Mine dispute, poll fears raise Congo risk premiums

By Katrina Manson

KINSHASA (Reuters) - 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.