French oil major Total has secured approximately $15bn in financing for Mozambique LNG, one of three projects under development in the giant gas fields situated off the coast of East Africa. Discovered just under ten years ago and with estimated natural gas reserves of up to 15 trillion cubic feet, exports from Mozambique LNG – combined with those from Rovuma LNG and the Coral South Floating LNG projects – are expected to increase the country’s GNP by $10-$14bn and establish Mozambique as a major player on the global energy stage.
Mozambique’s geographic location means the country is well-positioned to meet the needs of customers in both the Atlantic and Asia-Pacific markets, as well as to tap into the growing demand for energy in the Middle East and Indian sub-continent. “Mozambique is bang in the middle of the map which makes it an ideal source of gas for both Asia and Europe,” says Paul Eardley-Taylor, who oversees Standard Bank’s Southern African oil and gas activities. Five years ago, economists at the bank estimated that Mozambique’s hydrocarbon reserves could add $39bn to the country’s economy by 2035.
There has certainly been no shortage of interested parties and the list of customers already lined up include major energy suppliers from France, Japan, Taiwan, China and Singapore as well as Shell International Trading Middle East, Bharat Petroleum Corporation (Mumbai) and Indonesia’s Pertamina. In addition to Standard Chartered Bank, the financial backing is coming from Société Générale, Rand Merchant Bank and two development banks; between them, the U.S. Export-Import Bank and the Japan Bank for International Cooperation – have agreed to extend $7.7bn in loans.
Is the tide turning for Mozambique?
Total’s success in clinching the funds required for the development of what will be Mozambique’s first onshore LNG facility must be welcome news for a country that has watched with dismay as annual levels of inward investment plunged from $6bn in 2013 to little more than $2.2bn last year. The 2010s had begun with a flourish when Wuhan Iron and Steel, one of China’s biggest steel producers, agreed to invest $1bn in two coal mines in Mozambique’s Tete province. The future looked even more promising in 2014 when China launched its One Belt One Road initiative. President Xi’s vision of resurrecting the ancient Silk Road roads raised the prospect of a lucrative southern maritime route stretching from Walvis Bay in Namibia on Africa’s west coast, all the way to China’s Pearl River delta by way of a chain of East African ports – including Maputo and the Nacal deepwater port in northern Mozambique. From there, Africa’s natural resources were to be shipped to the Pakistani port of Gwadar at the southern end of the China Pakistan Economic Corridor. With its potential to give many landlocked east African mines access to this international commercial highway, Mozambique had every reason for optimism.
Backed by a $300m loan from the African Development, Bank China Harbour Engineering Company started construction work on the Walvis Bay development in 2014 but by the following year in contrast, FDI flows into Mozambique had started to dry up dramatically. This was largely due to a combination of a drop in commodity prices (especially coal and aluminium) and slow negotiations in the development of hydrocarbon projects – but it was also down to poor global perceptions of the business environment in Mozambique; the 2016 hidden-debts scandal had a detrimental impact on investors’ confidence in the economy and Mozambique slid to 138th out of 190 countries in the World Bank’s 2020 Doing Business report. Along with the question of governance, the report identified an unstable political and security environment, inadequate transport and port infrastructure, a vulnerability to natural disasters and the current sovereign debt crisis as the main factors hampering FDI.
The financial community’s backing for Mozambique LNG suggests the tide may now be turning back in Maputo’s favour; but, as President Filipe Nyusi wryly noted noted recently, one cannot eat natural gas. Its true worth, he made it clear he understood, lay in the financial opportunity it presented the country to diversify its economy into sectors including agriculture, agro-processing, manufacturing and construction.