INDIA-MOZAMBIQUE RELATIONS FOCUS ON ENERGY

C O N F I D E N T I A L SECTION 01 OF 02 MAPUTO 000498

SIPDIS

E.O. 12958: DECL: 04/21/2018
TAGS: EMIN ENRG EPET ETRD EINV MZ IN
SUBJECT: INDIA-MOZAMBIQUE RELATIONS FOCUS ON ENERGY

REF: A. 08 MAPUTO 1051

B. 08 MAPUTO 511

C. 07 MAPUTO 1471

Classified By: Charge d'Affaires Todd C. Chapman, Reasons 1.4(b+d)


1. (C) SUMMARY: In February, Foreign Minister Baloi visited
New Delhi to sign a bilateral investment agreement with
India, and in April, the Mozambican Tax Authority and its
Indian counterpart initialed a draft double taxation
agreement. These Government-to-Government meetings mark the
most recent interaction in a 500 year-old trading history
between the two countries. Most recently, Indian companies
have invested heavily in Mozambique's Moatize region, seeking
to export its vast coal reserves to India in order to meet
domestic energy demands. Indian companies are also playing a
small role in offshore petroleum exploration in the north of
the country, which is led by U.S.-based Anadarko Petroleum.
While Indian private companies investing in Mozambique are
concerned with the worsening business climate, it is the
Government of India (GOI) through its parastatals that are
leading the charge to secure Mozambique's energy exports.
END SUMMARY.

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INDIA-MOZ GOVT ACCORDS ON THE RISE
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2. (SBU) On February 19, the India-Mozambique Joint
Commission met in New Delhi to sign a Bilateral Investment
Partnership Agreement (BIPA). The Mozambican delegation, led
by Foreign Minister Baloi, secured a $25 million line of
credit from India as well as a $1 million grant to support
capacity building in agriculture, energy, and human resources
development. Baloi called on Indian businesses to consider
further investment in textiles and extractive industries.
Indian High Commission Economic and Political Officer Kaisair
Alam told PolOff on April 8 that the $25 million fell
well-short of the $100 million line of credit the Government
of Mozambique (GRM) originally requested, and that the $25
million had not yet been designated for any specific project.
On April 15, the Mozambican Tax Authority and its Indian
counterpart initialed a draft agreement in Maputo to prevent
double income taxation, which is to be formalized later this
year.

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500 YEARS OF TRADING TIES
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3. (C) India and Mozambique share a 500-year history of
trade which began with the arrival of Gujurati traders, and
continues today with approximately 25,000 persons of Indian
origin in Mozambique, 20 percent of those retaining their
Indian citizenship, according to the Indian High Commission.
The majority of Indians in Mozambique are small business
owners. However, India's growing demand for energy has led
to a significant Government of India (GOI) led investment in
Mozambique's extractive industies, with India set to be the
main destination for coal from the Moatize region. Alam
explained to PolOff that India continues to depend on
coal-fired energy sources, as their civilian nuclear program
has yet to develop sufficiently, currently supplying no more
than 3 percent of India's energy needs.

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INDIA LEADS THE "COAL RUSH" TO TETE PROVINCE
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4. (SBU) In June 2008, the African Development Bank
forecasted that investment in exploring Mozambique's coal
reserves could reach $30 billion over the next ten years,
with the country becoming the second largest African coal
producer after South Africa. India is becoming increasingly
dependent on coal to fire its domestic power, cement, and
steel plants. Indian companies are heavily involved in
Mozambique's coal-rich Tete Province, with Tata Steel holding
a 35 percent $88 million stake in Australian firm
Riversdale's Benga tenement, which covers 4,560 hectares or 2
percent of Riversdale's 250,000 hectares of mining
concessions, representing the largest tenement in the Moatize
area. Riversdale estimates that coal resources in Benga's
northern section are 2.1 billion tons. According to the
Indian High Commission, Jindal Steel and Power (JSPL),a

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private Indian company, also holds a stake in two coal
tenements in Moatize. Press reports also state that Indian
concerns ArcelorMittal, Global Steel Holdings, PK Ores
Private Ltd, and BEML Midwest have acquired coal concessions
in Tete.

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INDIAN CO'S HANDLING EXPORT LOGISTICS AND...
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5. (C) Indian consortium Rites and Ircon International are
due to complete the rehabilitation of the Sena railway line
leading from Moatize to the Port of Beira by September, which
will act as the main conduit for export of the region's hard
coking 10 percent ash coal. Both Rites and Ircon are
subsidiaries of state-owned Indian Railways. Coal India
Limited (CIL),another parastatal, has concessions for two
additional exploration blocks in Moatize and is considering
joining Rites and Ircon in their efforts to support the 850
kilometer rail line linking Moatize and Beira Port which will
use Indian railcars to export up to 12 million tons of coal
annually. Alam noted that Rites and Ircon have not been able
to come to an agreement with Vale about freight charges along
the line, but expressed hope that this could be resolved.

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...DABBLING IN PETROLEUM TOO
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6. (SBU) Indian subsidiaries of parastatal Bharat Petroleum
and private multi-national Videocon Industries paid $75
million in August 2008 for 10 percent stakes in U.S.-based
Anadarko Petroleum's offshore exploration blocks in northern
Mozambique. Anadarko continues to analyze the seismic data
from their concessions and plans to drill exploratory wells
beginning in 2010. Besides the 10 percent stakes held by
Bharat Petroleum and Videocon, Anadarko has a 36.8 percent
stake followed by Mitsui of Japan, Artumas of Canada, and
Mozambican parastatal Hydrocarbons of Mozambique (ENH).

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CONCERNS OVER BUSINESS CLIMATE WIDESPREAD
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7. (C) Indian companies share concerns similar to U.S.
businesses about the worsening business climate in
Mozambique. Alam explained that though Indian companies have
a significant and longstanding presence in the country, they
complain about the increasingly challenging business climate,
including recent changes to the labor regulations (septel).
As an example, Alam pointed to an Indian firm interested in
establishing a cement company in Mozambique, lamenting the
time taken by the Investment Promotion Center (CPI) to
approve the investment.

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COMMENT: INDIA'S COAL STRATEGY HEATING UP
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8. (C) The heavy presence of Indian parastatals in Moatize
suggests that the GOI is executing a well-planned strategy to
make an energy play in coal-rich and potentially oil-rich
Mozambique in an effort to feed its ever-increasing domestic
energy needs. The February ministerial meeting in New Delhi
and the significant population of resident Indians underscore
the close and longstanding relationship between India and
Mozambique. Indian High Commissioner to Mozambique Rajinder
Bhagat is very active commercially, always watchful of the
Chinese who are viewed as commercial rivals, and cooperative
with U.S. diplomats. Bhagat gets personally involved in
commercial negotiations on behalf of Indian firms, including
contacting senior Mozambican government officials pressing
for better terms for Indian companies. While Indian
investments in Mozambique are likely to continue increasing,
it is noteworthy that the Indian High Commission in Maputo
appears preoccupied with the worsening business climate in
the country, which could hamper future investments.
Chapman