EU bureaucratic tangle stops transfer

It is now over eight months since a memorandum of understanding was signed in Lisbon, during Mozambican President Armando Guebuza’s first visit to Portugal, under which Portugal would, in effect, sell its majority holding in HCB to Mozambique for 950 million US dollars.

Since the completion of the dam in 1977, the Portuguese state has held 82 per cent of the shares in HCB, with the Mozambican state holding just 18 per cent. Under the November agreement this situation was to be reversed: Mozambique would own 85 per cent of HCB, and Portugal the remaining 15 per cent.

Optimists assumed that a final set of minutes on the transfer of ownership would be signed in December, Mozambique would pay for the dam over the ensuing year, and by the end of 2006 majority ownership of the largest dam in southern Africa would be in Mozambican hands.

In fact, nothing at all has happened since the November memorandum, and the Portuguese government’s feeble excuse is that the matter is still being studied by Eurostat, the European Union’s statistical body, which looks at the member states’ public expenditure and national accounts. Eurostat is supposed to judge the impact of the agreement on the Portuguese economy.

Inevitably Cahora Bassa was high on the agenda of a meeting in Bissau on Monday between Guebuza and Portuguese Prime Minister Jose Socrates. Both men were in the Guinean capital to attend a summit of the Community of Portuguese Speaking Countries (CPLP).

Since the meeting was requested by Socrates, it was expected that he might be bearing some good news.

But on leaving the meeting all he would say to reporters was “The matter is being handled with Eurostat, in dialogue with the Portuguese statistical and administrative authorities, and I am sure we shall soon have a solution”.

The concern is that the Cahora Bassa accord should not have a negative impact on future Portuguese budgets. Under European Union rules, no member state should run up a budget deficit of more than three per cent.

The problem is that, in the eyes of Eurostat, the deal is not a simple sale of shares, but a debt forgiveness operation. Portugal had claimed that HCB owed about 2.5 billion dollars to the Portuguese treasury. The November memorandum wipes out most of this sum.

Under the arcane European accounting rules, debt forgiveness enters the books as a transfer of capital, and thus automatically worsens the budget deficit.

Worsens it on paper, that is. In terms of real money, the November deal would be excellent for Portugal, since it would receive 950 million dollars rather than nothing at all. That is the real choice, but on this occasion Eurostat has not chosen to live in the real world.

The matter is a severe embarrassment for Portugal. Shortly after the signing of the November memorandum, Guebuza said he assumed the Portuguese government already had the go-ahead from the European Union.

Apparently it did not, and apparently the Socrates government feels too weak simply to sign an agreement and present Eurostat with a fait accompli.

After the renegotiation of tariffs with HCB’s main client, the South African electricity company Eskom, in 2004, the company is economically viable, and so no longer represents a drain on the Portuguese treasury.

Apart from HCB. Socrates used his meeting with Guebuza to ask for the Mozambican leader’s support for reactivating dialogue between the European Union and the African Union over holding the summit of European and African leaders. This is to be held in Lisbon, but has been repeatedly postponed.

Guebuza promised Socrates that he would be involved in effort to resume this dialogue.

Meanwhile, Portuguese Environment Minister Francisco Correia declared in Maputo earlier this week that funds are now guaranteed to begin studies prior to the construction of a new dam on the Pungoe river in central Mozambique.

The cost of the studies is estimated at five million euros (about six million US dollars), and will be paid by the Portuguese government.

Correia, accompanied by Mozambican Public Works Minister Felicio Zacarias, was speaking at the Umbeluzi Water Treatment Station, about 30 kilometres west of Maputo, after a visit that had also taken him to the nearby Pequenos Libombos dam.

Correia said that a dam on the Pungoe would be of enormous benefit for regularising the supply of water to the country’s second largest city, Beira.

“We shall soon start the studies for this dam”, he said. “This ambition of the Mozambican government was previously considered by Portuguese cooperation, but early we did not have the conditions to advance with it. But now I can bring the confirmation”.

Correia said he was also satisfied with the way the Pequenos Libombos dam (built with Italian aid) is being managed. He praised the Mozambican government for the improvements in water supply being made by its Water Supply Assets and Investment Fund (FIPAG).

“You can only fight against poverty, if there is hygiene and clean drinking water”, he stressed, and so Portugal had included sustainable water supply projects as one of the main foci of its cooperation programme. ‘ Nampa-AIM.

July 2006
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