Mozambique central bank earmarks half of gas windfall revenue for SWF

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Mozambique central bank earmarks half of gas windfall revenue for SWF

4:11 CAT | 13 Oct 2020

File photo: Noticias

Mozambique stands to earn $96 bln from LNG projects.
Fund’s aim to maximise benefits, smooth price volatility.
Could ease concerns around management of funds.

Mozambique’s central bank has proposed the country invest more than half of the revenue from an estimated $96 billion liquefied natural gas (LNG) windfall in a proposed sovereign wealth fund (SWF).

In a document published on Monday, the Bank of Mozambique said that the LNG projects in the north of the country could bring in this amount over their lifetime, eclipsing its existing economy many times over.

The projects, which include one worth some $20 billion led by France’s Total TOTF.PA, have the potential to transform the impoverished south-east African nation’s economy, and make it a major player in the gas market.

Mozambique’s government had already signalled plans for a SWF, which would help bring discipline and sustainability to managing any windfall, ensure it is shared with future generations and protect the state budget from fluctuations in commodity prices, the central bank said.

It suggested that 50% of revenues from non-renewable natural resources in the first two decades go into the fund, rising to 80% after that, with the remainder going into state coffers.

Under the proposal, the state would be able to withdraw up to 4% of the fund’s previous year’s revenue if its own income from natural resources is at least 10% less than expected. The government would control the fund, but the bank would manage operations and implement its investment policy.

Critics of the LNG projects say that ordinary Mozambicans are unlikely to benefit, citing concerns over corruption, while developing the gas will have a harmful environmental impact.

Mozambique’s economy was hit in recent years by a $2 billion scandal which saw millions in government guaranteed loans vanish. The country has since charged several high profile figures and is challenging some of the guarantees in court.

There are also concerns that developing the LNG projects could aggravate a rapidly worsening conflict with Islamist insurgents, which has seen hundreds of civilians killed and displaced many more.

The first project is expected to come online in 2022. The central bank called for public input on its proposals, after which it will submit them to the government.

Source: Reuters