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By Kester Kenn Klomegah
Mozambique risks destabilizing its economy and further losing Western development funding if it decides to buy sanctioned oil from Russia.
With the return of Western development finance institutions such as the International Monetary Fund (IMF), World Bank and USAID, and currently showing considerable support for sustainable development projects and programs, Mozambique should remain focused and remain at away from the complexities and contradictions of the Russian-Ukrainian crisis.
Mozambique needs to seriously focus and pursue its plans to export liquefied natural gas (LNG), extracted from the Coral South field off the coast of Palma district in the northern province of Cabo Delgado, possibly from Mozambique. ‘october. It marks an economic turning point and opens a new chapter for its sources of income.
According to our research, Mozambique will become the first country in East Africa to export LNG. It will be produced on a floating platform, belonging to a consortium led by the Italian energy company Eni. The rig, built at a Korean shipyard, arrived in Mozambican waters in January and is now anchored in zone four of the Rovuma basin, some 40 kilometers from the mainland.
It is the first deep water platform in the world to operate at a water depth of around two thousand meters. The Coral South project is expected to produce 3.4 million tonnes of LNG per year over its estimated life of 25 years.
A second project is planned for zone 1 of the Rovuma basin, operated by the French company TotalEnergies. The LNG plants planned for this project are onshore, in the Afungi peninsula of the Palma district. The jihadists took over the city of Palma in March 2021 and TotalEnergies withdrew all its personnel from the area. Subsequently, the Mozambican defense and security forces and their Rwandan allies drove the terrorists out of Palma and the neighboring district of Mocimboa da Praia.
The current global economic situation is changing, and competition and rivalry for markets are also at their peak. In recent months, Russia has cut its gas exports in reciprocal action against members of the European Union and redirected its search for new customers in the Asian region. It has already offered reduced prices to China and India, and is now looking beyond Africa.
US Special Envoy to the United Nations, Thomas-Greenfield, made it clear in his speeches to African leaders that “African nations are free to buy grain from Russia, but could suffer the consequences if they trade in US-sanctioned commodities, such as oil. From Russia.”
“Countries can buy Russian agricultural products, including fertilizers and wheat,” Linda Thomas-Greenfield said. But she added that “if a country decides to engage with Russia, where there are sanctions, then they are in violation of those sanctions. We warn countries not to violate those sanctions, because then…they have the possibility that action is taken against them.
The Russian Ambassador to Mozambique, Alexander Surikov, after a meeting with the Confederation of Economic Associations of Mozambique (CTA), had proposed that the Mozambican authorities could buy Russian oil in rubles after Moscow had presented the option to Maputo. Ambassador Surikov further expressed the continued interest of Russian companies to invest in Mozambique. Similarly, the possibility has been mooted of Russia opening a bank in Mozambique focused on supporting bilateral trade and investment.
Russia previously had a VTB bank in Maputo, which was later involved in opaque deals. It was a financial scandal involving three security-related fraudulent companies and two banks – Credit Suisse and VTB of Russia, over illicit loan guarantees issued by the government under former President Armando Guebuza. Until today, it is commonly referred to as the “hidden debt” scandal involving 2.7 billion US dollars (2.3 million euros), the financial scandal that happened in 2013.
In the aftermath, financial institutions exited, projects were abandoned and the southern African country struggled to rebound economically. Now they are coming back with new financial assistance programs that would promote sustainable and inclusive growth and long-term macroeconomic stability.
In the context of the current grain crisis, another question raised by the ambassador was how Mozambican companies could have direct access to Russian wheat suppliers. In this regard, it was not clear how Russian wheat would enter the market and how it would be paid for, since Mozambique mainly uses the US dollar in its foreign transactions, and Russia cannot conduct transactions in using US currency due to sanctions imposed following the invasion of Ukraine.
“Ruble and medical are worthy currencies that don’t need the benevolence of some other countries that control the international system,” the Russian diplomat explained, adding that Moscow wants to strengthen cooperation with Maputo.
Nevertheless, the Minister of Mineral Resources and Energy of Mozambique, Carlos Zacarias, admits the possibility of buying Russian oil in rubles. “I am sure that we will study and check the feasibility of this offer from Russia. If it is viable, it is certain that Russian oil will be acquired in rubles,” said Carlos Zacarias.
Mozambique’s receptivity to the Russian proposal stems from the fact that the world is going through a particular moment, characterized by great volatility in oil prices on the international market following the Russian-Ukrainian war.
Mozambique was among the countries that abstained on two resolutions passed by the United Nations General Assembly, one condemning Russia for the humanitarian crisis in Ukraine as a result of the war and the other suspending Moscow from the Council of human rights.
The Mozambique Liberation Front (Frelimo, the ruling party) was an ally of Moscow during the former USSR era and received military support during the struggle against Portuguese colonialism and economic aid after independence in 1975.
Mozambique and Russia enjoy admirable political relations. Mozambique needs to focus on trade and economic development with external partners. According to data provided by CTA, the annual volume of economic transactions between Mozambique and Russia is estimated at at least 100 million US dollars (98.5 million euros at current exchange rates).
Experts rightly point out that there is a tremendous window of opportunity for Mozambique. With partners like ExxonMobil Corp., China National Petroleum Corp. and the Mozambican state company Empresa Nacional de Hidrocarbonetos, Mozambique needs to move towards its own energy development. In recent years, experts have also reiterated the adoption of an appropriate mechanism, the development of strategies and the use of financial support for sustainable development.
Mozambique has considerable gas resources and the right decision is to move to both an onshore and an offshore concept. The ultimate goal is to establish connectivity between the exploration of its resources and national development. The idea is to foster economic relations according to its national development priorities. And therefore, it must identify influential external investment partners willing to invest funds and, concretely, committed to supporting the sustainable development of the country.
The offshore Mozambique LNG project, valued at around $20 billion, aims to extract around 13.12 million tonnes of recoverable gas over 25 years and generate profits of $60.8 billion, half of which will go to the Mozambican state.
The process to carry out this task has begun and would generate 14,000 possible jobs in phases – first creating 5,000 jobs for Mozambicans in the construction phase and 1,200 in the operational phase, with a plan to train 2,500 technicians and and so on. These projects also have a great capacity to create indirect jobs, with the foreign workforce decreasing throughout the project and the Mozambican workforce increasing. Most of these jobs are expected to be provided by contractors and subcontractors.
Several business projects were interrupted due to the armed insurgency in 2017 in the province of Cabo Delgado. The entry of foreign troops to support Mozambican forces in mid-2021 has improved the security situation. Since July 2021, an offensive by government troops has been set, with the support of the Rwandans and later by the Joint Standby Force made up of forces from members of the Southern African Development Community (SADC).
The province of Cabo Delgado, located in northern Mozambique, is rich in natural gas. Although the gas from the three projects approved so far has a destination, Mozambique has proven reserves of more than 180 trillion cubic feet, according to data from the Ministry of Mineral Resources and Energy. With a population of around 30 million, Mozambique is endowed with natural resources. It is a member of the Southern African Development Community (SADC) and the African Union.