Mozambique: Government to discuss cost liabilities with Total – Lusa report

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Mozambique: Government to discuss cost liabilities with Total – Lusa report

4:06 CAT | 26 Apr 2021

File photo: Lusa

The Mozambican government will discuss with oil company Total the allocation of costs arising from the suspension of the natural gas project in Cabo Delgado province due to armed violence, the National Oil Institute (INP) announced on Monday.

“Naturally, any cost that is directly or indirectly caused by the implementation of the project will later have to be discussed with the government,” the president of INP, Carlos Zacarias, said at a press conference, speaking following the announcement made today by French oil company Total that it had invoked the clause of “force majeure” to withdraw all staff from the natural gas project in the Afungi peninsula, northern Mozambique, and suspend the activity for security reasons.

Asked if the losses entailed by the stoppage of the multi-million dollar natural gas project will be blamed on the Mozambican government due to the inability to protect the venture, the chairman of the oil regulator explained that this issue would have to be discussed between the parties.

“We have a team that checks the costs that are recoverable and those that are not recoverable. Naturally, for this particular case, we know that the work was being done. It was stopped,” he said.

The concept of recoverable costs refers to the charges borne by the concession companies but subject to reimbursement by the state.

“We have to be realistic” about the inevitability of an impact on the accounts because “a small change from what were the initial bases of the costs that had been programmed” will open a discussion about whether such values “can be taken as recoverable”.

Zacarias admitted that the impact of the suspension of construction work on Total’s project in Afungi could extend to the relationship with buyers of liquefied natural gas, whose contracts have already been signed, with deadlines for compliance.

“There are [contractual] provisions that have, naturally, in view a date and some penalties from one party to the other, if one of the parties does not comply,” he emphasised.

If the delay is much longer, that impact will be greater, he said.

In the note it released today, the French oil company said that “considering the evolution of the security situation in the north of Cabo Delgado province, in Mozambique, Total confirms the withdrawal of all staff of the Mozambique LNG project from the Afungi site. This situation leads Total, as operator of the Mozambique LNG project, to declare force majeure.”

At the press conference following Total’s announcement, the chairman of the oil sector regulator in Mozambique said the attitude of the French multinational was “prudent,” stressing the need to “preserve and ensure the safety” of all people involved in the consortium’s project in Cabo Delgado province, northern Mozambique.

Carlos Zacarias pointed out that the force majeure clause invoked by Total will help mitigate the costs incurred by the consortium concessionaire of the gas project and subcontractors but does not imply the end of the venture.

“The first effect is that [the evocation of the force majeure clause] protects both sides, in that it will mitigate further costs that may eventually be incurred for services that cannot be provided,” he stressed.

In the new context, he continued, Total will be able to discuss ways of minimising the negative impact of the shutdown with its contractors.

The INP chairman noted that the French oil consortium’s liquid natural gas production project would restart as soon as safety conditions were guaranteed in Palma district, where the natural gas projects in Cabo Delgado are based.

“As soon as the safety conditions are created and improved, I am sure that the activities will be resumed. In fact, we know that a short time ago, the final financial closure was made, there are funds to proceed with the project,” Zacarias stressed.

Valued at €20 billion, the consortium’s investment led by Total in the natural gas project in Cabo Delgado is the largest underway in Africa.

Source: Lusa