London, 2 Dec (AIM) – The British and Dutch governments on Monday announced that they are withdrawing a total of 2.2 billion dollars in export credit support for the Mozambique LNG project, in the northern province of Cabo Delgado, in which the operator is the French oil and gas company TotalEnergies.
The UK government said it was withdrawing its 1.15 billion dollar backing for the project. In 2020, the UK had pledged a 300 million dollar loan, plus insurance worth about 700 million dollars, for the project via UK Export Finance.
Also on Monday, the Dutch government said Total had withdrawn a 1.1 billion dollar export insurance request for the project. According to the Reuters news agency, Atradius Dutch State Business authorised 1.3 billion dollars in export insurance via two policies, the larger of which has been rescinded at the company’s request, the Dutch finance ministry said.
UK Export Finance had originally claimed that the project would benefit British interests. But on Monday, the UK Business Secretary, Peter Kyle, issue a statement declaring “Whilst these decisions are never easy, the government believes that UK financing of this project will not advance the interests of our country”.
Kyle said “In preparation to restart the project, UKEF was presented with a proposal to amend the financing terms it had agreed originally. My officials have evaluated the risks around the project, and it is the view of His Majesty’s Government that these risks have increased since 2020.” The interests of UK taxpayers “are best served by ending our participation in the project at this time,” he added.
Environmental groups have attacked Mozambique LNG, but human rights concerns are likely to have been determinant. There were reports that Mozambican troops, responsible for protecting the project, had detained, tortured and murdered civilians.
Mozambican President Daniel Chapo has denied these allegations, but they cast a long shadow over the project.
Mozambique LNG has been paralysed for four and a half years, ever since a jihadist group linked to the Islamic State terrorist organisation launched a major attack against the town of Palma in March 2021, forcing TotalEnergies to declare a state of force majeure.
With Rwandan support, the Mozambican armed forces took back control of Palma, and in October Total lifted the force majeure and declared that the area was now safe to work in.
Total has made it clear that the withdrawal of the British and Dutch support is unlikely to stop the project.
Patrick Pouyanné, the chief executive of TotalEnergies, said in February that he was “ready to exercise all my contractual rights”, apparently a threat to take legal action against companies that withdrew their initial support for Mozambique LNG.
TotalEnergies has made resuming the project conditional on reaching agreement with the Mozambican government on the extra costs imposed by the four and a half year stoppage resulting from the declaration of force majeure, and on a proposal to extend the contract by an extra decade.
In October this year, TotalEnergies announced the lifting of the state of force majeure, but claimed that the cost of the interruption was 4.5 billion dollars. It wants these costs added to the cost of the investment – which means that they will be deducted from future gas revenue produced in the Rovuma Basin, and hence from the State’s fiscal revenues.
As for extending the contract, the government saw no reason why an interruption of four and a half years should be compensated for by a ten year extension.
Last week, the Government approved a Resolution determining that the period for the Development and Production of the Mozambique LNG Project should remain the 30 years that was initially envisaged. In practice, this means that the extension of the contract between the Government and TotalEnergies will correspond only to the exact period that the project was paralysed due to the declaration of Force Majeure in March 2021.
No agreement has yet been reached on the additional costs since the Government has approved the holding of an independent audit of the costs declared by TotalEnergies, the results of which must be validated by the authorities.
(AIM)
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