Mozambique: ENH ‘seeking cheaper financing’ for stake in natural gas megaproject

Mozambique’s state-owned oil and gas company, Empresa Nacional de Hidrocarbonetos (ENH), intends to find cheaper financing than it currently has available to it, to fund its participation in the country’s largest natural gas project, now under construction, the government has announced.

“There is an agreement” with the other partners in Area 1 in the Rovuma basin off the northern coast of Mozambique – that is, international oil companies led by Total of France – to finance ENH’s 15% stake “in the construction phase”, explained Mozambique’s minister of mineral resources and energy, Max Tonela, on a visit to the site on the Afungi peninsula on Friday.

“But as a company, ENH aims to maximise the return on its investment and, from that perspective, is working with financial advisors … in order to find financing alternatives that allow lower costs of the operation,” he added, without detailing figures. “This exercise is still ongoing.”

Tonela stressed that “there is no risk to the project” due to this need on the part of ENH to secure loans to help fund its position in the venture, explaining that it was “a refinancing exercise of its participation in the project, with lower costs.”

Financial news agency Bloomberg reported on Friday that financial advice was being provided by France’s Société Générale as part of its existing service to Mozambique LNG, as the consortium undertaking the Area 1 megaproject is known.

In November the raising of about $1.5 billion (€1.3 billion) for ENH’s participation in Area 1 was the largest project presented at an investment forum organized by the African Development Bank (ADB) in Johannesburg, South Africa.

It was the first presentation by the Mozambican state to banks and international investors following the restructuring of the country’s sovereign debt, agreed with creditors in October 2019, and after the financial rating agency Fitch removed it from the default list where it had ended up following the ‘hidden debts’ scandal in which more than $2 billion in loans were found to have been contracted by state enterprises; the case is now in the hands of the courts.

Akinwumi Adesina, the ADB president, said at the time the funding was raised that supporting ENH’s participation in Area 1 represented a “fantastic” investment opportunity in a “well-structured” project.

Tonela, when asked during his visit to Afungi whether ENH’s indebtedness and the drop in global demand could swallow up the benefits that the state could gain from the megaproject, reiterated that the “project is viable” and that “all parties will gain benefits”.

Modelling for the Area 1 project point to overall gains, over its 25-year term, in the order of $61 billion, Tonela said, adding that “the Mozambican State, through taxes, profit sharing and participation of ENH will have just over 50%, about 31 billion dollars.”

On the other hand, the outlook for the world market for energy products “indicate that in the medium [and] long term there will be an increase in demand” and that liquefied natural gas “will have a higher growth rate than other products”, given that the trend for substitution of sources “in favour of cleaner energy” will benefit gas over coal – which has for decades been one of Mozambique’s main export products.

The Area 1 project is expected to start in 2024 and reach full production of 13.12 million tonnes per year of liquefied natural gas by 2025.