South African Chief of Defence Forces and Mozambican Deputy Chief of Defence Forces visit Rwanda ...
Photo: O País
The true scale of Mozambique’s “hidden debts” was even concealed from the incoming Minister of Economy and Finance, Adriano Maleiane, when he took office in January 2015.
Giving evidence on Friday, at the trial of 19 people accused of various crimes in connection with the debts, Maleiane said that his predecessor, Manuel Chang, did not tell him of the loan guarantees he had signed for the two fraudulent, security-linked companies Proindicus and MAM (Mozambique Asset Management).
Only a third guarantee, for Ematum (Mozambique Tuna Company), could be found in the records of the National Treasury Directorate.
The Ematum loan, for 850 million dollars, was obtained from the banks Credit Suisse and VTB. It was public knowledge, because it took the form of a bond issue on the European bond market. But the loans to Proindicus (622 million dollars) and to MAM (535 million dollars) were almost clandestine. Nothing leaked out to the public about them until April 2016.
The truth could not be hidden for long from the new Finance Minister. At a meeting shortly after Maleiane took office, Chang admitted he had signed guarantees for previously unknown companies. (Chang is currently under police custody in South Africa, awaiting extradition to either the United States or Mozambique)
Chang justified concealing the guarantees on the grounds that the Proindicus and MAM loans were “classified” because they were matters of “national security”. The then general director of the State Security and Intelligence Service (SISE), Gregorio Leão, and the head of economic intelligence, Antonio Carlos do Rosario, took the same “national security” line when they met with Maleiane. All the paperwork concerning the Proindicus and MAM was kept at the SISE headquarters.
Maleiane explained that the criteria for the government granting loan guarantees included obeying the ceiling on such loans set in the budget law, and a viability study analysed by the Treasury Directorate to prove that the activity proposed would be viable. In addition, the companies eligible for receiving guarantees should be publicly owned.
Chang violated all these conditions when he signed the guarantees for Ematum, Proindicus and MAM. No serious viability studies were presented to the Treasury, and all three companies took the form of private companies, even though their shareholders were public bodies.
As for obeying the legal limits set for loan guarantees, in both 2013 and 2014 the guarantees smashed though the limits.
In 2013, the loan guarantees signed by Chang, when expressed in Mozambican currency, amounted to over 43.4 billion meticais. The ceiling on loan guarantees in the 2013 budget law was 183.5 million meticais. Thus Chang signed guarantees that were 237 times the legal limit. The only way to legitimize the guarantees would have been to amend the budget law in the country’s parliament, the Assembly of the Republic, but the then National Director of the Treasury, Isaltina Lucas, testifying to the court in December, said “this was not done because it was a matter of security requested by SISE”.
Maleiane said all three companies were “Special Purpose Vehicles” (SPVs), which did not answer directly to the government. The normal government auditor, the General Inspectorate of Finance, did not touch the SPVs – they were, in theory, private bodies which required a private external auditor, and not a government auditor.
“The only thing to do was to hire an independent auditor”, said Maleiane. But that was only done in 2016, after the scandal had erupted, when the Attorney-General’s Office (PGR) hired the foremost forensic auditing firm, Kroll, to investigate the three companies.
The SISE officers who ran the companies, notably Rosario, refused to cooperate with Kroll, which they regarded as a nest of western spies. Nonetheless, Kroll was able to establish that the Abu Dhabi based group Privinvest, which was the sole contractor for Proindicus, Ematum and MAM, had overcharge the companies by more than 700 million dollars for the fishing boats, radar stations and other assets it had supplied.
Isaltina Lucas became a non-executive director of Ematum – but Maleiane said she had no obligation to report to the minister. There was “no legal framework” for this, he said.
So the number two in the Finance Ministry could sit on the board of a fake fishing company, and operate as a complete loose cannon, with no institutional ties to her main employer.
Maleiane claimed ignorance of much of what had happened under Chang. Thus the Treasury had paid 43 million meticais to Txopela Investments, a company effectively run by Rosario which has close links to Privinvest. Maleiane had no idea why that payment was made. “I have no information”, he admitted.
The Ematum loan was restructured, the Minister said, when it became clear that the original repayment schedule was impossible. In 2015, Ematum would need 200 million dollars a year to meet its loan obligations, and since the company was doing almost no fishing, this was out of the question.
So the government entered into negotiations with the Ematum bondholders, and by April 2016 reached an agreement that would bring payments down to 76 million dollars a year.
Gilberto Correia, of the Mozambique Bar Association (OAM), which is assisting the Public Prosecutor in the trial, asked Maleiane if the government had asked for a legal opinion from the PGR before the renegotiation, but the Minister claimed that was unnecessary, since no new loan was involved, but merely rearranging the payment periods for the existing one.
“If we hadn’t renegotiated, we would have been sued”, said Maleiane. “We had no way of not paying”.
This agreement with the bondholders collapsed almost immediately, for the same month the truth about the Proindicus and MAM loans hit the public domain, leading to a huge financial crisis for Mozambique. Accusing the government of “misreporting” the country’s foreign debt, the International Monetary Fund (IMF) suspended its programme with Mozambique, and all 14 donors who had provided direct budget support to Mozambique suspended future disbursements.
Further negotiations with the creditors followed, and another rescheduling of the Ematum repayments was agreed in 2019, which ensures that the country will continue to pay for the loan and its illicit guarantees well into the 2030s.
But by then, the Constitutional Council, Mozambique’s highest body in constitutional law, declared the Ematum loan unconstitutional, and all acts concerning the loan were null and void. The loan guarantee signed by Chang was also null and void.
Yet despite this the government has continued to make interest payments to the Ematum bondholders.
Under insistent questioning from Correia, Maleiane claimed the government had complied with the Council’s ruling. How could that possibly be true, Correia asked, when payments were still being made?
Maleiane retreated, and said “comply” was “too strong a word”. He meant that the government “respected” the Council’s ruling – but it still intended to pay the bondholders acting “in good faith”. Should it be shown, however, that any bondholders were acting illegally, nothing further would be paid.
Maleiane made it clear that, in the end, the government feared being taken to an international court, unless it paid. “We thought it cheaper to negotiate with the bondholders”, he said.