Mozambique: Prime rate falls to 23.5%
In file CoM
The purpose of Mozambique’s negotiations with its creditors “is to strengthen confidence in our country among the international financial markets”, declared Prime Minister Carlos Agostinho do Rosario on Wednesday.
Speaking in the Mozambican parliament, the Assembly of the Republic, in a question and answer session between the deputies and members of the government, Rosario argued that by strengthening trust among the international markets “we are creating conditions so that we can gain access to more resources to finance structuring actions for our economic development, and to assure the creditors that the country will honour its obligations”.
If Mozambique was trusted internationally, he added, that would also allow businesses to borrow money, on favourable terms and conditions.
That, Rosario said, was why the government had reached an understanding in principle with some of its creditors “on the terms of restructuring the bonds for the sovereign debt resulting from the conversion of the Ematum debt”.
The problem for the government is that the opposition parties, and much of civil society, do not believe this debt should be honoured, since it was contracted illegally.
Ematum (Mozambique Tuna Company) is one of three security related companies that took out loans of over two billion US dollars from the European banks Credit Suisse and VTB of Russia in 2013 and 2014.
The banks never undertook any due diligence on the three companies, which are now all effectively bankrupt. The loans only went ahead because the previous government, under President Armando Guebuza, illegally issued guarantees, which smashed through the ceiling on loan guarantees established by the 2013 and 2014 budget laws.
The 850 million dollar loan to Ematum took the form of a bond issue, but in April 2016 a deal was struck with the bondholders under which the Ematum bonds were replaced by sovereign government bonds with a longer repayment time, but at a higher interest rate. That deal soon unravelled – when the other two loans, to the companies Proindicus and MAM (Mozambique Asset Management), for over 1.1 billion dollars, became public knowledge, the IMF suspended its programme with Mozambique, accusing the government of hiding the country’s true economic situation, and the 14 donors who had provided direct support to the state budget halted all further disbursements. The government announced that it could not service these debts, until creditors agreed to restructure them.
The new agreement, announced by the Ministry of Economy and Finance, on 6 November, swaps the existing bonds for yet another bond issue and “value recovery instruments” (VRIs) linked to eventual tax revenues from the liquefied natural gas (LNG) projects in the Rovuma Basin, off the coast of the northern province of Cabo Delgado.
The negotiations with creditors were continuing and Rosario pledged that when a final agreement on debt restructuring was reached it would be submitted for approval, not only to the Assembly, but also to the Attorney-General’s Office (PGR) and to the Administrative Tribunal.
He added that the debt restructuring is intended to bring the debt service down to levels that are in line with the country’s ability to pay, and thus free up resources for the government’s other commitments under its five year programme.
Finance Minister Adriano Maleiane said various proposals and counter-proposals had been discussed with the creditors. There was basically a trade-off between repayment times and interest. The government could have obtained a lower interest rate, but would have had a shorter time to repay.
The interest agreed is 5.85 per cent and everything, interest and capital, must be repaid by 2033. (Under the abortive 2016 deal with the ex-Ematum bondholders, the repayment period was up to 2023, at an interest rate of 10.5 per cent).
At first sight this seems a good deal – the government has won an extra decade to repay the loan, and the interest rate had fallen by almost half. The catch is that the creditors are demanding a share – five per cent – in the future gas revenues.
Maleiane assured the deputies that no physical gas will be given to the creditors. Instead this part of the deal will be paid out of the taxes on the profits of the LNG operators. It has also been capped at 500 million dollars. This, the Minister said, is so that, if there is a surge in gas prices, the government will not have to pay anything extra to the creditors, even if five per cent turns out to be more than 500 million dollars.
The justification for throwing in the gas revenues is that the creditors wanted some form of compensation for the extra ten years of waiting before receiving all their money.
Maleiane gave optimistic projections on future government revenues suggesting that the deal is easily affordable. He put total government revenues for this year at 2.5 billion dollars, rising to 2.8 billion in 2019, 5.6 billion in 2023, and 18.2 billion in 2023. This depends on the LNG projects coming on stream as planned.
To those deputies who argue the government should not pay a penny, Maleiane replied “the state has to honour its undertakings” – otherwise Mozambique would be unable to apply for other loans.
Doubtless he was thinking of the two billion dollars that the National Hydrocarbon Company (ENH) must raise to cover its share in the two consortia operating the LNG projects in the Rovuma Basin.
The opposition, and civil society bodies, demand that those responsible for the illegal loan guarantees should be held responsible for their actions. Maleiane said this was in the hands of the PGR.
But the PGR claims that it has been investigating Ematum, Proindicus and MAM since 2015, and to date nobody has been charged with any crime. Even the chairperson of the three companies, Antonio do Rosario, who openly boasted that he threw international auditors out of his office, has not been arrested.
The new bonds will have a face value of 900 million dollars. Once the interest is added, and the likely 500 million dollars from gas revenues, plus the amount already paid to bondholders before 2016, Mozambique could end up repaying 2.2 billion dollars for a loan that was only 850 million dollars.
And for what benefit? If anyone driving along the new bridge over the Bay of Maputo looks left, he will see all 24 boats of the Ematum fleet quietly at anchor in the Maputo fishing port, doing no fishing, since they do not even have fishing licences. The claim, made by former Fisheries Minister Vitor Borges in 2013, that Ematum would catch thousands of tonnes of tuna bring in revenue of 200 million dollars a year stands cruelly exposed as a mirage.
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