2014-08-12 CONFRONTING THE ISSUES OVER GAS: TWO STEPS FORWARD AND ONE STEP BACK While much extractive industry media attention has been focused on this month’s controversial announcement from Rio Tinto that it is selling its Mozambican coal interests at knock down prices, potentially even more significant discussions have been taking place in recent weeks which will affect the future of the country’s natural gas industry. In the weeks prior to yesterday’s passage of the first draft of the new oil and gas industry legislation, Anadarko and ENI - the two biggest players and concession holders of offshore gas discoveries - made a number of visits to the Mozambican capital. They went to lobby for their respective interests in the set up and manner of exploitation and transformation of natural gas from the Rovuma Basin, offshore from Cabo Delgado province. Mozambique has been counting on the timely arrival of revenues from exports of liquefied natural gas (LNG) sales to help restore its balance of payments, with the current account recently falling into serious deficit after importing materials and equipment needed by the gas and other industries. Public debt has risen to 47% of GDP and the fiscal deficit continues to rise, now approaching 10% of GDP, despite last year’s handsome windfall capital gains taxes of $1.3bn from gas concession sales by multinationals. Following this increased spending and pent-up expectations of more to come in the near future, it will be important to ensure that no further delays result in the launch of LNG operations leading to the ultimate sale and export of this valuable energy resource. Yet the timetable has been slipping and the official target date of commencing LNG exports from the Rovuma basin resources by 2018 has now been pronounced “unachievable” according to the most recent country report released by the London-based Economist Intelligence Unit last month. Reasons cited in that report were the delays in publication of the revised Lei do Petroleo– the legislation covering Mozambique’s oil and gas industries, continued skilled labour shortages and hold-ups in port construction as well as other infrastructure delays. These were also some of issues at the heart of the discussions which Anadarko and ENI executives held with the Mozambican government and whose final outcome – as yet not known – could determine whether or not Mozambique becomes a major gas producer and exporter before the end of this decade. Tensions resurfacing over port development In the week of 14th July a team of executives from Anadarko’s Houston, Texas headquarters arrived in Maputo where, together with locally-based company staff, they met to discuss key issues surrounding the launch and development of the LNG train facilities for which the company has been granted use of some 7,000 hectares of land on the Afungi peninsula near Palma, off Cabo Delgado’s coast. Relations between the government and Anadarko have been fairly smooth of late, following the successful sale of 10% sale of Anadarko’s Rovuma Area 1 stake for US$2.64bn to India’s Oil and Natural Gas Corporation (ONGC) last June and with Mozambique’s Empresa Nacional de Hidrocarbonetos (ENH) holding a 15% share in the same concession. However, roadblocks on the horizon remain, with the difficulty of ENH securing the necessary financing to develop its share in the block, as well as unresolved issues pertaining to the management of the two new port terminals at Pemba and Palma which will handle exports of future LNG production from the area. In January this year the government awarded the contract for the development and management of these two new dedicated facilities to Portos de Cabo Delgado (PCD). The current shareholders in PCD are ENH, and the Port and Railways Company Caminhos de Ferro de Moçambique (CFM), who each hold 50% of the company. Indications are that Anadarko have not been entirely satisfied with the granting of this contract, which it felt could delay development of installations that are key to their commercial success. The Italian delegation which came to the capital the following week included Prime Minister Matteo Renzi and Vice-Minister for Development, Carlo Calenda, as well as the CEO of ENI, Claudio Descalzi and his counterparts at Saipem and Finmeccanica. ENI, Ente Nazionale Idrocarburi, is the largest natural gas player in Africa, while Saipem is 43% owned by ENI, and Finmeccanica is 30% owned by the Italian Government. High on the agenda for the Italians was the deadlock over ENI’s proposal to move ahead with its plan for floating liquid natural gas (FLNG) installations offshore from Mozambique’s Cabo Delgado coastline, which the Government of Mozambique has thus far rejected. Among the Mozambique side´s objections are the criticism that FLNG technology is relatively untried (while industry experts see the technique as cutting-edge and a number of countries are studying FLNG installations, to date Australia is one of the few countries where FLNG platforms are under serious operational development). A second argument, and one that is potentially more crucial for Mozambique, is the fact that FLNG offers far less opportunity for the development of local content and onshore employment than would the previously agreed terrestrial LNG trains. Speaking to the media after the ENI discussions, the Chief Executive of Mozambique’s ENH, Nelson Ocuane, hedged his bets while not rejecting the FLNG plan outright as he had done in the recent past. Thus for the Italians he still offered hope for a compromise, stating that a final decision on the matter will now only be taken in December. However, this week’s submission of legislative proposals to Mozambique’s Assembleia da República (AR) may offer some comfort until the greater obstacles to forward movement can be overcome. Although the draft bill passed at its first reading on Monday of this week with a large majority, key legal revisions still to be discussed could ultimately exempt both ENI and Anadarko from the provisions of the national labour legal quotas, normally requiring no more than a maximum of 5% of all staff in a large enterprise (100+ employees) to be of foreign nationality. Domestic industry interests have objected to what they see as a policy of favouritism to the big international players while the small, locally-based companies are overlooked. But again, as with the issue of maximizing the opportunity for content and onshore services to be provided by local entities, the reality is that strict enforcement of the labour laws could further retard the development of Mozambique’s gas resources, pending the qualification of substantial numbers of industry-trained nationals to become available for deployment. Colin Waugh is a commodity market researcher and investor and a partner in the Maputo-based firm of SCP Africa, Lda.
Posted on: Wed, 13 Aug 2014 08:11:12 +0000
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