Mozambique 1 July: Austerity starts
Good afternoon. The Mozambique government has reacted immediately to its dressing-down from the IMF last week, deciding to freeze all spending except salaries and pensions until it publishes an updated budget in 10 days’ time, according to Bloomberg.
The IMF’s statement suggested new cash is not on the cards in the short term, so austerity is likely to hit hard. Nevertheless, the government has managed – temporarily at least – to hold off demands from the bakers’ union to raise the price of bread. As some observers point out, bread and public transport prices are two big potential triggers for public unrest, so holding them down will be vital.
Former finance minister Manuel Chang was due to testify on Friday to Mozambique’s Prosecutor General regarding the EMATUM, ProIndicus, and MAM deals which were signed off on his watch. The IMF and key donors have said that the resumption of aid will require an international, independent audit of the deals – but for now, Mozambique’s government says its own institutions can do the job.
If the gas industry takes off as hoped, it might rescue Mozambique from its economic predicament. Exxon’s likely investment in Eni and Anadarko’s offshore projects got another airing in the media this week, but it is not clear if there has actually been any progress on the deals. Today, however, we report that another major oil company is planning to start drilling next February.
SEE: Total to start drilling offshore Mozambique in February 2017
Total’s rig might have had to pay $3 million a year security fees to ProIndicus if that company had started operations as per its initial plans in February 2013. Ultimately, those plans were expanded – we still don’t know exactly how – to justify a larger financing package, but the reality is that ProIndicus is yet to ink a significant contract with a client.
Further revelations about Credit Suisse’s role in arranging the debt for ProIndicus, EMATUM, and MAM, were published in the Wall Street Journal this week. Yesterday, the supplier on all three contracts, Privinvest, issued a press release clarifying its position in Mozambique.
In response to questions we raised in our newsletter on 22 June, Privinvest also gave Zitamar the following statement:
“Privinvest would like to state that contrary to certain reports, Privinvest was and is not involved in Mozambican defense procurement. No weapons whatsoever were supplied under any of the maritime programs in Mozambique. The scope of supply for the maritime programs far exceeds all that has been erroneously reported to date; moreover, the services provided, beside the transfer of technology, cover a wide scope of training and maintenance services."
Gas is not the only game in town for Mozambique. The government also wants to make the country an exporter of electricity, and recently sent the energy minister to Zambia for further talks on a joint venture to build a coal-fired power plant in Tete. Zitamar was in Lusaka last week and heard more from the national utility there about the plans.
SEE: Zambia and Mozambique accelerating work on 1,200 MW coal-fired power plant
Mozambique’s power utility, EDM, had a shake up this week, with four executive board members sacked. We are still seeking clarifications over why the move was made, but indications are that they are being invited to reapply for their old jobs.
SEE: Mozambique minister dismisses electricity utility’s executive board
There was good news for heavy sands miner Kenmare Resources yesterday, which looks like it will finally manage to reduce its debt burden and recapitalise. The plan needs shareholder approval at the end of this month.
SEE: Mozambique heavy sands miner hits $275m capital restructure target
And on the political front, invitations to international mediators have finally been sent – with the European Union confirming receipt when asked by Zitamar yesterday.
SEE: EU confirms request to mediate Mozambique peace talks
Have a great weekend.