Damning debt report from parliament

Secret debt illegal, unconstitutional 

Main purpose security, not fishing 

Promoted by SISE 

Intentionally kept secret 

Terrible contract

It is not sure which is more damning, the report of the Parliamentary Inquiry Commission (CPI) on the $2 billion secret debt, or the evidence given to it by high level witnesses defending themselves - notably former president Armando Guebuza, former Finance Minister Manuel Chang, and António Carlos do Rosário, the senior official of the intelligence and security service (Serviço de Informação e Segurança do Estado, SISE) who is head of the three companies, Ematum, Proindicus, and MAM.

Guebuza and António do Rosário both stressed that the main purpose of the loans was military and security, and not fishing. They mainly cited issues around costal protection, relating to piracy, the gas industry, fishing, immigration and smuggling. Guebuza also cited Renamo and other unidentified security threats, particularly electronic.

Under a still secret Integrated Monitoring and Protection System for the Exclusive Economic Zone (Sistema Integrado de Monitoria e de Proteccao da Zona Economica Exclusiva em Mocambique) set up in 2013, the three companies were created as "special purpose vehicles" that were owned by government (mainly SISE) but could act independently of it. Proindicus was set up first (January 2013, $622 mn loan) to establish "integrated systems of aerial, spatial, maritime, lake, river and terrestrial security." Then Ematum was set up (August 2013, $850 mn loan) for coastal protection and tuna fishing, and finally MAM (Mozambique Asset Management, April 2014, $535 mn loan) for shipyards.

Chang and António do Rosário both confirmed that the idea was that Proindicus would borrow $2 bn; then when that was not possible, two other companies were set up with fishing as the front. Only at the last minute did it become obvious that loans would require state guarantees. do Rosário said he know the guarantees would be illegal, but appealed to Chang's sense of patriotism. Chang confirmed he come under pressure from SISE and agreed the guarantees without telling the Council of Ministers, the Bank of Mozambique, the Attorney General's office or the IMF. He then made convoluted arguments that he had that right to decide, and that a debt guarantee was not the same as debt because it was not included in the budget because it was not expected to have to be paid by the government.

The Parliamentary Inquiry Commission rejected Chang's arguments. Article 179 of the constitution is explicit that "parliament establishes the upper limit for guarantees that may be given by the State." In 2013 the upper limit was only $5 million. The Commission report says that the loans "constitute a violation of the constitution and of budget laws" which put limits on what a finance minister can do. It went on to say that in signing a guarantee, the government "renounced its sovereignty, submitting itself to the sovereignty of the British court system" and relinquished its sovereign immunity.

Chang admitted that "for us, the funding applications were very urgent. Unfortunately, we did not have any notion that we might be abdicating our sovereignty."

Chang also argued that it was for the lenders (Credit Suisse and VTB) to tell the IMF about the loans, not the government. In any case "the IMF representation in Maputo is an office only. It is not an institution that discusses policies with the Government. Those who discuss policies with governments are the IMF's missions" to Mozambique (which are led by a more senior official). Again, the Commission rejected Chang's comments. The government has a "duty" to inform that IMF and, even if it had not done so early, it should have told the mission to Mozambique in 2015. Failing to do so "compromised all the agreements reached" in 2015, including a $283 mn loan.

Intentional secrecy

António do Rosário said that the entire package was intended to be secret, "Of course we could not go and tell either the banks or anyone else that fishing was not the main part; that it was not for us the initial objective, but only complementary." Indeed, it was against the instructions of the Mozambicans that the financier of the Ematum operation, Credit Suisse, decided to launch a public bond issue. "Then the soup was spilled, and after that we had to manage things." Activities were moved to the other two companies and the loans to them were kept secret.

Guebuza justified the secrecy on the grounds that the whole issue was "strategic-military" and that purchases were being made using "classified information" from SISE.

António do Rosário argued that that once an agreement had been reached with the Lebanese company Privinvest, he did not want any more public discussion, which would have led to an "open war" with other companies making offers.

The Commission was not impressed. It said the relations between the three companies, the contractor and the creditors (the banks) were far too close and “were not transparent”. The report said 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.

Bad contract

All of the money from the loans was apparently directly transferred to the contractor Abu Dhabi Mar, owned by the Lebanese company Privinvest. Nothing was held back, "which broke the golden rule of the world of business," and ignored totally the need to cover local costs for management, staff, training, bureaucratic procedures and initial debt repayments.

And the Commission was highly critical of “the financial projections [which] were made on the basis of unsustainable and hypothetical assumptions”. 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”.

Call for further investigation, but protecting those responsible

António do Rosário refused to give the CPI information on how the funds had been transferred and used. The Commission complains that parliament did not give it enough money to fund its own investigations - it received $70,000, only one-third of what it asked for. Thus it recommends further investigations of exactly what the three loans were used for. And it 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”.

Nevertheless, despite the Commission saying the loan guarantees are illegal and unconstitutional, it advises parliament not to renounce the debt, in order to protect those responsible from legal action. Renouncing the debt would be saying that those who offered the state guarantees acted in bad faith, and article 227 of the civil code says that anyone who signs a contract in bad faith is responsible for the damages caused to the other party.

Would do it again

Guebuza on 28 November told the Commission that the whole process was correct and he would do it again: "Under these conditions, I believe any responsible government would act as we did. And if we were in the same conditions and had to make the same decisions, considering the circumstances at that moment, we would do exactly the same thing today, in defence of the beloved homeland and the wonderful Mozambican people." Guebuza also lectured the Commission on his role in the armed struggle, "abandoning" his family and being jailed on his way to fight, eventually reaching Frelimo in Tanzania. He then stressed how "proud" he was of what he had done as president. The implication was that mere members of parliament had no right to question him.

António do Rosário also claimed success. "First is to do, and only later explain how we did it. Then at least there's no way around it. And it looks like it worked. Perhaps we will be blamed for doing what we did. But we did it deliberately, with the objective of serving the state. And we succeeded."

Secret but leaky

The Commission took evidence in secret, its report is secret, and the report was debated by parliament in secret on Friday, 9 December. But details have been widely published in the independent press and by the state news agency AIM, although not by the state-owned daily Noticias. This Bulletin is compiled from AIM English & Savana 9 Dec, Zitamar 8 & 9 Dec, O Pais and MediaFax 7 Dec, Magazine Independente 6 Dec, and Canal de Mocambique 30 Nov.

In MOZAMBIQUE 348
News reports & clippings
 - 11 December 2016