Committee for the Abolition of Illegitimate Debt

A Belgian manager at one plantation in the northern Equateur province recently reinstated the old practice of publicly whipping villagers accused of stealing palm nuts from the company’s plantations. The villagers, who the manager openly calls “macaque monkeys”, are terrified of speaking out. Last year, two of the company’s security guards accosted a local land activist on his small boat and brutally beat him to death, and both guards are today walking freely in the villages, continuing to terrorise people.

Who’s behind this ghastly operation? Well, if you live in Western Europe or the US, it’s likely that you may have something to do with it. The company, Plantations et Huileries du Congo (PHC), is owned and bankrolled by some of the biggest development finance institutions (DFIs) in Europe and the US, including those of the UK, Belgium, France, Germany, the Netherlands and Spain. Over the past seven years, these public institutions wasted around US$200 million trying to salvage the crumbling 100-year old colonial operation, which was taken over from Unilever by a now bankrupt Canadian financial company called Feronia Inc in 2009.

US$200 million could have made a huge difference to the communities whose 100,000 ha of lands have been occupied by these plantations for over a century. It could have been used to build badly needed infrastructure and health services. But instead, the public funds were placed in the hands of development bank money managers tasked with helping Africans by funding multinational companies extracting resources from their communities. Much of the funds were wasted on lavish executive salaries for European company managers, travel expenses, legal teams, consultants and payouts to a powerful DRC politician. Promises to pay workers minimum wages and provide them with decent housing and medical services never materialised. The argument could be heard that the money wasn’t there for these investments while millions were available for paying the salaries of the expat company managers based in London and Kinshasa. The local communities, whose lands and forests were stolen by the company, remain desperately poor and hungry for land.

In June this year, after reporting yet another year of multi-million dollar losses, Feronia suddenly announced that an agreement had been reached with its development bank owners to hand Plantations et Huileries du Congo over to a private equity Equity The capital put into an enterprise by the shareholders. Not to be confused with ’hard capital’ or ’unsecured debt’. fund. That fund is based in the tax haven Tax haven A territory characterized by the following five independent criteria:
(a) opacity (via bank secrecy or another mechanism such as trusts);
(b) low taxes, sometimes as low as zero for non-residents;
(c) easy regulations permitting the creation of front companies and no necessity for these companies to have a real activity on the territory;
(d) lack of cooperation with the inland revenue, customs and/or judicial departments of other countries;
(e) weak or non-existent financial regulation. Switzerland, the City of London and Luxembourg receive the majority of the capital placed in tax havens. Others exist, of course, such as the Cayman Islands, the Channel Islands, Hong Kong and other exotic locations. of Mauritius and managed by Kalaa Mpinga, son of a former DRC prime minister and a major player in Africa’s gold and diamond mining scene.

The UK development finance institute, the CDC Group, Feronia’s largest shareholder, justified the hand-over of its shares to Mpinga’s company by saying it would reduce the expenses involved in keeping the company listed on the Toronto Stock Exchange. Anyone familiar with private equity Private equity Private equity or investment capital designates a specific form of institutional investment in private companies with the goal of financing their development, transformation and expansion. The most common forms of private equity are venture capital, which refers to investments in the creation and development of innovative start-ups, and Leveraged Buy-Outs. funds, as the CDC managers are undoubtedly aware, knows that the modus operandi of private equity is to maximise fees, leverage Leverage This is the ratio between funds borrowed for investment and the personal funds or equity that backs them up. A company may have borrowed much more than its capitalized value, in which case it is said to be ’highly leveraged’. The more highly a company is leveraged, the higher the risk associated with lending to the company; but higher also are the possible profits that it may realise as compared with its own value. debt and strip assets. The voluntary (and not publicly available) commitment on environmental and social governance that the CDC and the other development banks say they got from the private equity firm offers no meaningful protection to the people of the Congo who will be affected by the new owner’s predations.

The CDC is said to have written off upwards of US$50 million by handing over its shares to Mpinga’s private equity firm, while other European development banks are accepting to forego up to 80 percent of their outstanding loan repayments.

This private equity take-over is the development banks’ desperate attempt at an “exit”. Development banks, like other investors, are supposed to exit after having made a profit Profit The positive gain yielded from a company’s activity. Net profit is profit after tax. Distributable profit is the part of the net profit which can be distributed to the shareholders. and, in their case, they are supposed to at least show that some concrete “development” has taken place. Neither applies to Feronia. The banks are exiting because there is no end in sight of company losses and because tensions with the workers and local communities, who are fed FED
Federal Reserve Officially, Federal Reserve System, is the United States’ central bank created in 1913 by the ’Federal Reserve Act’, also called the ’Owen-Glass Act’, after a series of banking crises, particularly the ’Bank Panic’ of 1907.

FED – decentralized central bank : http://www.federalreserve.gov/ up with starvation wages and the theft of their lands and forests, are growing out of control.

Handing PHC over to a private equity firm will not resolve this situation or bring “development” to the communities. If they had wanted to achieve this, the development banks could simply have handed the company’s lands and plantations over to the local communities. There are hundreds of community palm oil mills operating near to the PHC plantations, and their business is booming. Indeed, some communities have already started to reclaim and put into production portions of plantations that are not being used by PHC.

The Feronia “exit” lays bare the complete lack of accountability with development banks. Since they first got involved with Feronia in 2013, numerous letters and communiqués were issued by the communities and reports published in the media and by NGOs, filled with serious allegations about the company’s treatment of workers and communities, its human rights violations, illegal occupation of lands and its destruction of the environment. The DFIs did nothing significant to improve the situation, and even acted to undermine community efforts to hold the company to account. Over the course of the past year, the DFIs took no action to sanction the company when two of its security guards attacked and killed a member of the local organisation RIAO-RDC, which has been supporting the communities to fight for their lands. Nor did they intervene when several community leaders active in the land struggle were arrested on artificial charges by a group of police officers travelling in a company vehicle. The village leaders were detained for months in jail without charges, while the company finished the contested planting of new oil palm blocks around their community.

Development banks cannot be allowed to walk free of this disaster. At a minimum, there needs to be an independent and transparent investigation by lenders into the murder of the RIAO-RDC land defender and all the other human rights and environmental violations committed by Feronia Inc and its subsidiary PHC during the time in which the development banks were financially involved in the company. The development banks should be held responsible for these violations and damages must be paid to those in the DR Congo who were affected by them. The Feronia case, and other development bank investment failures, shows that there is a need to overhaul DFI practices and to consider whether it might be better to just shut them down entirely.

The other basic action that must be demanded of the DFIs in the Feronia case is the restitution of lands to the communities. Nine communities in the DRC have already filed a complaint to the German Investment and Development Corporation (DEG) that was accepted by the bank’s Complaints Mechanism. That mediation process is underway but has been hampered by a serious lack of financial support for the communities and for the local organisation assisting them with the process, as well as by the situation of insecurity on the ground perpetrated by the company. The DEG and the other development banks are still tied to PHC through debt, with mortgages to PHC’s lands as collateral Collateral Transferable assets or a guarantee serving as security against the repayment of a loan, should the borrower default. . But with the company now owned by a private equity fund, it will be even more difficult for the communities to ensure the company’s goodwill Goodwill The difference between the assets on a company’s balance-sheet and the sum of its tangible and intangible assets. When one company takes control of another company, the acquiring company generally pays a price that is higher than the value of the net assets. Goodwill generally consists of intangible elements, such as brands, which are evaluated subjectively. in a mediation process.

Feronia is certainly not the only disastrous investment by European and US development banks. There is a long and growing list of such cases. But the Feronia debacle must be the last.