TIME TO CLEAR THE AIR

Civil so­ci­ety or­gan­i­sa­tions say Sa­sol’s gas projects are ‘milk­ing’ Mozam­bique. This will put pres­sure on the group to rene­go­ti­ate its con­tracts with the gov­ern­ment or at least in­crease trans­parency

Financial Mail - - FEATURE - Char­lotte Mathews math­ewsc@fm.co.za

The re­ports on Sa­sol’s Mozam­bique ac­tiv­i­ties re­leased by Ox­fam and the Cen­tro de In­te­gri­dade Publica (CIP) last week were rid­dled with emo­tive lan­guage and mis­un­der­stand­ings, but they made an im­por­tant point: Sa­sol needs to do more work in Mozam­bique on trans­parency and com­mu­ni­ca­tions.

The two re­ports, “Sa­sol will con­tinue to milk Mozam­bique” and “Sa­sol’s de­vel­op­ment plan un­der the Pro­duc­tion Shar­ing Agree­ment is prob­lem­atic”, raise other se­ri­ous is­sues. They show a per­cep­tion that the Mozam­bi­can gov­ern­ment is not mon­i­tor­ing tax rev­enues, so Sa­sol is get­ting away with the greater share of prof­its from ex­ploit­ing the Pande and Te­mane gas fields, as well as the new gas fields un­der de­vel­op­ment at In­has­soro. Com­mu­ni­ties also feel — as all com­mu­ni­ties next to mines do — that they are not get­ting enough jobs and lo­cal eco­nomic de­vel­op­ment.

Sa­sol needs to dis­close what it is pay­ing the gov­ern­ment, jus­tify its costs, and ex­plain where and why it is fall­ing short of its so­cial com­mit­ments. If it is fall­ing short, the Mozam­bi­can gov­ern­ment must ex­plain to its cit­i­zens why it is let­ting Sa­sol get away with it.

Even with more trans­parency, the pres­sure is build­ing for Sa­sol to rene­go­ti­ate its agree­ments, as gov­ern­ments reg­u­larly try to do once they per­ceive ex­trac­tive re­sources com­pa­nies are mak­ing a profit. They for­get how they bent over back­wards to at­tract those com­pa­nies in the first place. Is it fair to back­track on agree­ments? No. But can re­sources com­pa­nies af­ford to pay more? Yes, when prices are high, but there must be a for­mula en­sur­ing that gov­ern­ments share in the down­side when prices slump.

Ed­son Macuacua, a mem­ber of the Mozam­bi­can par­lia­ment, says the con­text has changed since Sa­sol first signed its Pe­tro­leum Pro­duc­tion Agree­ment with the Mozam­bi­can gov­ern­ment in 2000.

Then, Mozam­bique needed to start its ex­trac­tive in­dus­tries from noth­ing. Today, its ob­jec­tive is to max­imise the ben­e­fits of its nat­u­ral re­sources for its peo­ple. To do so, it needs dif­fer­ent deals and poli­cies.

It needs a bet­ter way of shar­ing in­for­ma­tion among all its stake­hold­ers so it is work­ing with ac­cu­rate in­for­ma­tion. It needs as­sis­tance to build up ca­pac­ity within gov­ern­ment to mon­i­tor and en­force agree­ments as well as ver­ify tax rev­enues.

He stresses these are his per­sonal views. Mozam­bique’s poli­cies and laws have to be for­mu­lated with in­put from the var­i­ous arms of gov­ern­ment.

The CIP’S re­ports ac­cuse Sa­sol of pay­ing too lit­tle in­come tax from the Pande and Te­mane gas fields be­cause it in­flated cap­i­tal costs, in­clud­ing by US$400M on an ex­pan­sion of the cen­tral pro­cess­ing fa­cil­ity. CIP says op­er­at­ing costs were about 50% of the rev­enues and Sa­sol was sell­ing Mozam­bique’s gas to it­self at an ar­ti­fi­cially low price (which the CIP er­ro­neously calls abu­sive trans­fer pric­ing).

Some of the con­cep­tual er­rors in the CIP re­ports are that it com­pares the cost of the ex­pan­sion of the cen­tral pro­cess­ing fa­cil­ity with the ini­tial cost, and con­cludes the ini­tial cost was in­flated. But ini­tial costs in a green­fields site in­clude site prepa­ra­tion and es­tab­lish­ing ba­sic in­fra­struc­ture and lo­gis­tics, so they will be larger. The CIP is also un­der a mis­ap­pre­hen­sion on how gas is priced. It com­pares South­ern Africa’s gas prices to in­ter­na­tional gas and oil.

Though there is some cor­re­la­tion with oil, gas pric­ing is re­gional since an im­por­tant el­e­ment is lo­gis­ti­cal cost. South­ern Africa has no es­tab­lished re­gional mar­ket for nat­u­ral gas, other than the mar­ket Sa­sol has built up in the past two decades. Es­tab­lish­ing a new mar­ket from scratch is very ex­pen­sive and in Sa­sol’s case in­cludes the cost of build­ing a 900 km pipe­line be­tween Mozam­bique and Se­cunda.

An­other prob­lem with CIP’S anal­y­sis is that it does not fac­tor in some of the wider con­tri­bu­tions that Sa­sol has made to the Mozam­bi­can econ­omy, be­yond pay­ing cor­po­rate taxes. These in­clude cre­at­ing em­ploy­ment and gen­er­at­ing em­ploy­ees’ taxes, build­ing in­fra­struc­ture, gen­er­at­ing sup­port ser­vices and prov­ing to other in­vestors that Mozam­bique is a coun­try in which busi­ness can be done suc­cess­fully.

Fa­tima Mim­bire, pro­gramme of­fi­cer at CIP, says the or­gan­i­sa­tion ac­knowl­edges that Sa­sol brought wider ben­e­fits to Mozam­bique but this anal­y­sis fo­cused only on its rev­enue con­tri­bu­tion and the fact that it was be­low pro­jec­tions, as was Sa­sol’s con­tri­bu­tion to lo­cal eco­nomic de­vel­op­ment.

For ex­am­ple, ac­cord­ing to the CIP re­port, when Sa­sol spent $30m to build hous­ing for se­nior staff at Nya­ma­cunda, the con­tract was awarded to an SA com­pany, SMH Con­struc­tion, not a Mozam­bi­can com­pany.

The re­searchers ac­knowl­edge that Mozam­bi­can small and medium en­ter­prises are not com­pet­i­tive with SA com­pa­nies in size, qual­ity and ca­pac­ity. But they say when busi­ness is awarded to Mozam­bi­can en­ti­ties, these are ex­ist­ing elites, not lo­cal com­mu­nity busi­nesses.

This is a valid griev­ance. SA has heard it about Transnet’s procurement, too. But it re­lates to very wide-rang­ing prob­lems about lo­cal ca­pac­ity and un­equal ac­cess to op­por­tu­ni­ties that are be­yond Sa­sol’s power to ad­dress in the short term.

Macuacua says it is es­sen­tial that lo­cal com­mu­ni­ties should ben­e­fit from nat­u­ral re­sources projects be­cause if they don’t, it be­comes a ma­jor source of con­flict.

RIS­ING

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