bank and European Investment Bank approved more than $500 million in funding to rehabilitate the ailing dams on the Congo River.

Rehabilitating existing dams makes sense as long as the use of funds is closely monitored. In 2007, International Rivers called on the World Bank to resolve the outstanding social problems of the Inga dams as part of its work on the new project. Two years later, the Bank informed us that it was indeed gathering information "for an appropriate social development plan for the affected communities" as part of the Inga rehabilitation.

The relatively modest rehabilitation of the Inga dams and transmission lines has already run into serious problems. Around 2002, $110 million that the World Bank supposedly spent on Congo's electricity sector went missing. Last year, the Bank had to quietly double its lending for the transmission line. And on February 23, Reuters reported that the rehabilitation of the Inga dams will be delayed for three years, cost an extra $300-$400 million, and will be scaled back in scope. In other words, Congo will have to go deeper into debt for a smaller project whose benefits may materialize later. Without going into details, the World Bank blamed the setback on the poor quality of consultants' studies, implementation problems, and the effects of the world financial crisis.

On the very same day, bad news has reached us regarding two other big projects in Congo. An appeals court in Hong Kong decided that a signature bonus which a Chinese consortium paid when it signed a multi-billion dollar mining and infrastructure project will not go to the DRC's government, but rather to a vulture fund in the US. This fund bought up debt from the 1980s on which the Congo had defaulted a long time ago, and is also trying to lay its hands on the revenues of the Inga dams. The irony is that $24 million of the Chinese bonus has already disappeared into private pockets. A commission set up by the Congolese parliament charged that the millions were stolen by representatives of the state's mining company and local officials.

Also this week, the World Bank's private sector arm announced that it will not make any new investments in the Congo until a dispute over a mining project is resolved. Last August, the DRC government had canceled the contract for a $553 million copper and cobalt project in which the World Bank had invested. "If it turns out that contracts cannot be considered binding, that would be concerning to us," a World Bank official said, feigning surprise about the lack of legal guarantees in the country.

As always, the details about such fraudulent schemes will not become public. But the big picture behind the daily scandals looks familiar. The elites in poor but resource-rich countries such as the DRC often have no interest in the actual operation of infrastructure or mining projects. This would require a long-term perspective which they cannot afford. They rather try to skim off signature bonuses, bribes and other short-term benefits from an investment as quickly as they can. When new officials assume powerful positions, they also want to take their cuts, and so contracts get suspended, projects are being delayed, legal problems ensue, and the costs go up.

While the Inga 1 and 2 projects are toiling through this morass, power companies, governments and international funders are considering building the huge $80 billion Grand Inga Dam. This project would divert the Congo River and generate electricity for export to Southern Africa, Europe and possibly the Middle East. Just imagine the feeding frenzy that a honey pot of $80 billion would unleash within the DRC's elite and its international cronies. "If we're struggling with a 5,000 megawatt project, how are we going to get a 100,000 megawatt project off the ground?" commented Pat Naidoo, the CEO of a consortium which was recently dissolved in a power struggle over the DRC's hydropower resources.

The Congo's impoverished, war-ravaged population deserves support. The experience with the resource curse has shown time and again that large, top-down infrastructure and mining projects will not benefit the poor. Modest investments in decentralized infrastructure and in the economic activities of the local population have a better chance at reducing poverty. Rural electrification and support for the people affected by the Inga dams would be a good place to start.