Initial estimate of maritime security much cheaper than Proindicus and MAM loans

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Initial estimate of maritime security much cheaper than Proindicus and MAM loans

8:38 CAT | 28 Jun 2016

The original proposal for a maritime security project for Mozambique would have cost 372 million US dollars, according to a confidential memorandum of February 2013 from the Swiss bank Credit Suisse, which has now been widely leaked to the media.

Yet Mozambique has ended up paying, in the shape of government guaranteed loans from banks, including Credit Suisse and VTB of Russia, well over a billion dollars.

Three quasi-state companies contracted huge loans in the 2013-14 period The only one of these that was publicly known at the time was the 850 million dollar loan, obtained through the Eurobond market, for the Mozambique Tuna Company (EMATUM). The undisclosed loans, which only became public knowledge in April of this year, were for Proindicus (622 million dollars), set up specifically for maritime security, and Mozambique Asset Management (MAM) (535 million dollars). Among MAM’s goals is to repair and maintain EMATUM and Proindicus vessels, and to set up a floating dockyard.

These three loans come to more than two billion dollars. Since the greater part of the EMATUM loan was for tuna fishing, this cannot be considered as part of the maritime security project (though it should be noted that six of the 30 boats purchased by EMATUM are military speedboats).

Even if EMATUM is completely excluded from the equation, the Proindicus and MAM loans taken together (1,157 dollars) come to more than triple the original Credit Suisse estimate of 372 million dollars. The Credit Suisse document claimed that this sum would be sufficient to guarantee the security of the entire Mozambican exclusive economic zone, reaching for 30 nautical miles from the coast.

The Credit Suisse memorandum includes in this project six manned and 10 unmanned radar stations, two maritime patrol aircraft, two offshore patrol vessels, 12 interceptors (military speedboats) and the relevant spare parts.

In addition, the project would have covered three years of satellite surveillance, and would have set up a central command and training centre.

Credit Suisse envisaged the loan being repaid by the sale of maritime security services to the companies exploring for oil and gas in the Rovuma Basin, in the far north of the Mozambicaue Channel.

The memorandum declares that “as the project is expected to be self-funding, there will be no funding pressures on the government, nor will a need to reallocate resources from other basic infrastructure projects be triggered”.

In the first five years, Credit Suisse expected the project to generate revenue of about 700 million dollars – enough to pay off the loan, even at a high interest rate, cover operating costs and go into a significant profit.

The memorandum goes into great detail about how money would be raised. It states “The main sources of revenue are expected to be fees payable by companies with assets within the Mozambican Exclusive Economic Zone (EEZ), such as rigs, and fees payable by vessels in transit, which are currently paid to third party insurance companies. In addition, inbound container charges will be another key revenue sources”.

A key assumption is that hydrocarbon companies will pay an annual fee of three million dollars per rig. Credit Suisse says these companies were paying 200,000 dollars a day to non-Mozambican security companies. But the hydrocarbon sites mentioned in the memorandum are not all up and running, and one of them is onshore, and thus unlikely to require maritime protection. Nonetheless, on the Credit Suisse figures, Proindicus looks like a good deal for the hydrocarbon companies.

In addition, vessels in transit along the Mozambique Channel would be charged a fee for security services. Credit Suisse believed there would be “a high take-up of this service, which will be cost-effective for the companies”.

All vessels over 100,000 tonnes would pay this fee, which the memorandum estimated would bring in 30.6 million dollars a year. Tourist boats, fishing boats and containers unloaded at Mozambican ports would also pay a fee.

But so far none of these payments have happened. Making Proindicus a viable concern depends on its signing contracts with the hydrocarbon companies and with other companies operating in the Mozambique Channel that require security services.

During the debate on the public debt in the Mozambican parliament last week, the government admitted that to date no contracts have been signed. This means that the 700 million dollars of revenue in the first five years mentioned in the memorandum is unattainable.

According to Finance Minister Adriano Maleiane, the viability study for Proindicus said the company would make a profit of 1.7 billion dollars in its first eight years.

Instead, both Proindicus and MAM are faced with paying off large loans, with no sign of the promised revenues. Proindicus was able to make its first repayment, of 24 million dollars, in March. The next instalment, for 119 million dollars, is due in March 2017.

The frst repayment from MAM was for 178 million dollars, and was due on 23 May. MAM did not have the money to pay, and the government did not come to the rescue. The money was owed to VTB, which has not activated the government guarantee. Discussions are under way to restructure the MAM loan.

Source: AIM