Violence blows up LNG hopes as firms flee Palma conflict
Mozambican businesses looking to cash in on Africa’s biggest private investment are facing disaster after an attack by Islamic State-linked militants on a town close to Total’s $20bn natural gas export project.
The French oil major has begun terminating business with at least some contractors working at the project site in Palma in northeastern Mozambique, according to letters seen by Bloomberg. Total declined to comment.
Hours after Total announced on March 24 it was returning to work on its Mozambique liquefied natural gas (LNG) project stalled since January because of rising security risks, more than 100 rebels began a raid on Palma. Dozens of people died, millions of dollars of property was damaged in the ensuing violence, and the company froze its plans to resume the project.
Julio Sethy, a businessman born in Palma who has invested in property, a quarry and transport business in the provincial capital of Pemba, reckons it is unlikely Total will restart this year. The consequences for businesses like his are dire.
“It’s a complete disaster,” Sethy said in an interview last week. “We don’t know what’s going to happen.”
Small and medium local enterprises have already lost $90m since the attack on Palma, Agostinho Vuma, president of the Confederation of Economic Associations of Mozambique, told reporters in the capital, Maputo, on Tuesday.
The association is conducting an assessment of how many contracts have been suspended, with at least two known so far, he said.
GAS WINDFALL
The insurgency that began in the northeast of the country in 2017 has left at least 2,780 people dead, according to the Cabo Ligado website, which tracks the conflict. It has also displaced more than 700,000 people in Cabo Delgado province, and Pemba’s population has more than doubled as people seek safety in the city normally home to about 200,000.
The Mozambican state had been hoping to reap nearly $100bn in revenue over 25 years from LNG projects. So costly has been the delay to the start of gas production that the IMF has had to scale back its forecast for 2021 economic growth to just 2.1%, from 38% it projected in January 2016.
Total’s termination of contracts indicates it will not restart work on the LNG facility for at least a year, Eurasia Group said on Wednesday.
That will lead to significant delays in natural-gas revenues to the government, according to the New York-based company that monitors political risk for investor clients.
In 2019, Total bought its 26.5% stake in the Mozambique LNG project for $3.9bn. The previous operator, Anadarko Petroleum, reached a final investment decision the same year. Total said the morning before the attack that the project had reached financial close and the first drawdown of the financing deal would take place at the start of April.
With work now on hold indefinitely, Sethy said some of his tenants have cancelled their contracts, including an insurance company that will vacate by the end of the month. More will leave as people fear there may be an attack on Pemba itself, he said.
“This was our biggest hope,” said Sethy, who is also the head of the provincial business council. “That’s why some of us invested everything that we had, and even getting bank loans to invest even more.”