29 June 2017

Mozambique: Prime Minister Emphasises Kroll Report Will Strengthen Transparency

Prime Minister Carlos Agostinho do Rosario has told reporters that the recommendations from the independent audit into Mozambique's hidden debts will serve as a basis for the country to strengthen transparency in the management of public assets.

The debts result from loans of over two billion dollars from European banks (Credit Suisse and VTB of Russia) to the security related companies Ematum (Mozambique Tuna Company), Proindicus and MAM (Mozambique Asset Management), which were illicitly guaranteed by the previous government. The three companies were audited by the London branch of the firm Kroll Associates, and the Attorney-General's Office (PGR) published the executive summary of the audit report on 24 June.

Speaking on 25 June, Rosario said the government regarded publication of the report as an important step in restoring the confidence of investors and donors.

"Certainly, it brings recommendations that will serve as a basis for us to continue strengthening levels of transparency in public management", the Prime Minister stressed. His expectation was that subsequent steps to be taken by the PGR, in compliance with the audit's recommendations, would clarify everything that is still unexplained.

Rosario echoed the promise given by President Filipe Nyusi that the government will cooperate with the PGR so that it can fully respond to all the questions that have to be explained. More work will be done, and more steps will be taken, he pledged.

Former President Joaquim Chissano also believed that the audit report would be a valuable instrument for ensuring the better use of public assets, "which should be used properly to guarantee the growth and development of Mozambique".

"The report will advise us on better use of public goods, not only money, but also material assets", said Chissano. He was sure that, on the basis of the report, the State will introduce mechanisms to ensure that the best use can be made of the country's resources.

Meanwhile, the bank Credit Suisse has claimed that auditors from Kroll exaggerated the amount the bank was paid in fees. Credit Suisse was the lead bank in the loans of US$850 million to Ematum, and of $622 million to Proindicus. The third loan, to MAM, did not come from Credit Suisse, but solely from VTB.

According to the executive summary of the audit report from Kroll, the bank fees on the Ematum loan were $13.7 million, and on the Proindicus loan slightly more than $10.113 million. But in addition to the fees charged by the banks themselves, there were also "contractor fees", which the banks deducted from the loan sums. The Kroll report states "Of the total $2 billion loan proceeds, $199.7 million was deducted by Credit Suisse and VTB for Arrangement Fees ($58.8 million) and Contractor Fees ($140.9 million)".

The Contractor, Lebanon-based Privinvest group, explained to Kroll "that the Contractor Fees (or "Subvention Fees") were introduced to allow the lending banks to achieve a return at an interest rate more accurately reflecting Mozambique's risk profile. Credit Suisse explained that the Contractor Fees were effectively passed on to syndicate loan members or, in the case of EMATUM, to note investors that purchased the debt".

Credit Suisse, cited by the Bloomberg news agency, accuses the report of being "incorrect and misleading", and claims "banking fees for Credit Suisse totalled $23 million - roughly 2.3 percent of the total financings and is in line with comparable emerging-market financing transactions."


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