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Mozambique | Resisting cronyism in gas licensing

Mozambique | Resisting cronyism in gas licensing

As Mozambique ramps up liquified natural gas (LNG) production to become one of the top three producers in the world, the country’s resource management policy is coming under scrutiny.

This article was first published by This Is Africa

However, despite some signs that the government of President Filipe Nyusi could be heading in the direction of neighboring Angola – an oil-rich country beset by cronyism and corruption - the results of Mozambique’s gas licensing round announced last month have temporarily dispelled fears of political favouritism in the hydrocarbons sector.

Angola and Mozambique share a number of common historical traits. Both countries experienced long, brutal civil wars after independence in 1975. While the end of Angola’s conflict in 2002 ushered in an economic boom, Mozambique lagged behind.

Sonangol, the Angolan state oil company which grants concessions and regulates the sector, is frequently criticised for favouring local ventures with political and familial ties to President Eduardo dos Santos and his inner circle.

A form of indigenisation policy that seemed likely to produce similar results was introduced in Mozambique at the end of former President Armando Guebuza’s mandate, who led the country from 2005 to 2015.

Mr Nyusi, who was sworn into office in January, is having to assuage external investor anxieties at the same time as promoting indigenous presence in the gas sector. In neighboring Angola, this proved to be a precarious balancing act. A push for indigenisation benefitted the interests of a small elite with a tight grasp on political power.

Mozambique instituted a new Petroleum Law in 2014 that included a clause giving preferential rights to international companies associated with Mozambican ones when granting concessions.

This is not unusual in the region, but it can often cause problems. Multinational companies seemed cautious about the integrity of local counterparts. Indigenous companies were not included by any of the consortia competing in Mozambique’s fifth hydrocarbon licensing round, which closed at the end of July 2015.

This prompted observers to speculate that the government was seeking to impose partners with strong links to the ruling Frelimo party. Contrary to popular expectations and the Angolan experience, this did not happen.

Two newly established indigenous companies – Namoza Natural Resources and Petroinveste Mozambique – submitted bids as ‘non-operators’. Both are associated with former Frelimo generals from the northern part of the country where the gas concessions are located.

Despite their political connections, the companies’ bids were ultimately unsuccessful, with established multinationals winning instead. This indicates that the business elite remains less entangled in politics than in Angola.

Angola’s highly centralised political system has relied on the oil industry - the region’s second largest after Nigeria - to prop up patronage networks and drive an average annual growth rate of more than 10 percent in the period 2001 to 2012. This has made it sub-Saharan Africa’s fifth largest economy.

Adapting to low prices

That is not to say that Mozambique’s extractives industry is not encountering setbacks. Indigenisation concerns aside, the global commodities slump and local infrastructural inadequacies – which came to the fore in 2013 when heavy rains halted rail shipments of coal from the north along the Nacala transport corridor – are proving problematic.

Mozambique’s economy has long trailed behind Angola’s. Prolific gas finds in the Rovuma Basin off the north east coast in 2010 awakened hopes for more robust growth ahead.

However, low oil and gas prices have challenged President Nyusi since the start of his mandate, prompting Mozambique to seek IMF support. The metical - the national currency - has lost 29 percent of its value against the dollar in 2015.

Responding to these issues in the embattled coal sector, miner Rio Tinto sold its assets in Mozambique at a $4m loss in July 2014. On 1 October, Anglo American PLC closed its office in the capital Maputo 18 months after shelving its acquisition of a majority stake in the Revuboe metallurgical coal project in the north western Tete province. The company cited unsustainable overheads and insufficient port and rail infrastructure.

In the meantime, US oil and gas major Anadarko is in the process of submitting its development plan for a $20bn gas export project to the government. Its final investment decision will ultimately depend on the government’s requirements especially vis-à-vis operations regulations and additional infrastructure.

In line with his national development plan, President Nyusi is likely to request even more and costlier infrastructure commitments in the marginalised northern province of Cabo Delgado - where he comes from - from companies.

Despite the challenges, Mozambique’s political climate is somewhat reassuring when compared with Angola’s. There is a relatively strong opposition able to challenge the government.

Perhaps most significantly, President Nyusi is a relative newcomer to politics. This means that patronage networks are less entrenched than in Angola, where President dos Santos has been in power for 36 years.

Despite some promising signals, as the Mozambican president consolidates his power and LNG revenues start flowing in, the hydrocarbons sector remains susceptible to the governance problems faced by Angola.

Published: 12th November 2015
Categories: Company News