Mozambique: Constitutional Council Rules Secret Debt Null and Void

(File photo).

The secret loans to MAM and Proindicus are "null and void", the Constitutional Council (CC) ruled Friday (8 May). That means that the highest court in Mozambique has ruled that the loans and the guarantees should be treated as if they never had existed. It is an extremely strong ruling which will give essential support to the government in cases being brought in the London High Court.

The two non-concessional, commercial loans were a $622 mn loan granted to Proindicus in 2013 by Credit Suisse supposedly for maritime security and a $535 mn loan granted to Mozambique Asset Management (MAM, official name is in English) by the Russian state bank VTB to construct shipyards and naval repair facilities in Pemba and Maputo.

In its decision, the CC cited the special parliamentary commission of inquiry which found that the loan guarantees given by the state had not been authorised by parliament, and thus violated the constitution. It also cites the audit court (Tribunal Administrativo - TA) to say that the loans were never included in accounts submitted to the TA, and the government "unequivocally violated" the constitution.

The actual case was brought by 2000 citizens and the NGO N'weti, which is part of the Budget Monitoring Forum which has taken the lead on the debt issue. N’weti wanted a declaration that the inclusion of the loans in the government accounts of 2017 was illegal or unconstitutional. The case brought to the CC did not include the Ematum loan and bond issue, which is more complicated because parliament did approve the issue of new bonds. But the CC notes that the original Ematum loan is equally illegal.

Comment: Why this is important As structured, the ruling is particularly important to back up the government in the London High Court, where it is being sued by Credit Suisse, VTB and Privinvest. International loans always say where disputes are adjudicated, and in this case it is the London High Court, acting under English law. Traditionally, the High Court has given little importance to the laws of the countries involved. But this changed in a case in the High Court in 2018 about Ukraine debt in which judge William Blair said that under certain circumstances national law and constitution could be taken into account. The debtor country had to show that the debt was unconstitutional and that government had never recognised the debt as legal. Ukraine lost its case because, although the loan was unconstitutional, the government had included the money in its budget and on its website. But the nature of the CC ruling is that the debt is unconstitutional, under Mozambique law it never existed (which nullifies the one government attempt to include it in the 2017 budget, which was the basis of this case), and the CC stresses that both the parliamentary commission and the TA rejected the loan and guarantee so the debt was never accepted as legal. The cases against Mozambique are largely based on the government guarantees signed by Manuel Chang and others, but which the CC says must be treated as if they never existed. The CC ruling is so strong and so complete, that it will make it very difficult for Credit Suisse, VTB and Proindicus to make their case.  jh

The ruling is on 7.CC.2020.pdf The Portuguese text of the decision is: "O Conselho Constitucional declara a nulidade dos actos relativos aos empréstimos contraídos pelas empresas Proindicus, SA, e Mozambique Asset Management (MAM, SA), e das garantias soberanas conferidas pelo Governo, em 2013 e 2014, respectivamente, com todas as consequencias legais."

Proindicus, Ematum and MAM should be dissolved, the office of the Public Prosecutor told the Maputo City Court on 8 and 9 April. The companies have suspended their activities for more than three years, and the liquidity of the three companies, owned by he security services and set up with money from the hidden debts, is less than half the value of their capital stock. (TVM, LUSA, Zitamar, AIM)

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