The Mozambican governing party's candidate, Filipe Nyusi, is almost guaranteed to win the presidential election on 15 October. His administration is likely to mark a shift in political and economic power to Mozambique's northern provinces.
IHS perspective | |
Significance | Nyusi's succession will mark a ‘shift to the north' in terms of both political and economic power on the back of vast natural gas reserves in northern provinces. |
Implications | Northern elite networks are likely to seek increased capture in the downstream natural gas sector by establishing a monopoly in logistical services to gas operators. |
Outlook | Gas operators will face a choice between paying premium prices for logistical services and confronting the government to promote plans for floating LNG terminals. |
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Incumbent Armando Guebuza is due to be replaced after |
The official campaign for Mozambique's presidential, parliamentary, and provincial elections opened on 31 August. The Mozambique Liberation Front (Frente de Libertação de Moçambique: FRELIMO) has been in power since the first democratic, multi-party election in 1994 and is almost guaranteed to win the polls due to its overwhelming grassroots support in Mozambique's rural areas. The latest opinion poll (in August) by Mozambique's Polytechnic University showed that Nyusi would win the presidential election, with 47.5% of a sample of 10,698 registered voters backing him, ahead of his only two rivals Daviz Simango (35.7%) of the Democratic Movement of Mozambique (Movimento Democrático de Moçambique: MDM) and Afonso Dhlakama (10.9%) of the current main opposition Mozambican National Resistance (Resistência Nacional Moçambicana: RENAMO). RENAMO has a smaller support group in central rural areas, whereas the MDM lacks the organisation to campaign beyond its strongholds in large cities. Therefore, Nyusi is most likely to become Mozambique's next president, replacing incumbent Armando Guebuza, who is due to step down after his second and final term expires.
Upon Nyusi's election as FRELIMO's presidential candidate on 1 March, IHS assessed that his succession would mark a shift in political and economic influence to the northern provinces of Mozambique, especially Nyusi's native Cabo Delgado (see Mozambique: 5 March 2014: Mozambique's northern political elite become more influential in the natural gas and LNG sector in Cabo Delgado). Nyusi, a former defence minister, will become the first president who does not hail from Mozambique's southern or central regions. Cabo Delgado will take on an increasingly important economic role due to the presence of vast natural gas deposits discovered in the Rovuma Basin. On 26 August, Minister for Mineral Resources Esperança Bias said Mozambique had one of the world's 10 largest natural gas reserves with 170 trillion cubic feet discovered. The government expects the natural gas sector to attract capital inflows worth USD70 billion over the next 10 years - almost five times Mozambique's 2013 GDP of USD15.3 billion - as well as further investment to develop the country's inadequate rail, road, and port infrastructure.
"Shift to North"
At least in the three-year outlook, Nyusi's political legitimacy will depend on the support of Alberto Chipande, another former defence minister from Cabo Delgado, whose backing was crucial to secure Nyusi's nomination in March. Chipande effectively became FRELIMO's 'kingmaker' by rallying the support of northern influence groups and military veterans, as well as a younger generation of technocrats within the party. Chipande promotes the participation of native northerners in the economies of the region, especially Cabo Delgado. He represents the lobby group Cabo Delgado em Movimento (CDM), which promotes such local participation in the province. For example, CDM's business arm, Cabo Delgado Investimentos (CD-I), strongly supported the awarding in April of sub-lease contracts for the Pemba logistics base to ENH Integrated Logistics Services (ENHILS), a company in which northern political leaders hold much decision-making authority. Pemba will become the key logistical base to support the natural gas and LNG industry, and much infrastructure investment will be focused on Pemba, as well as nearby Palma where the construction of two liquefaction plants is being considered. In another example of growing local participation in northern industries, in December 2013 the government awarded a lease to run port and logistics terminals in Pemba and Palma for 30 years to Portos de Cabo Delgado, in which northern leaders also hold much decision-making authority. State investment vehicles and public companies such as ENHILS and Portos de Cabo Delgado are likely to exert considerable influence over the awarding of infrastructure tenders.
Angolan model
Northern elite networks are envisaging increased 'state capture' in Mozambique's downstream natural gas sector; that is, seeking to control gas revenues by monopolising the sector's logistical services. This model is directly inspired by Angola's investment framework for the oil and gas sectors. Indeed, ENHILS is co-owned by SONILS, a similar logistical firm owned by Angola's state oil company, Sonangol. However, it is unlikely that Mozambique's state oil company Empresa Nacional de Hidrocarbonetos de Mocambique (ENH) will be able to emulate Sonangol in the 10-year outlook. ENH lacks a centralised authority as its mandate is restricted by the regulator (INP) and distributor (Petromoc). Moreover, it still lacks the considerable operating experience and financial resources of its Angolan counterpart.
Yet, ENH and ENHILS roles are very similar to those of Sonangol and SONILS. The role of ENH is to secure state revenue through shares in oil and gas projects. The role of subsidiary ENH Logistics and ENHILS (an ENHL subsidiary) is to participate in the logistics market to enforce local content provisions. A new Petroleum Law that was passed on 15 August specifies ownership provisions for ENH in foreign investments in natural gas concessions. However, the new law provided no clarity over ENH ownership provisions that allow the state company to increase its stake in natural gas concessions in the future. Moreover, ENH will use its stake in concessions as equity contributions to joint-venture developments.
Local partnerships
Angolan law requires foreign investors to partner Angolan private companies, alongside Sonangol's free carried interest in joint ventures. Mozambique's new Petroleum Law makes no such requirements. However, it is likely that ENH and ENHL will strongly encourage foreign investors in both gas production and logistical services to partner Mozambican partners. Northern, politically affiliated companies (especially those associated with Chipande and other CD-I figures), such as Quionga Energia and Epsilon Investimentos, are likely to be favoured in the formation of such partnerships.
Outlook and implications
The imposition of a monopoly in gas sector logistical services by ENHILS has triggered resistance from the two main investors in the natural gas sector, Italy's Eni S.p.A and Houston-based Anadarko Petroleum Corporation, which had favoured a public tender for the sub-lease of the Pemba and Palma logistical bases. Denmark's A.P. Moller–Maersk Group and Norway's Norsea had expressed an interest in the base sub-leases.
It is likely that operators such as Eni and Anadarko will be charged premium prices for logistical services that are monopolised by ENHILS. Eni is now more likely to exert pressure on the government to proceed with Floating LNG (FLNG) plants that would require less local participation. IHS Energy confirms that Anadarko is less keen on proceeding with the FLNG option and will be monitoring developments in the gas-to-liquids sector, which is driven by South Africa's Sasol and Royal Dutch Shell. However, IHS sources report that the government, and especially the regulator INP, is opposed to plans for FLNG as these would provide less local beneficiation through employment and skills development. The ensuing dispute over the ENHILS lease and FLNG is likely to further delay the implementation of the new Petroleum Law and required regulations for the sector. According to the INP, the new Petroleum Law will only be implemented for new licences that will be issued after the fifth licensing round. IHS Energy expects companies with existing licenses will be able to choose to transition to the new regime or stick with the existing framework.
The northern political elite will increasingly act as the main decision-maker for investments in the natural gas sector and associated infrastructure projects. Northern leaders already hold much decision-making authority within ENH and will play a crucial role in negotiations over whether to increase ENH's interest in natural gas joint ventures (from the current 10-15% to a possible 35-40%), though this threat is heavily mitigated by ENH's inability to offer market prices for stakes.