COLUMN | Disappearing acts: Mozambique’s tuna money, The Metals Company’s alleged big investor, and LNG CO2 emissions [Offshore Accounts]

Last week we looked (here) the multiple cases of corruption and bribery that have stained the oil and gas industry’s reputation in recent years from Angola to Azerbaijan, including a gallery of crooks, from former employees at Petrofac, Sonangol, Pemex and Petrobras, to various presidential relations, both dead and alive.

This week we study a trio of “disappearances,” modern day Marie Celeste mysteries, involving hundreds of millions of dollars, broken promises, and several big lawsuits.

Something fishy: Mozambique’s missing millions

We start with progress in punishing those involved in the theft of millions of dollars raised from bond sales to aid development of the fishing industry in Mozambique. This matters to the oil and gas sector because Mozambique is where ENI will commence LNG production from a massive floating LNG production vessel next year, and where Total and ExxonMobil have plans for two huge onshore LNG plants to export deepwater gas, if the country’s security situation improves.

Unless Mozambique’s government can clean up its reputation and eradicate corruption, it will find it difficult to attract investment, difficult to subdue the violent Islamist insurgency in the north, and difficult to avoid further scandal.

In its 2022 state budget, the Mozambique government is expecting to finally receive over US$34 million in cash proceeds from the Coral Sul FLNG project, with the treasury expecting first gas in June (as per Maputo press coverage here).

The people of Mozambique would be advised to keep a close eye on what happens to the money.

Credit Suisse on the hook

Many people find the smell of fish offensive. Mozambique’s so-called “Tuna Bonds” stank from the time they were issued and the funds disbursed between 2013 and 2015.

The stench has now had consequences in London, New York, and Zurich. Credit Suisse, the eponymous Swiss Bank, has been fined US$475 million. and ordered to forgive US$200 million of debt owed by the government of Mozambique. The fines and forgiveness came as part of a complex settlement in the US, UK and Switzerland over the bank’s role in the long-running scandal.

Credit Suisse and the Russian bank VTB arranged, facilitated and provided funds for two loans of over US$2 billion to finance a coastal surveillance and marine security project and the creation of a tuna fishing fleet to work within Mozambican waters, as well as an onshore processing plant.

Unfortunately, the loans were mired in corruption, with the proceeds being stolen by bad actors within the Mozambique government, and others, right from the start. Yes, there are great similarities to the 1MDB scandal in Malaysia, where a sovereign wealth fund issued billions of dollars of bonds arranged by Goldman Sachs, only to find the now jailed Malaysian prime minister and his cronies misappropriate the money (here).

Bankers take kick backs

The FCA found as a matter of public record that three of the Swiss bank’s employees benefited “from kick-backs of around US$53 million” allegedly paid by the Middle Eastern shipbuilding enterprise Privinvest.

Mozambique has claimed that total of bribes around US$137 million were pocketed in relation to the Tuna Bonds. Worse, whilst the Mozambiquan government and its taxpayers were ultimately responsible for paying back the bonds, the government had not told the national parliament nor the International Monetary Fund (IMF) about the existence of the loans. Nor had public tenders been held for the building of the ships and the provision of the maritime surveillance equipment.

Overcharging and under-delivering

By 2015, Credit Suisse became aware, in the words of the FCA’s notice, “that there appeared to be a significant disparity (running to hundreds of millions of US dollars) between the value of the fishing vessels to be supplied to Mozambique and the amount borrowed to fund the project.”

When the news broke out that the country had US$2 billion more debt than it had disclosed before, all hell broke loose. The IMF suspended aid worth over US$200 million and the Mozambiquan currency, the metical, plunged in value by a third on the foreign exchange market.

“US$500 million of loans could not be accounted for and that Privinvest may have over-inflated prices for the fishing vessels by US$713 million,” said forensic investigators at Kroll following a 2017 audit.

Now there’s a price to pay

Credit Suisse’s settlement is the beginning of setting the matter right, although notably the government seems not to have had any success in reaching a settlement with Privinvest. Nor has VTB Bank been hit with any penalties from Russian regulators, as far as we are aware.

In August, the trial of the main suspects within Mozambique started, in what the BBC described here as “in a large canvas tent in the grounds of a maximum-security prison in the outskirts of the capital, Maputo.”

The highest profile accused is Ndambi Guebuza, the son of former President Armando Guebuza. He faces charges of blackmail, embezzlement, and money laundering along with eighteen other co-accused, including his father’s presidential private secretary. Ndambi Guebuza, who we must state denies any wrongdoing, is being prosecuted for allegedly receiving US$33 million in kickbacks.

Those charged have been compelled to attend court in prison uniform. Dozens of lawyers are involved, along with more than 70 witnesses, and over 250 journalists and media have been accredited to attend. Zitamar offers daily briefings on the trial in English here.

Like President João Lourenço in Angola, current Mozambiquan President Filipe Nyusi’s credibility with voters and the local elite depends on being seen to be tough on the worst excesses of his predecessor’s family, but in both cases the former presidents have not been charged.

Chang hears cell door bang

Manuel Chang, the former Mozabique finance minister who approved the loans in 2013, has been in detention in South Africa since December 2018. He is currently subject to extradition orders to both the US and to Mozambique. Since the Frelimo Party is still ruling Mozambique, as it was when the bonds were issued and the bribes received, activists have claimed that Mr Chang may seek to claim parliamentary immunity in Maputo, and should be sent to the US for trial instead, in case he is released when he gets to Mozambique.

Mr Chang denies accepting US$7 million in bribes, and was initially arrested at the request of the US authorities, as there were American investors in the Tuna Bonds.

Tuna Bond clean up could be positive

So, hundred of millions have disappeared, a Swiss bank has paid hundreds of millions in fines and forgiveness, and senior former government officials in Mozambique have been charged and are wearing prison garb as they stand trial. This is great – but there is a resounding silence from the UAE and Lebanese authorities over the involvement of Privinvest in the case, just as there was initially over the 1MDB scandal, where Emirati companies were heavily involved.

Twenty years ago, if you wanted to launder money, you took it to Switzerland. Nowadays, the Middle East seems a safer bet.

We can only hope that the stolen and embezzled funds are recovered, that the UAE and Russian authorities start to look into how companies based there were involved, and that the Mozambican people are made good after so much was looted, leaving them on the hook for the debts. The fish rots from the head, as the proverb goes, and the alleged involvement of the former president’s son and the finance minister shows the extent of the challenge the country faces to regain credibility.

Like rotten sushi, the Tuna Bond scandal leaves a very bad taste.

The Metals Company’s missing money

The same week that Credit Suisse was being slammed by the FCA for its involvement with the crooked Tuna Bonds, subsea mining enterprise The Metals Company was being slammed for a disappearance of an entirely different sort. In the last two months the company’s share price has fallen by a shocking 67 per cent, from US$10.62 on listing on September 10 to just US$3.33 at the closing bell on Friday October 22.

We covered the convoluted “back door” listing of the company on the Nasdaq stock exchange in New York here. The company formerly known as DeepGreen, which held a swag bag of subsea mining licences for deepwater polymetallic nodules in the Pacific Ocean, merged with what is known as a special purpose acquisition company, which holds only cash, to raise funds and enable DeepGreen to become a public company through the shares of the combined entity, The Metals Company.

The Australian financial press gleefully reported (here) how one early local investor in DeepGreen, Cadence Capital, had originally invested AU$6 million (US$4.5 million) and had quickly sold a third of its stake on September 20, after the reverse listing. This sale raised over AU$15 million (US$11 million) for Cadence, a 250 per cent return on the initial investment. Cadence is committed to holding its remaining stake for longer under the rules of the reverse listing, which is unfortunate.

Six months ago, when we reported the listing and the merger, we wrote that The Metals Company “will have an equity value of just under US$3 billion. It will hold over US$500 million in cash.”

Only now, it doesn’t.

Ramas runs, Gerard Barron “shocked and disappointed”

A company named Ramas Capital Management was supposed to have invested US$200 million in The Metals Company at the listing. Unfortunately, the management of Ramas, which was founded by a former JP Morgan Chase analyst named Ganesh Betanabhatla, have disappeared. Ramas has never provided The Metals Company with funds it had committed to invest. The Financial Times report is here, and The Metals Company told the paper it was “shocked and disappointed” by the non-appearance of the Ramas money.

To make matters worse, more than 90 per cent of the shareholders in the special purpose acquisition company also decided not to invest in shares in The Metals Company at the time of the merger, but to take back their cash. They had a narrow escape, given the disastrous plunge in the stock price.

Funding gap

This left less than US$30 million in the trust of the SPAC when it merged with DeepGreen. With the additional funding raised at the listing, The Metals Company has over US$100 million in cash, but when the merger was announced, CEO Gerard Barron told investors that the company needed more than US$160 million to fund its operations over the next two years.

The initial, non-binding, investor presentation stated that The Metals Company hoped it would hold “US$570 million net cash (assuming no redemptions),” which was expected to be sufficient to “fully fund operations to first expected revenue in 2024”. Unfortunately, 90 per cent of the SPAC shareholders did redeem and withdraw their money, and Ramas never put in the cash it promised. The Metals Company’s market value is now US$750 million, less than a quarter of the initial expectations.

As well as conducting various environmental surveys in the Pacific Ocean at the proposed mining site from Maersk Supply Service’s AHTS Maersk Launcher, The Metals Company is also working with Allseas on the expensive and complex conversion of a dynamically positioned deepwater drillship re-named Hidden Gem as a mining mothership for the polymetallic nodules (here).

Remedial efforts

The Metals Company has apparently since filed a lawsuit against Ramas in New York’s Supreme Court in an attempt to get the funds. But efforts by journalists to find anyone at the company have failed. Ganesh Betanabhatla is nowhere to be seen, and the US$200 million has not been wired to pay for 20 million shares in The Metals Company at US$10 apiece. Given the collapse in the share price, we assume Mr Betanabhatla is relieved not to have done so.

The Financial Times also revealed that The Metals Company is also suing a San Francisco-based private equity firm called Ethos Capital in New York’s Supreme Court for US$20 million. Ethos says it will invest only US$3.6 million.

We can only hope that The Metals Company is able to close its funding gap. Mr Betanabhatla’s disappearance puts the company in a bind. Maybe it will need to raise further funds.

Certainly, those who got in and out early have done very well. Cadence Capital was quick to sell and made a huge profit on its investment, but investors who bought in for US$10 at the merger last month have been hammered. Now short sellers are circling, hoping to depress the share price further – you can read Australian press coverage of Bonitas Research’s recent report here.

One thing is for sure: The Metals Company is not going to disappear from the headlines any time soon.

Carbon offsets – guilt-free gas production?

How can you burn natural gas, generating carbon dioxide emissions, but in an environmentally sustainable and totally carbon neutral manner? You might think this would be a complete contradiction, but you’d be wrong, apparently. Fossil fuels can be green and carbon neutral, if you believe the claims of, er, some of the biggest oil and gas companies in the world. Through a sleight of certification, they can make the CO2 vanish.

TotalEnergies, BP, Shell and other LNG producers are now selling guilt-free gas, which they claim has no climate-warming consequences. The disappearance of millions of tons of CO2 is all done through offsets. The offsets are generated by projects such as planting trees or rescuing forests that would otherwise have been cleared. Each offset is claimed to represent a tonne of carbon that has been permanently avoided from being added to, or has been removed from, the atmosphere. The energy companies are pairing the purchase offsets with sales of LNG, so that the carbon emissions from the production, transport, and burning of the LNG is negated, the sellers claim. For less than US$2 million, an entire LNG tanker’s cargo is miraculously carbon-free.

You probably don’t believe me. In July, Shell announced (here) “a five-year agreement with PetroChina for the supply of carbon neutral LNG. For each cargo delivered under this agreement, PetroChina and Shell will cooperate to offset life-cycle carbon dioxide equivalent (CO2e) emissions generated across the LNG value chain, using high-quality carbon credits from nature-based projects. The carbon credits used to offset life-cycle CO2e emissions generated from the cargo delivered today, come from Shell’s global portfolio of emission reduction projects, that protect and enhance forests in China and other parts of the world.”

The claims disappear under scrutiny, unlike the CO2

Unfortunately, as you would expect, the claims that burning gas can be made eco-friendly is tough (although we would be the first to admit here that burning gas is much better than burning coal, the dirtiest fossil fuel).

Bloomberg published a hard-hitting investigation a few weeks back here on How to Sell “Carbon Neutral” Fossil Fuel That Doesn’t Exist, stating that the LNG producers were advancing “fictitious” claims of carbon neutrality.

Stephen Stapczynski and his co-authors looked at how TotalEnergies branded a shipment of LNG from the Ichthys Field off Australia as “carbon neutral” when it shipped the gas to China for buyer CNOOC. The sellers had paid a Swiss-based carbon offset provider called South Pole to fund a project on the border of Zimbabwe and Mozambique. Under the project, local villagers made efforts to prevent deforestation by stopping wildfires.

Cheap carbon offsets versus Gates’ real (expensive) deal

The offset project was a complete bargain for the French energy company. Bloomberg found that TotalEnergies paid South Pole less than US$3 per tonne of estimated carbon sequestration under the scheme, which is about five per cent of the rate that power companies pay on the European carbon permit trading market.

This contrasts strongly with the actual cost of sucking real carbon dioxide out of the atmosphere. Bill Gates has stated in an interview earlier this year that he pays about US$600 per ton of carbon from the air with a cutting-edge extraction technology, as a way to offset his own personal carbon footprint.

“The claim that you can market the sale of fossil fuels as carbon neutral because of a meagre few dollars you put into tropical conservation is not a defensible claim,” Bloomberg quoted Danny Cullenward, a Stanford University lecturer and policy director at CarbonPlan, a non-profit group that analyses climate solutions for impact.

What’s disappeared is cash and credibility, not carbon

I strongly urge you to read the Bloomberg piece. It also documents how Total also sourced many carbon offsets from a Chinese wind farm, based on the logic that the electricity generated by the wind turbines would theoretically avoid using very polluting coal-fired power plants.

The resulting reduction in emissions using wind energy, “compared to an alternative scenario in which only coal electricity had been used, would form the basis for neutralising Total’s gas deal.”

So, Total paid a Chinese electricity generator with a wind farm some hundreds of thousands of dollars so that it could claim that burning its LNG was not adding carbon to the atmosphere? We’re into crazy logic here, and it now seems that Chinese wind farms are no longer eligible to sell such “credits.”

But as the drive to decarbonise increases, watch for similar schemes. Not burning coal and oil and gas is incredibly hard, and carries large costs and trade-offs in the short term. Beware those who claim that going carbon neutral is cheap and easy, or that “offsets” can undo the pollution from burning fossil fuels.

The carbon dioxide produced from the LNG when it is burnt hasn’t disappeared. It is still in the atmosphere. Instead, millions of dollars have disappeared into opaque schemes managed under ill-defined rules.

Also, the credibility of the energy companies is fast disappearing with such publicity stunts.

Background reading

Our piece on the background the Mozambique’s conflict and its LNG aspirations can be read here, and the details of the guerrilla attack in April on the town of Palma, which led Total to declare force majeure on the Mozambique LNG project, are here.

Financial Times coverage of the Tuna Bonds is here, and Britain’s Financial Conduct Authority has published its Final Notice on the penalties for Credit Suisse here.

Spotlight Corruption has the full background with names of the Tuna Bond accused and details of the civil and criminal litigation here.

The Metals Company’s initial investor presentation from the time of the SPAC merger and listing were announced in March is here.