Mozambique: British Campaigners Call for Mozal Renegotiation

Maputo — Campaigners in Britain have added their voices to calls that the tax incentives for the Mozal aluminium smelter on the outskirts of Maputo should be renegotiated.

Two British NGOs, the Jubilee Debt Campaign, and the Tax Justice Network, plus the Mozambican organisation Justica Ambiental (Environmental Justice) are calling on Mozal’s main shareholders to return to Mozambique what they regard as “excessive” profits.

Mozal was the first major foreign investment in Mozambique after the end of the war of destabilisation in 1992, and the first multi-party elections in 1994. The first phase of Mozal came on stream in 2000, and an extension to the smelter, doubling its production, become operational in 2003.

Seeing Mozal as a beacon signalling that Mozambique was open for business, and would welcome foreign investors, the government offered the smelter very generous tax breaks. In particular, Mozal was exempted from the corporation tax which is normally levied on company profits at the rate of 32 per cent.

The main tax Mozal pays is a one per cent turnover tax. Most of the smelter’s profits can be exported.

The main beneficiary from these arrangements is undoubted the Anglo-Australian company BHP-Billiton, which owns 47 per cent of the shares in Mozal. Mitsubishi of Japan owns 25 per cent, and the Industrial Development Corporation (IDC) of South Africa 24 per cent. The remaining four per cent is owned by the Mozambican state.

According to an article in Tuesday’s issue of the British daily “The Guardian”, the tax campaigners calculate that foreign investors, governments and development banks have received an average of 320 million US dollars a year from the smelter, in contrast to the Mozambique government's 15 million dollars. (These figures run together Mozal profits, with the repayment of the bank loans used to build the smelter).

"It is scandalous that a project with so much international development funding has yielded large profits for foreign governments and multinational companies, but very little for Mozambique," said Tim Jones, policy officer at Jubilee Debt Campaign. "The UK government, World Bank and others should hand their excess money back to the people of Mozambique, and support a renegotiation of the amount of tax the smelter pays."

The World Bank and Britain enter the picture because they were involved in funding the construction of Mozal. The two phases of the smelter cost 2.2 billion dollars to build – half of this came from private investors, and half from development finance bodies, such as the World Bank's private-sector arm, the International Finance Corporation (IFC), the European Investment Bank and the Commonwealth Development Corporation (CDC), which is not really a commonwealth body at all, but a British development finance institution, wholly owned by the British government’s Department for International Development (DFID).

According to the report, Britain provided 53 million dollars of loans from CDC and guaranteed 145 million dollars of loans through UK Export Finance.

The UK government has made a considerable amount of money out of Mozal. It has received 88 million dollars in interest on the CDC loan, as well as repayment of the capital. The report estimates that, in total, the CDC and other British public institutions made more than 120 million dollars a year out of the smelter, eight times more than the average of 15 million dollars a year received by the Mozambique government.

The CDC can see nothing wrong with these arrangements. It commented "We believe the terms of the loans to be reasonable given the conditions in Mozambique in 1998. At the time, neither increased production nor rising aluminium prices were a given, especially considering the recent political upheaval in the country and a moribund aluminium market. Fortunately, over the 13-year duration of the loans, increased production at Mozal combined with a dramatic rise in the price of aluminium generated 45.6 million dollars of additional performance-related payments to CDC."

There was indeed a boom in aluminium prices, reaching its peak in March 2008. However, the ensuing international financial crisis late that year led to a crash in the price of aluminium and various other commodities.

Prices have fluctuated over the past three years, but have not approached the 3,012 dollars a tonne reached in March 2008.

BHP Billiton’s response to the report was that Mozal has trained thousands of workers and that 93 per cent of Mozal workers are now Mozambicans. "The smelter's success has encouraged others to invest in the country," said BHP. "The government is a shareholder and receives a proportional share of dividends."

Mozambican civil society voices have insistently demanded that the tax arrangements for Mozal and other early mega-projects (such as the extraction and treatment of natural gas in Inhambane province by the South African petro-chemical giant, Sasol) should be renegotiated.

The legal framework for such a renegotiation already exists. A law passed in 2011 by the country’s parliament, the Assembly of the Republic, on private-public partnerships, large scale projects and business concessions, contains an article which will allow "the renegotiation of particular contractual clauses, through mutual agreement between the parties, in order to share benefits equitably".

Among those who have publicly stated that the early mega-project contracts should be renegotiated are the governor of the Bank of Mozambique, Ernesto Gove, former Prime Minister Luisa Diogo, and renowned American economist Jeffrey Sachs.

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