A Commission of Inquiry (CPI) established by the National Assembly recently confirmed that the previous government, headed by president Armando Guebuza, did indeed break the Budget Law and violate the Constitution when, in 2013 and 2014, it issued guarantees for huge loans granted by European banks (Credit Suisse and VTB of Russia) to the quasi-public companies Ematum, Proindicus and Mozambique Asset Management (MAM).
These loans – US$850-million for Ematum, US$622-million for Proindicus, and US$535-million for MAM – were on commercial terms, with high interest rates and short repayment periods. They added 20% to Mozambique’s foreign debt, and pushed it beyond the bounds of sustainability.
On Friday 9 December, the Assembly debated the Commission’s report behind closed doors, because a clause in the parliamentary standing orders determines this procedure for all commissions of inquiry.
The report notes that the reason given for setting up the three companies was security in the Mozambique Channel. A ‘Project for Monitoring and Protection of the Exclusive Economic Zone’ had been drawn up, and Ematum, Proindicus and MAM were among the instruments for implementing it.
The Project has never been published. It was deemed necessary because of threats of maritime piracy, illegal immigration, terrorism, drug trafficking,
illegal fishing, and the need to guarantee security for oil and gas exploration.
So Proindicus was established in January 2013 in order to institute “integrated systems of aerial, spatial, maritime, lake, river and terrestrial security”. Ematum followed in August 2013, with a loan intended to import not only tuna fishing boats, but also for “coastal protection”. MAM came into being in April 2014, and its loan, the report says, was intended to set up “naval shipyards” in Maputo, and the northern city of Pemba (Cabo Delgado Province) “to maintain and repair vessels on land and at sea”, as well as to acquire a floating dock.
The report notes that the limit on government guarantees in the 2013 budget law was MT183.5-million (about US$6.5-million, at the exchange rate of the time). There was the same limit in the 2014 Budget Law. Since the three loans guaranteed amounted to over two-billion dollars, the Commission was in no doubt that the government had broken the budget laws.
The report also cites Article 179 of the Constitution, which states that it is the exclusive power of the Assembly to authorise the government “to contract or grant loans, to make other credit operations, and to establish the ceiling for State guarantees”. But, since the government did not go to the Assembly to request any authorisation, it was in violation of the Constitution.
The Commission was also concerned at the failure to inform the International Monetary Fund (IMF) of the Proindicus and MAM loans (the IMF already knew about Ematum because its loan took the form of a publicly issued bond). As a member of the IMF, Mozambique is bound by the IMF Constitutive Act to inform the IMF about government guaranteed debts.
“It is clear that the government assumed a series of obligations to the IMF, which should be punctually complied with, so that relations between the two bodies are not endangered”, says the report. But the government “broke trust” with the IMF by concealing the Proindicus and MAM loans.
“For purposes of relations with the IMF, the two loans are of a public nature, and there was thus a duty on the government to inform the IMF”, the report adds. The government could have come clean during the 2015 discussions with the IMF assessing the performance of the Mozambican economy. Instead it kept quiet, and the IMF only found out about the loans in April 2016. This, the commission noted, “compromised all the agreements reached” in 2015 – the most important of these was a US$283-million loan under the IMF’s Standby Credit Facility (SCF). The second instalment of this loan was frozen when the IMF found out about Proindicus and MAM.
When the government guaranteed the three loans, it assumed the companies would become profitable, and could thus pay off the loans without activating the guarantees. Viability studies were undertaken, which were remarkably optimistic, predicting that both Proindicus and MAM could pay off the loans in six years.
“Despite the high degree of optimism surrounding the creation of the companies and the contracting of the debt, the Commission believes that current reality shows the opposite, since the companies do not have the economic and financial
capacity to pay off the debts within the contractually agreed periods”, said the report. “The financial projections were made on the basis of unsustainable and hypothetical assumptions, and did not take into account factors of risk and uncertainty that were far from negligible”.
In the viability studies “there was apparently no effort to take into account the risks inherent to the country’s situation, such as its vulnerability to international commodity prices”.
The Commission said the government, in issuing the guarantees “should not have ignored the heavy weight that the financing potentially implied with a geometric growth in the country’s total debt stock”.
Furthermore, the money from the loans was apparently transferred in total to the contractor (this is the company Abu Dhabi Mar, owner of the CMN shipyard in the French port of Cherbourg where the Ematum and Proindicus boats were built. The key shareholder in Abu Dhabi Mar is the Lebanese company Privinvest).
Transferring all the money “ignored the needs for management funds, staff hiring and training costs, apart from the opportunity costs of time linked to bureaucratic procedures (licensing, recruitment etc.) which should have weighed in assessing the period for debt repayment, and hence in the overall analysis of the capital cost”.
The report also found the relations between the three companies, the contractor and the creditors (the banks) were far too close. These relations “were not transparent”, and the government ought to have brought in an independent inspecting body to check whether the assets ordered by Ematum, Proindicus and MAM had been delivered
The Commission interviewed a large number of figures in the previous and current government and other public entities, and found that only three had any in-depth knowledge of the loans – these were Guebuza, former finance minister Manuel Chang, and the security official Antonio do Rosário who became chairperson of all three companies.
Thus, people who apparently did not know much about the loans included the then governor of the Banco de Moçambique, Ernesto Gove, the then minister of fisheries, Victor Borges, and the then deputy minister of defence (and current Fisheries Minister), Agostinho Mondlane. They, plus members of the current government, such as Prime Minister Carlos Agostinho do Rosário and Finance Minister Adriano Maleiane, proved unable “to give deep answers which might have helped the Commission obtain information to clarify the public debt of the three companies”.
Since the guarantees were issued illegally, the hypothesis of declaring them null and void could be raised. However, the Commission doubted that this would have much effect, since the three loans are governed, not by Mozambican law, but by English law. Should the government default on its guarantees, the banks could seek redress through English courts which could order the seizure of Mozambican assets.
Nonetheless, the Commission insists that prime responsibility for paying the debts lies with the companies. The report recommends “that the government take measures to make the three companies profitable, maintaining the position that the debts should be paid by the companies and not by the public treasury”.
There is now an audit of Ematum, Proindicus and MAM under way, led by the Attorney-General’s Office, and using the skills of the independent US-based forensic auditing company, Kroll.
Alongside the audit, the Commission recommends investigating exactly what the three loans were used for. A notable gap in the report is any list of assets acquired and their prices: doubtless this is a gap that the Kroll audit can fill,
The Commission also calls for investigation into “any signs of illicit use of public funds by private individuals or companies during the contracting of the debts and issuing of guarantees”.
It wants to tighten up the rules for any future loans and guarantees, notably by making it obligatory to obtain opinions in advance from the Attorney-General’s Office and the Bank of Mozambique, neither of which were consulted before the government guaranteed the Ematum, Proindicus and MAM loans.
Source: Agencia de Informacao de Moçambique
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