Tensions are rising in northern Mozambique as the government seems unable to quell growing instability, while a series of high-profile anti-graft arrests have seriously damaged the country’s financial reputation and cramped the capacity of investors to fund liquefied natural gas projects, writes Barry Morgan.

With the indictment of former finance minister Manuel Chang and three Credit Suisse bankers under the US Foreign Corrupt Practices Act, details of a hitherto hidden debt scandal are emerging that has laid bare the lack of accountability at the heart of the regime.

“Mozambique’s damaged standing will make it harder for national oil company ENH to offer sovereign guarantees to finance its mandated 10% stake in the Offshore Areas 1 and 4 LNG projects,” according to a report released this week by UK risk consultant Verisk Maplecroft.

“A shallow banking sector means domestic financing is not a viable alternative for ENH” and this has implications for the political environment for the funding offshore schemes, said Verisk’s Africa analyst, Ed Hobey-Hamsher.

He added that the US Department of Justice may use plea bargaining to fill the gaps in an audit conducted by US-based risk consultant Kroll, which revealed the disappearance of some $500 million within the Defence portfolio under Mozambican President Filipe Nyusi’s stewardship.

The complicity of ruling party Frelimo officials together with “a lack of financial credibility will make it harder for ENH to finance participation in offshore developments in a year when the final investment decision is expected for Area 1 with a licensing round planned before mid-2020,” said Hobey-Hamsher.

Not only will this result in delays to projects being sanctioned but also postpone the realisation of LNG revenues, he added.

The consequences might reach even farther, rendering void some $2 billion-worth of fisheries project loans, said Mitu Gulati, a professor of law and sovereign debt expert at Duke University in the US.

Moreover, criminal attacks on lives and property in the province of Cabo Delgado have intensified in recent years with evidence of affiliation with Islamist terror group Ahlu Sunnah Wa-Jama, associated with a Tanzanian group connected with Islamist militants farther up the East African littoral.

These linkages have become increasingly clear and are consolidating, Upstream learned during an exclusive security briefing in Cape Town from another leading global risk group.

Last year saw scores of fatalities and some 45 houses and one mosque destroyed, leading to the arrest and trial of 100 terrorists including Tanzanian and Somali nationals.

In addition, attacks by child soldiers have been reported in Macomia, Nangade, Palma and Mocimboa da Praia districts.

US independent Anadarko Petroleum and Italy’s Eni expect to build their LNG trains in Palma, located 400 kilometres from Pemba, following the discovery of 180 trillion cubic feet of gas in the offshore Ruvuma basin in Areas 1 and 4.

Countrywide reserves are soon tipped to exceed 250 Tcf with LNG exports scheduled to come on stream before the end of 2023.

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Violence and graft hit confidence in Mozambique LNG funding plans