By Joseph Hanton, Editor Mozambique News, London, April 10, 2021 News
The country’s ruling party thought gas would secure a wealthy future, but that dream faded and finally was shattered by attacks that sent energy giant Total packing.
The leadership of Mozambique’s ruling party, Frelimo, was dazzled by gas. The discovery of the second-largest gas reserve in Africa in 2010 led the political and business elite to believe Mozambique would be like Abu Dhabi, Qatar or Kuwait. Gas would make them fabulously wealthy and the riches would trickle down to ordinary people.
Poverty and inequality were increasing, but there was no reason to spend money on rural development because the gas bonanza would end poverty. Of course, the elites could take their share early, such as with the $2-billion secret debt in 2012. The gas windfall would benefit everyone by 2020, delayed to 2025 and then to 2030. The people would believe the dreams. But in Cabo Delgado they did not, and an insurgency began in 2017 over growing poverty and inequality as well as political and economic exclusion.
There is broad agreement that al-Shabaab, as the insurgents are known in Mozambique, initially comprised local people with a local leadership. Whether the Islamic State now controls al-Shabaab is a matter of huge debate, but even advocates of this view accept that it took over an existing local insurgency. Local people saw the development of a ruby mine in the province and the initial gas development and realised there were no jobs for them. The gas and ruby money was not trickling down to them.The predictions were fabulous.
In 2015, it was confidently predicted that gas production would start in 2019 with liquefied natural gas (LNG) production reaching 100 million tons a year (mt/y). Government revenue would be $95-billion over 25 years, almost doubling the current government expenditure of $3.5-billion a year.The first profits were made by small energy companies selling out to bigger ones, and three multinational giants now control the gas. ExxonMobil (United States) is the lead company for the far-offshore half of the gas field along with Eni (Italy). Total (France) leads the half closest to the coast.
Eni was the first to start, ordering a small $5-billion floating gas liquefaction platform that is now being put in place. It will produce 3mt/y, probably starting next year. All the other LNG from both zones was to be produced onshore on the Afungi peninsula, just south of the town of Palma in the very far north of Cabo Delgado. The original designs were for 10 LNG “trains” producing more than 50mt/y.
This plan was halved, then cut again. Only in 2020 did Total go ahead with two trains to produce 13mt/y – and with no plans for further expansion. ExxonMobil delayed and delayed and has now said production is unlikely. So, by early this year, the dream of 100mt/y had already fallen to just 16mt/y.
The gas bubble was deflating fast; work had begun on only a small part of the envisioned bonanza. Patronage systemIn Mozambique, the government, Frelimo and business are the same people, led by a handful of oligarchs who are surrounded by a penumbra of the Frelimo elite. They control contracts, land and licences, and thus the economy. Frelimo is now run entirely according to a patron-client system. At each level, people service those above them, demand obeisance from those below and collect money from whatever they are involved in.
The system is known locally as “goatism”, from the saying “the goat eats where it is tethered”. The police set up checkpoints to collect money, clerks demand a fee to process a document, and so on. School teachers must satisfy their school head by working actively on elections but, in exchange, they can demand bribes from pupils and parents and do not have to show up to teach.In these circumstances, gas became the great promise and gamble.
The patron-client system was kept working by promises of gas money – cash as early as 2012 for those linked to the $2-billion secret debt. From 2015, contracts for hotel rooms, transport and myriad services for the gas companies, as well as mandatory shares in gas-linked foreign investment projects, went to the local Frelimo fixers. For others, the gas bonanza was always just around the corner.
Like all good con artists, those at the top had to keep everyone believing the big pay-off was coming. Frelimo’s gamble was that, like a juggler, it could keep the balls in the air, hoping that no one noticed that the project was shrinking and delayed. With no money for development and growing wealth at the top, poverty and inequality increased.But in the past two years, four things have changed: environmental concerns, global politics, the market and war.
The gas project projections were done assuming wells would pump for 30 years – to 2060 – and thus long-term profits were assured. Mounting pressureThere was no serious pressure on fossil fuels in 2010, and by the middle of the decade gas was being promoted as a transition fuel with half the carbon of coal, thus replacing it until renewables were available. But last year, environmentalists moved against all fossil fuels, including gas, and put huge pressure on energy companies to move out of these fuels.Global politics also became an issue.
China, with its huge number of coal-fired power stations and commitment to move to gas, had been seen as a major gas buyer. But US sanctions against China and the US taking sides in the Middle East led to China seeking gas producers not aligned to the US and in March signing major long-term contracts with Iran and Qatar.Both these issues have hit the market, with projections for gas consumption in 20 years dropping.
Most energy companies made multibillion-dollar write-downs of gas assets and abandoned new projects. Russia and Saudi Arabia have upped production to try to capture what is left of the market. ExxonMobil made clear it is unlikely to go ahead in Mozambique.Meanwhile, the civil war in Cabo Delgado escalated. Insurgents reached the gates of Total on Afungi on New Year’s eve. Total pulled out most of its staff. The company said it would not employ a private army for protection. Total chief executive Patrick Pouyanné flew to Maputo on 18 January and personally told president Filipe Nyusi that Total would only return if Mozambique guaranteed security inside a 25km cordon around the gas project on the peninsula, including Palma where contract staff were based.
Nyusi staked his personal prestige and that of the nation on a promise of security. On the morning of Wednesday 24 March, Total announced that it trusted Nyusi’s promise and agreed to go back to work. That afternoon the insurgents walked and drove into Palma, inside the security cordon, unchallenged. There was no security protecting the town, although 800 soldiers were inside the walls at Afungi protecting Total workers. It was Nyusi’s last roll of the dice.
The whole gas gamble was bet on a promise of security, and Nyusi – and Mozambique – lost the bet. Uncertain futureTotal has said work “is obviously now suspended” and will only resume when the government really can provide security. In January, the company had left a skeleton maintenance team behind. When it left on Friday 2 April, it took everyone, handed the keys to the army and turned off the lights.Will Total return? Not in the short term.
It will take perhaps a year for more than 100 British and US military trainers already in Nacala, on the northern coast in Nampula province, plus Portuguese soldiers, to create a functioning army. Total has other interests in Africa; it has only spent a small part of the $20-billion project cost and can still walk away. Even if it returns, it will demand a much more favourable deal with Mozambique.
Alternatively, it could demand that a foreign army control the 25km security zone, similar to the Baghdad “green zone” in Iraq a decade ago, and that Mozambique pays the bills. ExxonMobil has already written off $20-billion in gas assets elsewhere in the world and will not go ahead in Cabo Delgado. Total may walk away as well.
It looks increasingly like Eni’s floating platform will be the only gas production in Mozambique – just 3% of the promised 100mt/y.Mozambique is waking up to the realisation that billions of dollars flowing into the state budget and local pockets was only a dream. Frelimo bet the country on that dream. And last week it lost.
The above story reads like the journey Kenya is travelling under Jubilee administration.
Joseph Hanlon has been writing about Mozambique since 1978 and is the editor of the newsletter Mozambique News Reports and Clippings. He is a visiting senior fellow in international development at the London School of Economics.