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Release of audit raises huge questions over $2 billion loans to Mozambique

  • A condition of Credit Suisse to get the loans signed off by the Bank of Mozambique was dropped in order for the loans to be given
  • Credit Suisse and VTB gave or arranged loans to three companies which had no revenue, and without the contracts in place to suggest that they would generate revenue in the future
  • There is an unexplained difference of $683 million to $714 million on what was paid for equipment bought by the loans, and its’ expected cost

The summary of the Independent Audit into the secret loans to Mozambique has been released by US company Kroll. While information is still lacking in many areas, it offers a strong critique of the deals, providing further evidence of why the Mozambique people should not have to make one dollar of debt payments.

As a recap on what we know so far, in 2013 London banks Credit Suisse and VTB Capital gave or arranged around $2 billion in loans to three state owned companies in Mozambique – Proindicus, Ematum and MAM. The loans were supposed to be spent on a tuna fishing fleet, maritime security boats and associated infrastructure.

All of the loans were given government guarantees by senior officials in the Mozambique government, yet two of the loans were not publicly revealed at the time, and none were approved by the Mozambique parliament, violating the country’s constitution, and bringing into doubt their legality. The audit confirms this, saying “there was no involvement of Parliament or the Administrative Court in the process of assessing or approving the government guarantees”. However, all of the loans are owed under UK law, so any dispute arising about payment or the role of the banks will ultimately be heard in London Courts.

Campaigners from Jubilee Debt Campaign protesting against Credit Suisse's secret loans to Mozambique, outside their office in Canary Wharf, London

Campaigners from Jubilee Debt Campaign protesting against Credit Suisse’s secret loans to Mozambique, outside their office in Canary Wharf, London

The audit reveals that Credit Suisse initially said the loans needed to be approved by the Bank of Mozambique, checked by the Mozambique Administrative Court and reported to the IMF. This would have meant far greater scrutiny of the loans, and it is likely they would never have gone through. However, for some unknown reason this requirement was dropped, with the audit saying “Further documentation is needed to confirm how the lending proceeded without meeting the required conditions”.

Furthermore, when the loans were given, none of the Mozambique companies had generated any revenue (they effectively still haven’t) and the contracts were not in place to suggest that they would. For example, the rationale behind the maritime security boats generating revenue is that gas companies operating offshore would pay for their protection, yet the audit reveals that “no contracts were agreed with foreign gas companies, even in principle, for the provision of security services prior to signing the loan agreements, and that none have been signed or agreed at the time of reporting”.

Together these details raise large questions over whether Credit Suisse and VTB conducted any due diligence regarding the loans, never mind adequate investigations to ensure Mozambique law was being followed and the loans would be invested in companies which would be able to repay.

The independent auditors Kroll try to work out whether the cost of the equipment supplied was related to what it should have cost. For the loans to Proindicus and Ematum, they estimate based on two methodologies that the equipment should have cost $505 million to $536 million, but actually Proindicus and Ematum were charged $1,219 million, an unexplained difference of $683 million to $714 million.

Kroll say that “The differences between the prices of assets and services outlined in the invoices provided to Proindicus and EMATUM by the Contractor [the Privinvest Group] may be clearly explained by additional documentation from the Contractor. However, at the conclusion of Kroll’s Independent Audit the differences remain unexplained and warrant further consideration”.

Another detail revealed by the audit is that the loans to Proindicus and Ematum, arranged by Credit Suisse, were structured in such a way as to suggest the headline interest rate being charged was lower than the real interest rate, to get around Mozambique Ministry of Finance objections to paying a high interest rate, but getting the return on the loans the lenders and buyers of the debt wanted. Again, this raises further questions as to why Credit Suisse acted in this way.

Further details revealed by the audit include that:

  • All of the loans initially went straight from Credit Suisse and VTB to the Privinvest Group, with none going in to Mozambique (there are question marks about some payments which were subsequently sent from the United Arab Emirates to Mozambique).
  • The Privinvest Group and Mozambique government disagree over how $500 million of the loan to Ematum was spent. In 2015 the IMF appears to have accepted the Mozambique government’s account of this loan, without there being any evidence it had the documentation to do so, and raising big questions as to why the IMF agreed $282.9 million of loans at the same time.
  • $57.3 million of fees were agreed to be paid by Proindicus to Palomar (part of the Privinvest Group, which was placed in administration in October 2016), Credit Suisse and VTB on loans that were never taken. At least $8 million of these fees has been paid, but it is unclear how much more.

The audit confirms all three loans are now in default. The Mozambique people never had any say in these loans and never stood to benefit, and therefore should not have to pay one dollar towards them.

Campaigners in Mozambique have called for a set of changes before the IMF lends more money to the Mozambique government, including public disclosure of the full audit into the debts, mechanisms to hold the officials responsible for the loans accountable for their actions, greater tax collection from megaprojects in the country, and cancellation of the secret debts.

You can support their calls by emailing Rory Stewart, UK Minister at the Department for International Development responsible for Mozambique.

Credit Suisse and VTB Capital have declined to comment to Jubilee Debt Campaign.


Countries

Mozambique, United Kingdom
Jubilee Debt Campaign is a company limited by guarantee, number 3201959
Jubilee Debt Campaign's registered charity number is 1055675