HOME­WORK FOR MOZAM­BIQUE

To en­sure en­joy­ment of its re­source boom, Mozam­bique must ad­dress some thorny is­sues, writes Al­fredo Li­bombo

Financial Mail - Investors Monthly - - Front Page -

Mozam­bique cel­e­brates 40 years of in­de­pen­dence from Por­tu­gal this month. The coun­try has be­come well re­garded for its ro­bust eco­nomic growth, which is ex­pected to rise by an av­er­age of 8% be­tween 2016 and 2019.

Most ex­cit­ing is the de­vel­op­ment of a mas­sive nat­u­ral gas pro­cess­ing in­dus­try in the north. The first gas won’t be pro­duced from the Rovuma Basin un­til at least 2019, but the In­ter­na­tional Mon­e­tary Fund says up to $100bn will be spent on its de­vel­op­ment, which “could trans­form the coun­try into the third-largest liq­ue­fied nat­u­ral gas (LNG) ex­porter in the world”.

To get there, Mozam­bi­can author­i­ties will have to ad­dress unan­swered ques­tions.

The two com­pa­nies in the Rovuma Basin — Anadarko and ENI — have not yet taken fi­nal de­ci­sions on the best way to ex­ploit the es­ti­mated 200 tril­lion cu­bic feet of gas.

Anadarko ap­pears to have prob­lems with the ti­tle deed granted for the con­struc­tion of a LNG fac­tory on the Afungi Penin­sula, in the north­ern province of Cabo Del­gado.

Ac­cord­ing to an in­de­pen­dent ju­di­cial as­sess­ment, quoted by the re­cently es­tab­lished Civil So­ci­ety Plat­form on Nat­u­ral Re­sources and the Ex­trac­tive In­dus­try, the ti­tle deed is illegal.

An opin­ion has also re­cently emerged that un­der Mozam­bique’s com­mer­cial code, it is not le­git­i­mate to set up a com­pany merely to ac­quire land rights. In 2012, Anadarko Mo­cam­bique and the pub­licly owned Na­tional Hy­dro­car­bon Com­pany cre­ated Rovuma Basin LNG Land, which was later awarded a ti­tle deed.

Anadarko’s lo­cal arm would not use the land it­self, but would sign con­tracts with other com­pa­nies to use the ti­tle deed. This, the in­de­pen­dent ju­di­cial as­sess­ment ar­gues, vi­o­lates the con­sti­tu­tion and the land law and can be chal­lenged in court.

Fur­ther dif­fi­cul­ties would be a se­ri­ously set­back for the Anadarko con­sor­tium, and might de­lay the con­struc­tion of the LNG fac­tory. If Anadarko is un­able to find a speedy res­o­lu­tion, the ma­jor ben­e­fi­ciary is ex­pected to its com­peti­tor, Ital­ian energy com­pany ENI, which op­er­ates Rovuma Basin Area 4, where even larger amounts of nat­u­ral gas have been dis­cov­ered. ENI does not need a ti­tle deed, since it aban­doned the idea of build­ing a plant on the Afungi Penin­sula.

ENI may be first to ship its LNG to mar­kets in the Far East, be­cause of its plans to build a float­ing LNG fac­tory an­chored off the Cabo Del­gado coast. That fa­cil­ity would be much closer to the gas de­posits than any land-based fa­cil­ity.

With this in mind, Anadarko’s vice-pres­i­dent for oper­a­tions, Don Ma­cLiver, flew to Ma­puto to talk di­rectly to Mozam­bique’s prime min­is­ter, Agostinho do Rosario, last month. Fol­low­ing those dis­cus­sions, Ma­cLiver said talks with the gov­ern­ment sought to guar­an­tee the ef­fec­tive de­vel­op­ment of the pro­ject.

“There are agree­ments we have to con­clude to en­sure that we can op­er­ate and ex­ploit the gas,” he told re­porters, adding that “we want a guar­an­tee that we can im­ple­ment a pro­ject of this mag­ni­tude in an ef­fi­cient and ef­fec­tive man­ner”.

A week ago Anadarko an­nounced it had se­lected a con­sor­tium of com­pa­nies who would con­struct the LNG fa­cil­ity, called CCS JV.

The fa­cil­ity will be­gin with the de­vel­op­ments of two LNG trains, each with a ca­pac­ity to move 6 Mt of LNG per year. The joint ven­ture will also build two stor­age tanks, each with a ca­pac­ity of 180 000 m³.

But ENI is not free from scru­tiny ei­ther.

Sources within the Mozam­bique Rev­enue Au­thor­ity told IM that they are eye­ing news re­ports that ENI has plans to sell down its 50% stake in Area 4. The basin could con­tain up to 85 tril­lion cu­bic feet of gas — mak­ing it one of the rich­est dis­cov­er­ies in re­cent times.

ENI is ru­moured to want to sell 15% of its stake.

If the sale ma­te­ri­alises, rev­enue author­i­ties will col­lect a sub­stan­tial amount of tax.

Plung­ing gas prices have spooked in­vestors. De­mand for LNG will in­crease, but its medium-term fu­ture is rid­dled with un­cer­tainty.

Re­cent re­ports that Anadarko was also plan­ning to sell its stake in the Rovuma Basin has sur­faced. But Ma­cLiver cat­e­gor­i­cally de­nied them last

De­mand for LNG will in­crease, but its medium-term fu­ture is rid­dled with un­cer­tainty

month. “These are noth­ing but ru­mours,” he said, adding that Anadarko’s ap­point­ment of a con­sor­tium to build the LNG fac­tory in­di­cated its in­ten­tion to ad­vance with the pro­ject.

Mozam­bique’s for­eign af­fairs min­is­ter, Oldemiro Baloi, told that Mozam­bique wanted to avoid the “re­source curse” — the para­dox­i­cal phe­nom­e­non where coun­tries with an abun­dance of non-re­new­able re­sources tend to have lower de­vel­op­ment out­comes than coun­tries with­out them. Baloi says Mozam­bique is try­ing to learn from the good and bad ex­pe­ri­ences of other hy­dro­car­bon pro­duc­ers, so that these re­sources be­come a bless­ing and not a curse.

An IMF source in Ma­puto said risks, char­ac­terised by the slow­down in global eco­nomic ac­tiv­ity and per­sis­tent falls in the prices of the com­modi­ties, must be con­sid­ered when analysing the coun­try’s eco­nomic trends.

A new gov­ern­ment has been in place since Jan­uary, and given its macro-eco­nomic goals for this year and the pro­jec­tions for in­fla­tion in the short and medium term, the IMF “thinks it ap­pro­pri­ate to con­tinue a pru­dent mon­e­tary pol­icy”.

But other con­straints are linked to the coun­try’s re­sources. A source close to the Brazil­ian min­ing com­pany Vale, which is in­vest­ing in coal min­ing in­fra­struc­ture in the Tete province, told IM that con­cerns about coal are linked to com­mod­ity prices. The ab­sence of re­li­able in­fra­struc­ture — in­clud­ing ex­port in­fra­struc­ture — is another stum­bling block.

The Na­cala har­bour, in the north­ern province of Nam­pula, will be op­er­a­tional only dur­ing the first quar­ter of next year. Vale wants to pro­duce about 11 Mt of coal in 2016, up from 7m pro­duced now. It’s still un­clear whether the in­fra­struc­ture can sup­port these vol­umes.

The floods in north­ern Mozam­bique ear­lier this year has neg­a­tively af­fected Vale’s in­ten­tion to ex­port coal through Na­cala us­ing a 900 km rail line from the pro­duc­ing fields in Tete province. Once the line is op­er­a­tional, Vale hopes to use it to move 18 Mt/year.

To max­imise the ben­e­fits of the new re­source boom, Mozam­bique will also have to re­solve its po­lit­i­cal in­sta­bil­ity.

In late April, its Fre­limo-led par­lia­ment voted against a new bill pro­posed by the for­mer rebel move­ment Re­n­amo on pro­vin­cial au­ton­omy. Its ob­jec­tion was that the bill was un­con­sti­tu­tional.

The pur­pose of this bill was to put the con­trol of these prov­inces into the hands of Re­n­amo. The prov­inces un­der dis­pute are be­lieved to be those with large gas and coal de­posits.

The po­lit­i­cal un­cer­tainty stems from dis­puted re­sults in the Oc­to­ber 2014 elec­tions. The out­come was re­jected by Re­n­amo and the third-largest po­lit­i­cal party, the Demo­cratic Move­ment of Mozam­bique.

Speak­ing at a re­cent meet­ing in Nam­pula, Re­n­amo leader Afonso Dh­lakama said he would meet with Pres­i­dent Jac­into Nyusi to put an end to what he called “the post-elec­tion cri­sis”.

Nyusi re­sponded by wel­com­ing the over­tures of peace, but said he would not hi­jack the au­thor­ity of in­sti­tu­tions such as Mozam­bique’s par­lia­ment.

“I have al­ways said that I am more than will­ing to do what has to be done so that the coun­try re­mains at peace,” he de­clared. “But I want to make it clear that I shall con­tinue to de­fend the sep­a­ra­tion of the three pow­ers.”

The face-off be­tween the par­ties has not had a di­rect im­pact on Mozam­bique’s econ­omy or on for­eign in­vest­ment in the hy­dro­car­bons sec­tor. In­vestors, how­ever, will watch de­vel­op­ments care­fully.

An IMF source said risks must be con­sid­ered when analysing the eco­nomic trends in Mozam­bique

Pic­ture: THINKSTOCK

Pic­ture: THINKSTOCK

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