Proindicus and MAM loans were hidden from audit body – AIM report

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Proindicus and MAM loans were hidden from audit body – AIM report

8:22 CAT | 01 Feb 2017

The previous Mozambican government, headed by President Armando Guebuza, kept the government-guaranteed loans from the European banks Credit Suisse and VTB of Russia to the security related companies Proindicus and MAM (Mozambique Asset Management) secret not only from the International Monetary Fund (IMF), but also from Mozambique’s highest audit authority, the Administrative Tribunal.

In its report and opinion on the 2015 General State Account (CGE), which has just appeared on the Tribunal’s website, it says that the two loans date from 2013 and 2014, but were not declared in the CGE of those two years, and only appeared in the 2015 CGE.

In other words, the Proindicus and MAM loans were hidden from the Tribunal when Guebuza was President and Manuel Chang (who signed the guarantees) was Finance Minister. The information was only released to the Tribunal after the change of government in early 2015, when Filipe Nyusi became President, and Adriano Maleiane was appointed Finance Minister.

It is the duty of the government to draw up the CGE every year, containing all relevant details on budget implementation, state revenue, expenditure and assets, and the public debt. The CGE is submitted for auditing to the Administrative Tribunal. The CGE and the Tribunal’s report then go to the country’s parliament, the Assembly of the Republic. The Tribunal’s report on the 2015 CGE is dated November 2016, and appeared on the website on Wednesday.

The government, the report says, did not explain why the Proindicus and MAM loans were not included in the earlier CGEs.

The Proindicus loan is for 622 million US dollars, to be repaid by 2022, with a period of grace of three years. The interest rate is LIBOR (London Inter-Bank Offered Rate) plus 3.75 per cent. The MAM loan is for 535 million dollars, and it too must be repaid by 2022, but with only a two year period of grace, and at a much higher interest rate – LIBOR plus 7.735 per cent.

Questioned by the Tribunal, the government said these two guaranteed loans were included in the 2015 CGE “for purposes of regularization”. The Tribunal noted that the documentation from the National Treasury Department in the Finance Ministry said nothing about the purpose of the two loans.

Indeed, no list of the assets or services purchased by these loans has ever been made public. The government told the parliamentary commission of inquiry set up to investigate the loans that their purpose was to ensure security in the Mozambique Channel. According to the report from the commission, debated by parliament in December, Proindicus was set up in January 2013 in order to establish “integrated systems of aeriel, spatial, maritime, lake, river and terrestrial security”. MAM came into being in April 2014, and its loan, was intended to set up “naval shipyards” in Maputo, and the northern city of Pemba “to maintain and repair vessels on land and at sea”, as well as to acquire a floating dock.

Both the parliamentary commission and the Administrative Tribunal found the government guarantees illegal. They broke the clause in the annual budget laws with sets a ceiling on government guarantees.

The 2013 budget law set that ceiling at 183.5 million meticais. The Proindicus loan, expressed in meticais at the exchange rate of the time came to over 18.56 billion meticais. Thus the guarantee for the Proindicus loan alone smashed the ceiling set by the budget by the staggering sum of 18.377 billion meticais (equivalent to 615.8 million dollars).

For the 2014 budget, the parliamentary Plan and Budget Commission introduced an amendment which pushed the limit for guarantees up to 15.784 billion meticais. It wasn’t enough. Expressed in Mozambican currency, the MAM loan amounted to 16.853 billion meticais. This time the budget ceiling was exceeded by 1.069 billion meticais.

Furthermore, the two secret loans were unconstitutional, the Tribunal pointed out, since Article 179 of the Mozambican Constitution states that only parliament can authorise the government to contract loans, and the Guebuza government never approached the country’s parliament, the Assembly of the Republic.

A further irregularity is that the loan agreement and the guarantee are written in English. The Tribunal pointed out that Mozambican law states that documents written in a foreign language must be translated into the country’s official language, Portuguese, and authenticated before they can be considered valid.

A third loan guaranteed by the government was the 850 million dollars raised on the Eurobond market in 2013 by the Mozambique Tuna Company (Ematum). This falls into a somewhat different category – since the bonds were traded publicly it could not be kept secret. But it suffers from the same problems of breaking the budget law and violating the Constitution as the Proindicus and MAM loans.

Given the impossibility of Ematum repaying 850 million dollars, the loan was split in two for budgetary purposes – with 350 million dollars supposedly allocated for fishing assets, while the remaining 500 million dollars was placed in the Ministry of Defence capital budget, for maritime security.

The Tribunal noted that the Ematum bond was restructured in April 2016, with the entire burden falling on the government, since the company was incapable of paying anything. Subtracting the instalments paid in 2015, there was still 726.5 million dollars to be paid to the bondholders. The government negotiated a longer repayment schedule but at a higher interest rate (10.6 per cent). The government was to pay 78 million dollars a year in interest, and the entire remaining capital in 2023.

But even these terms proved too much, and the government told the bondholders it was unable to make the interest payment due on 18 January this year. Nor will the government be able to make any payment on the Proindicus and MAM loans, at least not in 2017.

Source: AIM