Mozambique News Agency

No.134, 19th May 1998


Aluminium smelter given go-ahead

The consortium planning to build a huge aluminium smelter on the outskirts of Maputo have announced that they have secured the required $1.3 billion of investment, and that construction is to start in July.

The announcement was made on 14 May jointly by the board of the British company Billiton, the Mitsubishi Corporation of Japan, and the Industrial Development Corporation (IDC) of South Africa.

The financing arrangements are that 38 per cent of the money ($520 million) comes from equity, and 62 per cent ($820 million) from export credits and other forms of debt.

The largest equity investor is Billiton, with 47 per cent ($245 million). Mitsubishi holds 25 per cent ($130 million), the IDC 24 per cent ($125 million), and the Mozambican government four per cent ($20 million).

The smelter will go into production in early 2001, with an initial output of 250,000 tonnes of aluminium per year. It will use 500,000 tonnes per year of imported alumina, and 450 megawatts of electricity. Highly competitive electricity prices have been negotiated with the Mozambican and South African electricity companies, EDM and ESKOM, valid until 2005.

The investing companies pledge to train Mozambican staff "in order to build a suitably skilled workforce in Maputo". Some 4,000 workers will be employed at the peak of the construction phase. Once in production, MOZAL will employ a permanent staff of 900, of whom only 10 per cent will be foreigners.

The Maputo area was chosen as the location for the smelter mainly because of the port, and its proximity to the South African electricity grid.

Natural gas agreement signed

The Mozambican government and the country's publicly-owned National Hydrocarbons Company (ENH) on 15 May signed a production sharing agreement with a consortium of Atlantic Richfield (ARCO) of the United States, Sasol Petroleum International of South Africa, and Zazara Petroleum Resources of Dubai, for the Temane gas field in the southern province of Inhambane.

According to ARCO geologist Paul Willette, under the new agreement ARCO will carry out 900 kilometres of seismic lines, and will drill up to six wells, with the aim of determining the size of the gas field.

Willette said the first well is budgeted at $9 million, and subsequent ones at three to five million dollars each. The seismic lines will cost seven to nine million dollars.

He added that, should the first well be dry, the whole programme would have to be rethought.

The main problem for gas exploration in Mozambique is finding a market for the gas. Minister of Mineral Resources and Energy John Kachamila told the ceremony there were two guaranteed markets for the Temane gas.

One is the iron ore reduction plant that the South African company JCI plans to build in the Beira area. The other is the South African energy market itself. SASOL hopes to build a gas pipeline from Temane to South Africa at a cost of about $600 million. Inside South Africa the Temane gas would be used for industrial heating, and as a reserve feedstock for SASOL's chemical industries.

Exploration costs are divided, with 47.62 per cent paid by ARCO, 47.62 per cent by Sasol, and 4.76 per cent by Zazara. Any profits, after the payment of taxes and royalties to the Mozambican government, will be divided in the same proportions.

Temane is immediately south of the Pande gas field, which is being exploited by the US company Enron. Both Willette and Kachamila pointed out that the Pande and Temane deposits were part of the same gas field.

"These are two completely separate fields", insisted Kachamila. "Pande already has its own project. Enron intends to use the Pande gas for a steel factory in Maputo. The fields are different, and the objectives are different".

The same consortium is also negotiating for rights over two offshore blocks, off the coast of the central province of Sofala. The primary aim is to search for natural gas here, "but of course we'd be delighted if we struck oil too", Willette said.

The project is expected to generate significant employment in Inhambane province. Davies believed that, if all went well, and large quantities were found at Temane, at least 3,500 new jobs will be created.

On the basis of the wells drilled by Gulf in the 1960s, and subsequent seismic work undertaken by ENH, ARCO is optimistic that there are indeed very large quantities of gas at Temane. Willette told AIM he hoped for at least a trillion cubic feet, and perhaps as much as three trillion cubic feet.

New figures bring debt relief into question

The debt relief deal awarded to Mozambique under the HIPC (Heavily Indebted Poor Countries) initiative has been greeted with relief by the Mozambican authorities, but the more it is scrutinised, the more questions are raised as to how much the relief is really worth.

The central problem is that there are conflicting figures, not only about how much Mozambique will pay in debt service in the future, but even about how much has been paid in the past.

The main aim of HIPC is to bring the debt-stock-to-exports ratio down to 200 per cent, and the debt service ratio to under 20 per cent. A World Bank graph released on 7 April stated that in 1999 (the year HIPC takes effect) the debt service ratio will fall to around 15 per cent. With the "Naples terms" granted by the Paris group of creditor nations, but without HIPC, it would have been about 21 per cent. In the Bank's view, the debt service ratio will fall to under 10 per cent by 2002.

Differening figures produced

However, there are three sets of figures available - one from the government, and two from the IMF.

Finance Minister Tomas Salomao released figures which showed that the total debt service paid in 1995 was $66.3 million, rising to $71.5 million in 1996 and $80.3 million in 1997. The government forecast for 1998 is a debt service payment of $86 million.

The Bretton Woods institutions in the "HIPC Final Document" for Mozambique of 31 March, on which the IMF and World Bank boards based their decision gave the following figures: From 1995-97 Mozambique paid an average of $107 million in debt service per year. The predicted debt service for 1998 is $118 million. With the implementation of HIPC, the debt service is forecast to fall to $106 million for 1999 and for each of the three succeeding years.

The huge differences are not explicable by exchange rate fluctuations.Nor is it explicable by including money paid from the debt relief fund: where bilateral donors pay off some of Mozambique's debt to the multilateral institutions.

Revised figures even worse news

On 1 May, the IMF revised its figures, releasing a new set to the London-based Jubilee 2000 Coalition, a group of NGOs working for the scrapping of third world debt. In this the IMF claimed that Mozambique had paid $97 million in 1997, and would pay $124 million in 1998. Even in the first year of HIPC, on this projection, the amount paid in debt service would not fall: instead, it would actually rise to $149 million. In the year 2000, the sum paid would drop to $91 million, before rising to $95 million in 2001. These new figures put the average paid between 1995 and 1997 at $113 million a year.

The government has budgeted $102 million for debt service owing in 1998. It was counting on cancellation and/or rescheduling during the year, since the amount in the budget earmarked for debt service is 737 billion meticais (about $63.5 million). The IMF's 1 May figures put the 1999 debt service ratio at 20.8 per cent - a huge difference from the 13.7 per cent in the HIPC final document.

IMF optimism over exports questioned

The IMF assumes that Mozambican exports are about to boom. Exports of goods and services in 1997 are put at $513.1 million, and the forecasts for 1998 and 1999 are $635.7 and $713.3 million respectively.

However, commentators question whether exports will increase by 40 per cent over the next two years. The major industrial projects currently on the drawing board (for an aluminium smelter and a factory producing steel slabs, for instance) will not have begun production by then. The export of electricity to South Africa from the Cahora Bassa dam, which should have begun last year, is stalled because of disagreements over prices.

The prawn catch was exceptionally high in 1997, and the government expects a cut of over 21 per cent in 1998. After an excellent result in 1997, cotton is headed for a bad year in 1998 because of a collapse in the world market price. As for cashew nuts, seven out of the 14 sizeable cashew processing plants are currently closed, and export prices have fallen.

Analysts question debt

The London-based analyst Joseph Hanlon has calculated using the IMF's figures that the HIPC deal will result in savings for Mozambique of no more than seven million dollars a year, over the 1999-2002 period.

Over the long term HIPC brings advantages in that, with the writing off of $2.9 billion of debt, Mozambique's massive debt overhang disappears. Sceptics argue that this was a debt that Mozambique could never pay anyway - by cancelling it, creditors just bowed to reality.

Commentators have pointed out that the HIPC is no substitute for a campaign to wipe out all the debt incurred by all southern African countries during the apartheid era.

Action on Southern Africa (ACTSA), the successor organisation to the Anti-Apartheid Movement, and the World Development Movement, asked in a recent joint report why the victims of apartheid should pay western creditors for debts run up in the fight against a racist system which only survived as long as it did thanks to the tacit support it received from the west?

The report estimates that debt caused by apartheid amounts to 78 per cent of total southern African debt.

News Round-up

Japan supports Beira dredging

The Japanese government is to provide Mozambique with a dredging vessel, valued at $14.9 million to work permanently in the port of Beira.

An agreement to this effect was signed in Maputo on 15 May by Foreign Minister Leonardo Simao and Japanese ambassador Asao Tsukahara.

The dredger will be built in Japan, and should be delivered to Mozambique in 1999. It will ensure that the Beira port access channel is dredged regularly, thus ensuring that large ships can enter and leave the port without waiting for high tide. This should end the queues of ships waiting to enter the port, and will increase port productivity.

The access channel has not been dredged properly since 1990. As a result sediment has accumulated, and the depth of the channel has dropped from eight metres to just five metres.

European ban on fish threatens jobs

The ban imposed by the European Union (EU) on imports of fresh fish from Mozambique is threatening the jobs of around 920 people, Deputy Minister of Agriculture and Fisheries, Isidora Faztudo, said in Lisbon on 13 May.

Speaking at a seminar on the Mozambican fisheries sector, organised by the Portuguese Investment, Commerce and Tourism Board (ICEP), Faztudo said the ban meant that over 30 tonnes of fresh fish a month was no longer exported to Europe. This cost the country over $60,000 a month in lost foreign exchange earnings.

The result, she added, was that "one processing company, which employs 20 workers, and about 30 semi-industrial fishing boats, with total crews of around 900 fishermen, are inactive, or risk being so in the near future if the situation continues".

The European Commission imposed the ban in late December because of the cholera epidemic raging in southern and central Mozambique. In doing so, the EU ignored the World Health Organisation finding that there is no record of cholera being transmitted by commercial food imports. Laboratory tests, carried out in both Mozambique and Portugal, have found nothing harmful to human health in Mozambican fish produce.

Government apologises for football riots

The Mozambican government has apologised to the Zimbabwean authorities for violent scenes during and after the football match on 10 May between Ferroviario of Maputo and the Zimbabwean team, Dynamos.

The match, won by the Zimbabwean team 1-0, was marked by drunken Ferroviario fans attacking the Zimbabwean players and the referee, stoning vehicles, and fighting a running battle outside the stadium with a unit of the riot police.

15 people, including four Red Cross workers, needed hospital treatment. Among the vehicles damaged was a Red Cross ambulance.

Oil agreement with Norway

The Mozambican and Norwegian governments signed an agreement in Maputo on 12 May under which Norway is to grant 34 million crowns ($4.5 million) for the development of the Mozambican oil sector.

The agreement covers the period 1998-2000, and will be implemented by the National Directorate of Coal and Hydrocarbons (DNCH) in the Mozambican Ministry of Mineral Resources and Energy, assisted by the publicly-owned National Hydrocarbon Company (ENH). The DNCH will enter into a twinning arrangement with its Norwegian counterpart, the Norwegian Petroleum Directorate.

So far no oil has been discovered in Mozambique, but geologists believe that there are promising indications. Prospection is under way, notably by the British firms Lonrho and BP - the former in the Rovuma basin, in the far north of the country, and the latter in deep waters in the Zambezi delta.

Later this week, an agreement is due to be signed between the Mozambican government and Atlantic Richfield (ARCO) of the United States, Zazara Petroleum of the United Arab Emirates, and SASOL of South Africa for oil prospection in the Temane region of the southern province of Inhambane.

Norway's total support to the Mozambican energy sector is running at about $7.5 million a year.

Conference discusses mosquito netting

Scientists from several African countries and from the World Health Organisation (WHO) began a conference in Maputo on 12 May discussing the control of malaria through using mosquito nets treated with insecticide.

The director of Mozambique's National Health Institute, Martinho Dgedge, said that such netting "is a good means of controlling malaria". He argued that it is a priority to publicise the use of insecticide-treated nets among local communities, so as to reduce the incidence of malaria, which is regarded as the single largest cause of mortality in Africa.

In Mozambique, added Dgedge, the death rate is estimated at five out of every 1,000 people who catch malaria.

The use of insecticide-treated netting is being tested in Boane district, about 30 kilometres west of Maputo. Dgedge said Boane residents have welcomed this experiment.

The problem, however, is a financial one. "We face a dilemma", said Dgedge. "Those who are most in need of these nets are poor communities, who don't have the money to buy them". He argued that the government should find ways of subsidising the nets.

Donor support for agricultural programme

Donors and funding agencies are prepared to support the Mozambican government's five year programme for public investment in agriculture, known as PROAGRI, but only if peasant land tenure rights are guaranteed.

After two weeks of appraisal of PROAGRI, an aide memoire from the donors gave PROAGRI a cautious green light. They considered that the draft programme "forms a sound basis" for the future of the Ministry of Agriculture and Fisheries.

But they demanded the establishment of "a legal and regulatory framework which strengthens the land use rights of smallholders, local communities and private investors". The aide memoire argued that such a framework would be crucial "for sustainable and equitable growth in the agriculture sector such that rural poverty is reduced and food security improved, while the physical and social environment is protected".

The donors left the government in no doubt that their support for PROAGRI depended on ensuring that the land tenure rights of peasants and investors are defended.

The basic legal framework exists in the land law approved by parliament last year. However, the government must draft the regulations that allow the principles of the law to be put into effect.

The aide memoire urged the government "to provide and adhere to a timetable for the approval of land regulations that includes adequate time for public debate and comment".

Furthermore, the donors do not want current applications for land to escape the new regulations. The aide memoire calls on the government "to clearly and publicly state that provisional land use concessions ''in the pipeline'' will be subject to the provisions of the new land law and accompanying regulations, especially a local community consultation process which protects smallholder and local community occupancy-based rights and enables them to meaningfully negotiate in adjudication processes with potential private investors".

Donors highlight FFA

A second condition raised by the donors concerns the Agricultural Development Fund (FFA). The FFA derives its money from cost recovery of services delivered by the Ministry of Agriculture, licenses and fees charged by the Ministry, and a contribution from the state budget.

It is the latter that the donors object to, since the Finance Ministry has indicated that transfers from the state budget to the FFA would be considered as forming part of the government's own 10 per cent contribution to PROAGRI. To the donors, this looked like the diversion of PROAGRI funds for other purposes.

"FFA's use of PROAGRI funds to finance activities which fall outside of the agreed core functions of the Agriculture Ministry would clearly constitute a violation of the proposed PROAGRI agreement with donors", says the aide memoire.

A straightforward ultimatum follows: "without the government's guarantee that FFA would be eliminated or that FFA's functions would be redesigned to make them consistent with the Ministry's core functions, donors would ultimately be unable to support the PROAGRI programme", the document warns.

Donors promise to support PROAGRI

If these conditions are met, there will probably be enough foreign funding to meet all of PROAGRI's costs. The indicative budget presented by the government for the five year programme is $202 million. $20 million of this is to come from the government leaving $182 million to be raised from funding agencies.

There are already existing commitments to the agricultural sector of $95.4 million: these grants and credits remain valid if the projects they are committed to are in line with PROAGRI principles.

Potential new funding is $127 million, which brings the total possible foreign funding to $222.4 million. $42 million comes from the World Bank and a further $42 million from the African Development Bank. The contribution from the European Commission is likely to be $43 million, from Holland $20 million, and from Australia $15 million. Other likely donors include Denmark, the United States, Britain, Italy and Ireland.

The aide memoire warns that these figures should be used "with care", because some donor money may be committed, not to PROAGRI as a whole, but to particular programme components, or particular parts of the country. "As a result, certain components may be under-financed and some over-subscribed", the document says.

PROAGRI marks a break with the past practice of many individual projects sponsored by various agencies. The aide memoire recognises that moving from projects to a single, inclusive programme poses difficulties, because donors will now have to coordinate their efforts.

The aide memoire indicates that donors will be willing to pay for substantial increases in the wages of key Agriculture Ministry staff. The ministry has proposed bonuses for up to 300 civil servants, raising salaries by between $700 and $1,000 a month (the current top wage in the civil service pay scale is less than $500 a month).

"On the basis of a system which is unified, on-budget, compatible with the civil service reform and provides adequate incentives for staff to accept decentralised positions, donor agencies support such a proposal and could finance it if required".

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