Big Costs, Big Risks: Mozambican shares in Rovuma Natural Gas

Financing Mozambique’s ownership stake in the first phase of Rovuma LNG will cost billions of dollars. The government does not have the right to pay for its share out of future production, and must borrow the money to pay it up-front share. The risks and costs are high.

By  Center for Public Integrity, 29/04/2013 National oil companies are a leading cause of the “resource curse” due to financial mismanagement, political influence, and corruption. And the benefits are uncertain. Early Revenues will be more than offset by the costs of servicing the debt. Once again, Decisions and Importance of staggering complexity are being made ​​with no public debate.

It is common for host countries to own a stake in petroleum operations, normally through a national oil company (NOC). The largest petroleum companies in the world are all state owned enterprises. Where private international oil companies operate, national governments normally hold a stake of between 10 and 60%.

While it might seem obvious that state ownership is a way to increase government revenue, this is not always the case. Analysis demonstrates that state ownership does not necessarily result in a greater share of government revenue, particularly where appropriate fiscal terms are negotiated.

And while there are potential revenue benefits to state ownership, there are also potential costs and risks. Should the project require additional capital inputs during the development phase, or incur losses during the production phase, the government would be required to cover their share.

The rationale for national ownership tends to be non-financial. In part it is symbolic: owning a share of petroleum operations is often seen to be important to protect a country’s sovereignty and to promote the national interest. There are also practical considerations including ensuring oversight of private sector activity and developing national managerial and technical expertise in the sector.

The past record of national oil companies delivering on these objectives is not impressive. Poor governance among national oil companies has been a significant factor in the so-called “resource curse.”

National oil companies have frequently been being captured by national elites who under the banner of sovereignty and national interest have pursued their own political and personal agendas.

NOCs have traditionally been highly non-transparent and prone to financial mismanagement. Perhaps surprisingly, they have also been a major draw on state finances, as they often must finance their percentage stake during a project’s development phase. In Nigeria, for example, the single largest budget item in 2005 through 2007 was payments made to the national oil company.

* For full text, see the pdf attachmentServiço de Partilha Informação

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