LNG hopes rise in Mozambique as potential for war fades

By TOM BOWKER
Bloomberg

The chances of Mozambique, which could become the third-biggest liquefied natural gas (LNG) exporter in a decade, returning to a civil war are receding as an opposition leader and ex-guerrilla tones down his threats, analysts said.

The defeat in parliament of a bid for autonomy for six provinces will instead probably mean drawn-out negotiations between the ruling party, the Front for the Liberation of Mozambique, and the Mozambican National Resistance, known as Renamo, said Anne Fruhauf, a Mozambique analyst at Teneo Intelligence in New York.

Renamo’s leader has backed away from earlier threats of violence since the April 30 vote, Fruhauf said in e-mailed comments on May 4.

Renamo fought a 16-year civil war with the government that ended in 1992 and disputes the results of October elections won by the ruling party, known as Frelimo, which has ruled since independence from Portugal in 1975. Its leader, Afonso Dhlakama, has demanded the right to govern the six provinces where Renamo claims more support than Frelimo, and in February secured an agreement from President Filipe Nyusi that this would be debated in the Frelimo-dominated parliament.

“Parliament’s rejection of the bill –- while hardly a surprise –- will require renewed negotiation efforts on the part of the Nyusi administration,” said Fruhauf.

Both Nyusi and Dhlakama have said they are prepared to meet again to seek agreement. Dhlakama on May 3 told Mozambican TV station STV he wants to avoid having to take power by force and gave Frelimo two months to change its mind on the autonomy proposal. He had previously insisted he would take power in the central and northern provinces by this month.

Gas Bounty

Discoveries in the Rovuma Basin off the coast of northern Mozambique could make Mozambique the biggest producer of LNG after Qatar and Australia by the middle of the next decade, according to Anadarko Petroleum, which leads one of two groups planning to extract the gas. Eni, which leads the other, and Anadarko have both said that decisions to proceed with their projects could be made this year.

“Although a dramatic escalation of tensions is unlikely for now and flagship investment projects like the Rovuma LNG ventures face limited exposure, perceptions of macro-level risk may increase,” Fruhauf said.

LNG is gas chilled to liquid form to allow its transportation by ship to customers.

A political agreement between Frelimo and Renamo is becoming increasingly likely in 2015, said Robert Besseling of IHS Intelligence. “If the negotiations fail to placate Renamo’s armed wing, the outlook for violence will continue beyond 2015 and raise the prospect of attacks aimed at causing economic disruption and investor fright.”

Chaos Averted

The failure of Renamo’s proposal in parliament is positive for business in the sense that it has prevented the introduction of an additional tier of government, Besseling said.

“The rejection of the provincial autonomy bill ensures that chaotic reshuffles and reorganization of local governments is now unlikely to go ahead, lowering risk to contract enforcement or of contract alteration,” he said. Neither Frelimo nor Renamo has the capability or motivation to resume all-out war, he said.

A potential threat to stability is a change of heart by Renamo’s leader, said Alex Vines, head of the Africa program at London-based foreign policy research group Chatham House. “Dhlakama easily flip-flops,” said Vines. “He may seek compromise today, but soon may revert to threatening a return to force. As we saw in the April 2013 to July 2014 armed clashes this can be disruptive for central Mozambique.”

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