*This is a multi-part series Zero Hedge has been compiling on the corruption and manipulation perpetrated by international banks, Mozambique's governing officials, international investors, Sovereign Nations, and the IMF/World Bank.
Fast Overview: WSJ is reporting the UK will be investigating the financing activities of Credit Suisse and VTB in Mozamabique. The country has been a major focus point due to the massive LNG reserves discovered in the Rovuma Basin. Mozambique/South Africa's history since the mid-1980s involves the Margaret Thatcher's son Mark Thatcher, a murdered journalist, decade long civil war, and corruption within the Mozambique government from 2005 to 2015 primarily encouraged by the World Bank and international banks.
In 2010 Anadarko Petroleum discovered 75 trillion cubic feet (Tcf) of recoverable natural gas in Area 1 off the northern coast of Mozambique near the Tanzania border.1 The find has been plugged as an industry changing discovery. Mozambique’s discovery, if managed and funded properly, possesses “the potential to transform one the world’s poorest countries into a key global supplier of liquefied natural gas” according to The Financial Times.2
If project goals are met and Mozambique begins exporting from the Rovuma Basin, the nation could be the third largest LNG global exporter behind Qatar and Australia. This would be an amazing turn around for a country that experienced 13 consecutive years of civil war.
On October 4, 1992, after two years of talks, a General Peace Agreement was signed by then sitting President Joaquim Alberto Chissano and the rebel forces leader Renamo. Chissano agreed to not prosecute or punish any rebels as part of the agreement and even gave the rebels 50 percent of the positions in the Mozambican army.3 Renamo later established itself as a political party and for over the past decade Renamo has haunted the Mozambican government.
According to a Country Report from the IMF on Mozambique in December 2015, the Rovuma Basin off the east coast of Mozambique has estimated reserves of 180 Tcf, an equivalent to Nigeria's entire gas reserve.4
Interest in Offshore Area 1 in Romuva Basin is as follows:
- Anadarko own 26.5 percent working interest
- Empresa Nacional de Hidrocarbonetos E.P owns 15 percent
- Mitsu E&P Mozambique Area1 Ltd. owns 20 percent
- ONGC Videsh Ltd. Owns 16 percent
- Bharat PetroResources Ltd. Owns 10 percent
- PTT Exploration & Production Plc owns 8.5 percent
- Oil India Ltd. Owns 4 percent
Mozambique’s first major LNG development was in the early 2000s when Sasol developed Pande and Temane on shore fields. Commercial production began in 2004 and the combined reserves in Pande and Temane total 3.1 Tcf producing roughly 400Mcfpd of which 90Mcfpd are for Mozambique residents.
The new Rovuma Basin discovery is expected to yield 300Mcfpd to Mozambique residents compared with the 90Mcfpd currently available, an increase of roughly 333% percent.
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For Mozambique to develop its economy efficiently, a contractual Gas Master Plan Agreement (GMP) between Government of Mozambique (GOM) and World Bank, ICF International was drawn up. The GMP was designed as a means to help emerging governments manage their growth and achieve sustainability through strategic resource management. This agreement is a clusterf**k of Mozambique Ministries, the World Bank, ICF, and the IMF, along with international banks, private investors and international commodity companies.
ICF developed a market assessment for proposed mega-projects to determine future value of products based on output, technologies used, size of plant in hectares, construction and operating employment.
Using operating costs and financial parameters, ICF determines if the value of gas in those projects meets investment criteria. The criteria used inputs from current market prices, the needs of various government administrations, and forecasts for global demand.
Mozambique Steering Committee made up of:
- Ministry of Mineral & Natural Resources
- Ministry of Energy
- Ministry of Planning & Development
- Ministry of Industry
- Ministry of Finance
- Ministry of Agriculture
- Ministry of Tourism
- Ministry of Labor
- Ministry of Environment
- Ministry of Transport & Communication
- Ministry of Education GOM works under a contractual agreement with ICF.
ICF developed Mozambique’s GMP to quantify benefits of using Natural Gas in Mozambique in combination with other projects to drive sustainable energy consumption domestically while offering revenues and independence through exports. The problem in Mozambique, according to report on Mozambique's GMP authored by the World Bank's Lex Huurdeman and ICF's Ananth Chikkatur and Leonard Crook, is a limited window of opportunity, African competition, and a perception gas is only being exported and not being used domestically.
In the midst of the commodity super-cycle collapse, Anadarko along with nearly every other commodity focused firm, had to cut jobs.
Talk circulated on desks that Anadarko had cut 95 percent of its contractors and had plans to announce somewhere between 1,200 and 1,500 layoffs a week before it was officially confirmed.
Additionally, Zero Hedge learned of trader networks discussing Chicago Bridge & Iron inability to sell any Natural Gas contracts (SPAs) in the past few months. CBI is heavily invested in the region and with Nat Gas and Oil prices collapsing, the project is on hold which is pressuring CBI. CBI has been contracted to work on initial developments of the onshore 2-train LNG facility.
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All of this plays out poorly for companies monetizing assets in the region. Companies are "monetizing" assets in the region, not “selling” but “monetizing”, meaning they are generating cash by synthetically offering investors access to future cash streams from the assets. Since the assets put on the ground in the region can not be removed and transported elsewhere, those are sunk costs. So what tangible assets are used to underwrite the contracts on the future cash flows?
Drilled but uncompleted (DUC) wells are used.
And the beauty here is a clause in the US which would allow for, say an Anadarko, to file for relief from making lease payments on US land. This means, if a company experiences an "act of God" relating to oil prices (say a 50% collapse inside 12 months) and funding becomes an issue, the company has an out to avoid keeping its land lease payments up-to-date...leaving tax payers in the US on the hook for a complicated structuring of funding involving resources within their own boarders.
To wit:
This is critical. We're watching litigation arbitrage being used to justify outrageous investment rooted in analysis involving a US Fed and Global Central Bank policy of Zero Interest Rates (ZIRP). Banks and lenders have taken advantage of the Mozambique government and now the put-back on lease payments here in the US are leaving the US citizens essentially financing international companies who are experiencing constricted funding lines.
We believe Mozamabique deserves investigations. Billions have been spent over the past decade trying to help the country and forces driving the main resistance regime, have been funded with arms whose exchange origin dates back to the 1980s and deals done with the Bush administration and some seriously questionable actions involving the UK.
Sadly, the UK is leading the investigation and their government has an incredibly murky background with the S. African government, which should give investors a reason to be concerned over the validity of the reviews that will be published in the coming months.
Check back for Part 2 where we'll dive into the corrupt agreements, false advisement, and concern from Mozamabique's Finance Ministry that the bankers and international organizations are moving too fast for the government to keep up, which is likely the cause of the confusion over the $1 billion debt Mozamabique is accused of hiding.
[1]Anadarko Petroleum. Anadarko Discoveries in Mozambique. Mozambique. Web. 5 Mar. 2016.
[2]England, Andrew. "Mozambique Strives to Get Liquefied Natural Gas Projects Online - FT.com." Financial Times. 23 Nov. 2015. Web. 06 Mar. 2016.
[3]"Cease Fire: General Peace Agreement for Mozambique." Peace Accords Matrix. University Of Notre Dame, n.d. Web. 19 Mar. 2016.
[4]Inui, Keiichiro, Leandro Medina, Yuan Xiao, Christian Henn, Esther Palacio, Alex Segura-Ubiergo, and Felix Simione. REPUBLIC OF MOZAMBIQUE. Rep. no. No. 16/10. Washington, D.C.: International Monetary Fund, 2016. Print.
[5]Melina, Giovanni, and Yi Xiong. Natural Gas, Public Investment and Debt Sustainability in Mozambique. IMF, Nov. 2013. PDF.