COLUMN | Disappointments, delays and disputes: Mozambique riots as tuna fleet is auctioned after contested election and delayed LNG projects [Offshore Accounts]

Last week, we wrote a two-parter about Tidewater’s third quarter results and how the company was losing momentum in key markets as its strategy of raising rates and increasing utilisation reached its end game. Since then, the stock has fallen further and closed on Friday at US$50.73, down another seven percent on the week.

Tidewater is not alone in experiencing disappointment, this week we revisit Mozambique, where an abundance of offshore gas discoveries has not resulted in the riches many in the country hoped for.

The results are riots and political tension, a reminder to other states with large discoveries that finding oil and gas is not enough – it must be produced and sold, and the proceeds must benefit the population.

Mozambique’s civil strife threatens to derail LNG projects

All eyes were on the American election in October and November, so most in the industry are unaware of the rioting and civil unrest that erupted in Mozambique following the Indian Ocean state’s disputed presidential election held on October 9.

This matters to the offshore industry because Mozambique is the potential site of two large newbuild LNG plants due to be built by TotalEnergies and ExxonMobil in Palma in Cabo Delgado province, and a second Floating LNG unit that ENI is planning to build to bring its deepwater Coral Norte project into production.

Mozambique’s troubles also provide a window into the challenges faced by many poor but resource-rich states, such as Bolivia, Sudan, Myanmar, Angola, and Nigeria. Poverty and corruption create political instability, but political instability also prevents important investments being made to increase the output of natural resources – investments that could lift the country out of poverty and deliver economic growth to make lives better, thereby reducing political instability. Underdevelopment, economic stagnation, and civil conflict can thus become a trap.

Mozambique’s crisis also acts as a salutary warning to other countries with large undeveloped oil and gas reserves – like Suriname, Tanzania, East Timor, and Mauritania. Riches in the ground don’t benefit a country unless they can be sold for cold, hard cash.

Still stuck on the starting blocks

Mozambique looked like it was recently on the cusp of bringing more of its rich deepwater gas reserves into production, more than a decade after they were discovered off the northern coast of the country.

In September, Technip Energies and JGC Corporation were awarded the front-end engineering design (FEED) contract by ExxonMobil for the Rovuma LNG project. ENI has also confirmed that is in discussions with a consortium of Technip Energies, JGC, and Samsung Heavy Industries to construct and install the Coral Norte FLNG vessel to a similar design as the sister Coral Sul FLNG, which came into production in 2022, and provides the only offshore production in the country. Coral Sul produces 3.5 million tonnes per annum (MTPA) of LNG, and Coral Norte is expected to produce at the same level.

Coral Norte awaits formal investment approval, however.

Rovuma should be low carbon, high output

The onshore projects are much bigger and much more potentially lucrative for Mozambique. ExxonMobil’s Rovuma LNG project will consist of an LNG plant with a total production capacity of 18 MTPA, comprising 12 fully modularised LNG trains of 1.5 MTPA each. The plant design will feature electric-driven LNG trains instead of gas turbines, reducing greenhouse gases emissions compared to conventional LNG projects.

It will also include prefabricated and standardised modules to be assembled at the project site in Mozambique, offering cost competitiveness and certainty in delivery schedule. Total’s US$20 billion project on a neighbouring site would have a similar size.

All three pending projects would require extensive deepwater drilling campaigns as well as the installation of multi-billion-dollar pipelines, flowlines and subsea infrastructure, with TechnipFMC and Saipem spearheading offshore construction efforts.

First came the Palma attack of 2021

TotalEnergies had already began construction of its LNG plant when Islamist insurgents from the al-Shabaab group, which is affiliated with Islamic State, attacked the town of Palma in March 2021. Zitamar News Agency has estimated that over 1,100 people were killed in the attack, as the Islamists massacred civilians, both Mozambiquan and foreign alike, shooting or beheading hundreds, whilst others drowned in desperate attempts to flee.

The killings were the culmination of a bloody insurgency that the Mozambican government had long struggled to contain in Cabo Delgado, despite the deployment of western and Russian mercenaries. Over 700,000 people have been driven from their homes by the conflict. In the aftermath of the attack, TotalEnergies suspended work on the LNG plant, leaving two accommodation vessels sitting aground on the beach.

Rwandan armed forces provide support

Rwandan troops were invited by the government as part of a regional multi-national force to assist in the efforts to quell the guerrillas. TotalEnergies has repeatedly said that it will only restart construction when the security situation was right. Limited dredging work offshore appeared to have begun again this September, as it seemed that the insurgency had been reduced in intensity, if not completely quashed.

Unfortunately, the post-election violence in the country now threatens further delays to the onshore LNG projects and brings violence into the capital for the first time since the end of the country’s civil war in 1992.

Frelimo, the first and only governing party

The Front for the Liberation of Mozambique (Frelimo) has held power since gaining independence from Portugal in 1975. Regular readers will spot the similarities with the MPLA in Angola, which led that nation’s independence fight against Portugal and also remains in power.

Incumbent Mozambican President Filipe Nyusi was barred from running again by a two-term limit in this year’s election. However, the National Election Commission (CNE), was quick to declare that Frelimo’s candidate, Daniel Chapo, had won the presidential election last month with 71 percent of the vote, whilst his rival Venâncio Mondlane of the Podemos party, received only 20 percent, the CNE claimed.

Tuna Bond scandal sting

The Frelimo government was unpopular following the corruption and embezzlement exposed by the Tuna Bond scandal, where US$500 million in state funds earmarked for buying tuna fishing boats and naval patrol vessels was stolen, and another US$200 million spent on bank fees relating to the loans taken out to pay for the ships in 2013. This led to a former minister being convicted for money-laundering in the USA, whilst Armando Ndambi Guebuza, the son of former president Armando Guebuza, Mr Nyusi’s predecessor as head of state, was sentenced in court in the capital Maputo to 12 years in prison for his role in receiving bribes, along with ten other senior government officials.

Since the scandal broke in 2016, causing a fiscal crisis for Mozambique, the economy has barely grown and many in the country are deeply frustrated with the lack of progress. GDP per head in Mozambique remains just over US$600 according to World Bank figures. It is one of the poorest countries in Africa, and in the world.

For sale: fleet of unused fishing boats, one careful owner

Bloomberg reported this week that the tuna boats that were purchased with US$850 million in dubious bank loans are now up for sale with reserve prices starting at US$270,000 and stretching up to US$1.4 million. They sit in Maputo port alongside, and many have never been used. Bids close on December 4.

It appears that this auction will provide the first recovery from the whole sordid scandal, as the country’s US$2 billion claim against Privinvest remains at the appeal stage, after Mozambique’s high court victory in London against the UAE-based shipbuilder involved in the project.

Perhaps an unused fishing vessel associated with one of Africa’s greatest corruption scandals might be just the gift you are seeking for a loved one this Christmas? Bid generously.

Now the aftermath of the election brings more misery to the country.

Riots and strikes, shooting and tear gas

Unfortunately, victory for Frelimo again seemed implausible to many in Mozambique, due to alleged irregularities in the vote counting, so Mr Mondlane rejected the results, and began to prepare a legal appeal. Sadly, on October 19, his lawyer Elvino Dias was assassinated along with Podemos official Paulo Guambe after unknown gunmen attacked their car in Maputo. The police said they would investigate the attack but so far nobody has been arrested in connection with the double murder. 

Following the assassination, a series of protests erupted in Maputo with residents banging pots at night and marching in the daytime. Mr Mondlane fled to South Africa for his safety, and then called on his supporters to demonstrate and for workers to strike and shut down businesses in Maputo and provincial capitals. He also called on the opposition to blockade ports and border crossings. Since Mozambique relies on food imports from South Africa, this was especially sensitive, especially when demonstrations in the town of Ressano Garcia led to the Lebombo border post with South Africa being temporarily closed earlier this month.

Over thirty dead and thousands jailed

Unfortunately, these strikes and protests were met with lethal force from the police. They responded with tear gas and batons, and by shooting protestors. Cídia Chissungo claimed that last week seven demonstrators were run over and killed by a car suspected to be from security forces. NGOs estimate that at least 30 people have been killed since the protests began, in violent confrontations with police. Police are also estimated to be holding over 2,000 demonstrators in custody.

This weekend again, former BBC Africa reporter Zenaida Machado reported that across the capital, people went to streets and balconies to beat pots and pans while shouting "This country is ours" and "Venâncio." His video footage then showed that once again the protests ended in bloodshed, as police fired live bullets and teargas directly at people protesting.

We don’t know how the situation in Mozambique will play out, but with the government claiming that Podemos has been planning a coup via the protests, the authorities do not look like they will voluntarily relinquish power.

Such political tensions can only serve to delay the investment decisions on the onshore LNG plants. One can only hope that the country avoids the spiral of violence and repression that has followed disputed elections in Georgia, Belarus, Venezuela and Iran, where deeply unpopular governments have rigged elections, sent in the riot police and then brazened out the aftermath, jailing, torturing and killing their enemies.

There is worse than the oil curse?

Many commentators have observed that oil is a curse, and it is true that in many countries such as Libya, Nigeria and Iraq, struggles to control oil and gas revenues have polarised whole nations and led to both insurgencies and civil war.

But Mozambique shows that a worse curse is suffering grinding poverty whilst billions of dollars of resources sit in the ground waiting for the stability and calm to extract them, stability that can be fleetingly elusive.

The sooner TotalEnergies, ExxonMobil and ENI can start their LNG projects, start employing people in the construction and support onshore, and make the billions of dollars of investment which are currently in limbo, the better for Mozambique. The longer first gas is deferred, the longer Mozambique is likely to be locked into a cycle of poverty, misery, and conflict.

When we see drillships and supply vessels working offshore Mozambique again, we should be hopeful that the country will finally have access to more resources for better schools, hospitals, and infrastructure, and we must hope that the government has the wisdom not to steal the cash.

Background reading

Zitamar provides excellent but sporadic coverage of Mozambiquan politics from a local perspective, as does the Club of Mozambique. The Club of Mozambique website acts as an entryway into Mozambique for prospective investors, businesspeople, and donors, whilst 360 Mozambique provides strictly economic coverage of the country.

We have covered the booming dash for gas around the world as operators seek to bring new LNG projects into production to replace both sanctioned Russian gas and highly polluting coal power generation here.