Mozambique: Cancellation of contracts hints at Total stoppage until 2022 – NKC

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Mozambique: Cancellation of contracts hints at Total stoppage until 2022 – NKC

8:34 CAT | 23 Apr 2021

Afungi, Palma district, Cabo Delgado. [Photo: O País]

The consultancy NKC African Economics on Thursday said that the cancellation of contracts between oil company Total and local suppliers in northern Mozambique means that the project is unlikely to resume next year.

In the commentary, sent to clients and to which Lusa had access, the analysts wrote that despite the 25-kilometre radius around the works, declared a special security zone, the insurgents have managed to launch multiple attacks within the area and are better prepared than in previous attacks, which creates new security challenges.

The analysts said the global focus on involvement in the Islamic State, rather than on the local root causes of the movement (poverty, lack of socio-economic development) in Cabo Delgado, makes it easier for the government to ignore the political failures and corruption that fuel the insurgency.

Furthermore, they pointed out, the Mozambican government’s refusal to allow foreign troops suggests that the government is still trying to hide the reality of the security situation in the area, which has caused embarrassment in the past.

Recalling the importance of exploration projects for financing the development of Mozambique’s economy, NKC African Economics also wrote that Mozambique’s goal was to be a gas exporter from 2024, but the projects will not succeed in this environment, so the response has to go beyond military intervention and include the socio-economic development of the region.

On Wednesday, financial news agency Bloomberg reported that French oil company Total was cancelling contracts with local contractors and suppliers for the natural gas project in northern Mozambique, leaving companies in difficulties and indicating that the project may stop for months.

The oil company has indefinitely abandoned the Rovuma basin natural gas exploration megaproject, Africa’s largest private investment worth about €20 billion, after an armed group attacked the town of Palma on 24 March.

The most recent attack in three and a half years of insurgency caused dozens of deaths (no official numbers yet) among residents and employees linked to the project.

The attack and the consequent delay in the works of the Total oil company directly impact the country’s economy, particularly concerning the ability to pay the public debt from 2024 when the interest rate will rise significantly following the renegotiation of sovereign debt bonds (‘Eurobonds’).

Armed groups have terrorised Cabo Delgado since 2017, with some attacks claimed by the jihadist group Islamic State, in a wave of violence that has led to more than 2,500 deaths, according to the ACLED conflict registration project, and 714,000 displaced people, according to the Mozambican government.

The most recent attack was on 24 March against the town of Palma, causing dozens of deaths and injuries in a still ongoing assessment.

The Mozambican authorities regained control of the town, but the attack led oil company Total to abandon indefinitely the site of the gas project scheduled to start production in 2024 and on which many of Mozambique’s expectations of economic growth in the next decade are anchored.

Source: Lusa