Countries that have weapons on their national flags rarely prosper. We saw this last week with Saudi Arabia, where the national banner features crossed swords, whilst Angola (with a machete and an appropriately broken cog on its flag) remains mired in the corruption of former President Dos Santos, whose son and daughter are now subject to various criminal investigations (here). The situation in Mozambique, with its standard emblazoned with an AK-47 assault rifle and a hoe on top of an open book, remains equally dire.
Mozambique should be booming. A remarkable run of deep-water gas discoveries by ENI and Anadarko in the Area 1 and Area 4 offshore blocks near the maritime border with Tanzania between 2010 and 2015 showed the country had 100 trillion cubic feet of proven natural gas reserves, amongst the largest in Africa.
ENI and Anadarko promptly began to plan building onshore liquified natural gas plants (LNG) to export methane from their offshore reservoirs, promising work for tens of thousands of local labourers when they went ahead. Then, in 2015 the oil price crashed, and their plans slowed down, significantly. No more drilling happened in Mozambique from the departure of the drillship Belford Dolphin in 2015 until the arrival of ENI's rig Saipem 12000 late last year.
No ground was broken on the LNG projects. Anadarko finally gave investment approval to its Area 1 development, but in 2019 Anadarko was taken over by Oxy, and its Mozambique acreage was sold to Total, which is now managing the project for the construction of the Area 1 LNG plant.
ENI committed to a floating offshore LNG plant to deliver production from six wells in the Coral Sul field. The FLNG plant weighs in at 140,000 tonnes and is 432 metres long, but it will yield minimal local employment for Mozambiquans since it is under construction in Korea.
ENI's partner Exxon agreed to manage the engineering of a two train LNG plant onshore at Afungi, in Cabo Delgado province, alongside the almost identical two train LNG plant to be operated by Total. The hull for the Coral Sul FLNG plant was launched in January (here) and start-up of the offshore project is now scheduled in 2022.
Note how the press release from ENI curiously avoids mentioning "first gas". Boskalis subsidiary Smit Lamnalco won the long term new build support vessel package for the FLNG operations in 2019, as we reported here.
Unfortunately, Exxon and the Area 4 partners had not approved the final investment decision for the onshore LNG plant when the oil price and energy demand in general collapsed in March. So those two trains remain in abeyance, with no decision to proceed with the $17 billion project. In March, the American Export-Import (Exim) Bank announced it would not be providing the ExxonMobil-led project with a $3 billion loan, apparently because the Chinese state oil company CNPC holds a 10 per cent stake in the Area 4 project, and the American government didn't want to support a project with a Chinese shareholder, not even one headed by ExxonMobil.
However, the Exim Bank did approve a $5 billion loan to Total and its non-Chinese partners for the Area 1 LNG plant, ironically. Unfortunately, March saw a major Covid outbreak in the camp building the plant and a slowdown in operations for Total. This threatens to push back first gas, again.
Even before the great recession caused by the Covid-19 outbreak, Mozambique was looking shaky. The country had endured a long and difficult war of independence against Portuguese colonial rule between 1965 and 1974. The Soviet Union supported the independence fighters, and South Africa and white-ruled Rhodesia the Portuguese, who scored the notable success of assassinating the rebel leader Eduardo Mondlane in Tanzania with a booby-trapped, exploding book in 1969.
Exhausted by the war, the Portuguese left Mozambique in 1975, including an exodus of three hundred thousand citizens who had settled there, and without holding any elections. Power was simply handed to Frelimo, the main Soviet-backed guerrilla group fighting for independence. But, as in Angola, the successful end of the war of independence against the Portuguese merely ushered in a civil war, this time between the Marxist Frelimo government and Renamo rebels backed by South Africa. One million Mozambiquans died in that war from 1977 to 1992, which left the country's infrastructure in tatters and landmines scattered over the countryside.
Frelimo remains in power in Mozambique today, but the end of the civil war has seen three wasted decades. No sooner had gas been discovered than the government was secretly borrowing money off book and off budget, in the so-called Tuna Bond scandal.
This involved $2 billion of loans, which were taken out in 2013 and 2014 supposedly to pay for a fleet of fishing vessels. The bonds were guaranteed by the Mozambiquan government, which, had, unfortunately, neglected to tell parliament and international donors about their existence. An audit by Kroll, the international investigator, said that it could not account for a quarter of the hidden loans. According to the Financial Times, "Kroll said it could not find $500 million that Ematum, one of the three state groups, allegedly received". Strange that. Where would you look for half a billion dollars?
The loans had been arranged by Credit Suisse, and Russia's VTB Capital. Three former Credit Suisse bankers who worked on the deal were convicted in 2019 of taking kickbacks in conjunction with the bonds. American prosecutors, "accused the trio of working with Mozambique's former finance minister to siphon at least $200 million in kickbacks from loans that were marketed to international investors in 2013 as backing a state tuna fishery and maritime security projects," said the newspaper.
Corruption and poor government have left Cabo Delgado province bereft of infrastructure and economic opportunity. We reported (here) how MMA Offshore has been chartering a landing craft into Mozambique, a business also pursued by Comarco of Kenya, because the roads in the north are regularly washed away in the wet season, making it impossible to deliver project cargo to the LNG plant site by land, or supplies to local communities.
Worse than bad weather, however, the discontent has fanned Islamist violence. In March, Isis-affiliated fighters briefly seized and occupied Moximboa da Praia, the main port, just 60 kilometres south of the LNG plant site at Afungi, killing soldiers and policemen, and flying the dreaded black banner of the murderous religious extremists over the town.
Further attacks have followed. The International Crisis Group reported this month (here) that, "Attacks by suspected jihadists continued unabated in several districts of Cabo Delgado province in far north. Notably, Islamist militants [on April 8], killed fifty-two civilians in Xitaxi village, Muidumbe district. Security forces… drove back militants in Muidumbe town, killing thirty-nine, and on April 10 repelled jihadist attack on Quirimba island, leaving fifty nine militants dead; five civilians were also killed in fighting and twenty schoolchildren reportedly kidnapped. Suspected jihadists on April 17 killed six civilians in Machova Koka village, Macomia district, and, on April 22, beheaded four others in Imbada village, Meluco district."
The bishop of Pemba has talked about the climate of fear in the province in an interview here. Lest the conflict appear black and white, the Mozambiquan security forces have also been accused of human rights violations and killings. The now-opposition Renamo leaders claimed security forces had allegedly killed up to twelve civilians travelling by boat from Pemba to Ibo Island last month, one of three atrocities Renamo highlighted in April.
So, a corrupt country rich in resources, but with an impoverished people, faces an armed Islamist insurgency that threatens its oil and gas exports and the raises the possibility of a violent civil war. It could be Nigeria, Yemen or Libya. Let's hope that Mozambique doesn't go down that road, and that the government can deliver both security and economic development to the people of Cabo Delgado as the LNG projects progress. The Tuna Bond scandal suggests honesty and integrity are not high amongst Frelimo's competencies in government.
Only three countries other than Mozambique feature firearms on their flags – the others, for your pub quiz knowledge, being the august nations of Guatemala, Haiti and Bolivia. With all its natural resources and the commitment of Total and ENI to their investments in-country, Mozambique should be doing better than its peers with guns on their ensigns. However, changing its flag might be easier than fixing the structural problems which plague this nation rich in deep-water gas, and boundless, but currently unproven, opportunity.
