An Islamic State-linked insurgency threatens to delay plans by energy majors to spend as much as $120 billion on Mozambique’s natural-gas industry, jeopardizing the viability of Africa’s largest-ever private investment.
Total SE halted work on its $20 billion project in the conflict-hit northern Cabo Delgado province at the start of the year and said it would only resume once the area has been secured. On Wednesday, a day after the company agreed to restart construction following government assurances on security, suspected militants attacked Palma, the closest town to the project site.
Exxon Mobil Corp. delayed its adjacent project again this month.
Investor unease over the state’s failure to contain the fighting is growing, with yields on Mozambique’s government debt surging. Construction needs to get going urgently if the southeast African nation is to cash in on some of the continent’s biggest natural-gas resources.
Without a resolution soon, “prospective buyers of Mozambique LNG may start looking at alternative supply options,” said Leslie Palti-Guzman, president of New York-based consultancy Gas Vista LLC.
The stakes could hardly be higher for Mozambique, ranked by the World Bank as the sixth-poorest country. The government expects to pocket $96 billion over 25 years from the first three liquefied-natural-gas plants
Yields on Mozambique’s $900 million of Eurobonds have risen almost 100 basis points this year as project delays increase the risk that the government will struggle to meet its obligations when interest payments on the notes jump to 9% in 2024. The debt, which has already been restructured twice, is due to be repaid from 2028.
“It’s going to be touch-and-go,” said Anthony Simond, emerging-markets debt investment director at Aberdeen Standard Investments in London, one of the biggest owners of Mozambique’s dollar debt until it sold most of its holding in January, partly due to security concerns. “The market is definitely seeing this as a risk.”
The government doesn’t anticipate any restructuring negotiations with private creditors, the Finance Ministry said in reply to emailed questions.
Besides having to service and settle debt, estimated to have reached 120% of gross domestic product last year, Mozambique’s government needs money to quell the violence that’s left more than 2,600 people dead and displaced 670,000. Funds are also required to rebuild areas devastated by severe tropical cyclones and counter the fallout from the coronavirus pandemic.
Mozambique is currently in talks with the International Monetary Fund that the government says could lead to a funded program. That would help the country service external loans, including the Eurobonds.
Standard Bank Group Ltd., the continent’s largest lender, puts the value of Total’s development and others in the pipeline at $120 billion, with most final investment decisions set to be taken in the next five years. That equates to eight times annual economic output in a nation where two in three people live on less than $1.90 a day.
Doubt remains over whether all the investment will materialize: Exxon has delayed formal approval of its planned $30 billion project for a third year and the government doesn’t expect a final investment decision to be taken in the next two years.
Total CEO Patrick Pouyanne said in February that government forces must secure an area of at least 25 kilometers (16 miles) around the company’s project site if it is to resume onshore work. Palma, the town attacked on Wednesday, is less than 10 kilometers away.
Bloomberg
