Mozambique Loans Scandal: Snag for Coral FLNG?
The UK government has joined the International Monetary Fund and World Bank in suspending financial aid to Mozambique, the BBC reported April 28.
Moves by the IMF, World Bank and countries such as the UK may have implications for any debt-financing of the planned 3.4mn metric ton/yr Coral floating LNG venture, for which project leader Eni has been hoping for a final investment decision (FID) soon.
“The UK is suspending all financial aid payments to the Government of Mozambique following confirmation of undisclosed loans,” a spokesperson for the UK’s Department for International Development (DFID) told Natural Gas Africa: “This appears to be a serious breach of trust, so we are working closely with other international partners to establish the truth and coordinate an appropriate response.”
The IMF halted funding in mid-April after Mozambique’s government admitted it acted as guarantor for a $622mn loan taken out by state-owned Pro-Indicus, and another for $535mn by Mozambique Asset Management. Both are involved in the maritime industry, the BBC reported. Neither had been disclosed to the IMF.
Earlier in April, the Wall Street Journal reported that investors who in 2013 thought they were lending a Mozambican state firm $850mn to buy a tuna fishing fleet learned later that the funds had been diverted to buy ships for the navy.
Any undisclosed debt-related transactions, irrespective of their purpose, need to be reported transparently and publicly, UK officials told NGA.
On April 23, IMF Mission Chief for Mozambique, Michel Lazare, stated: “Following a meeting held earlier this week between Carlos Agostinho do Rosario, Prime Minister of Mozambique and Christine Lagarde, IMF Managing Director, a technical team led by the Vice-Minister of Finance, Isaltina Lucas, worked intensively with the IMF Mozambique staff team. The authorities acknowledged that an amount in excess of $1bn of external debt guaranteed by the government had not previously been disclosed to the Fund. Staff welcomed the authorities’ extensive disclosure of information which constitutes an important first step toward full restoration of trust and confidence.”
The IMF said it would work constructively with Mozambique to evaluate the macroeconomic implications of this disclosure of information and “identify steps to consolidate financial stability, debt sustainability and enhance governance and oversight of public enterprises.”
Mozambican PM Rosario was reported on April 28 as saying that the loan to Pro-Indicus was so it could buy ships to provide security for oil and gas companies, at a charge.
Eni CEO Claudio Descalzi said April 18 he was “practically certain” that Eni and partners would take FID "this year on Coral.” A month earlier he had said Eni’s target for taking Coral’s FID was “hopefully by June” 2016. A year ago, Eni expected the FID could take place in 3Q 2015.
The slippage suggests that something more fundamental than signing LNG sales agreements, now believed agreed with BP albeit not publicly disclosed, may be holding up FID.
Eni’s 1Q results statement on April 29 contained no further update on when Coral’s FID would be taken. There was instead just a reminder that Mozambican authorities sanctioned Coral’s development in February 2016, targeting production of 5 trillion ft3 of gas. The cost of the 3.4mn mt/yr FLNG project has been estimated at about $4.5bn although it is unclear if this includes all exploration costs.
Debt-financing, normally up to 70%, is common for such projects – with equity partners putting down 30% of their own cash – although not a hard-and-fast rule, with riskier projects requiring more equity.