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UK Export Finance, the state-owned export credit agency, is facing a review of its decision to back Total’s US$20bn liquefied natural gas project in Mozambique’s Cabo Delgado province. It follows a barrage of criticism directed towards the agency by UK MPs and activists for its continued support of overseas fossil fuel deals.

Friends of the Earth, an NGO, has been given the go-ahead for a judicial review that will examine the judgment taken by UKEF to provide around US$1bn of taxpayer money to help finance the plant.

The NGO says that the defendants failed to consider essential issues or carry out the necessary analysis to properly determine if supporting the project aligned with the UK’s and Mozambique’s obligations under the Paris Agreement – the global deal to keep greenhouse gas (GHG) emissions below 2°C above pre-industrial levels.

A full hearing is expected to take place later this year, according to Friends of the Earth.

UKEF took part in a US$14.9bn senior debt financing agreement signed in July last year by French oil major Total for the plant.

The project finance deal – Africa’s biggest according to the oil giant – is in jeopardy as escalating violence led to Total declaring force majeure on the plant on April 26.

Eight export credit agencies, 19 commercial banks and the African Development Bank (AfDB) were involved in the transaction. The other ECAs include Atradius, Export Credit Insurance Corporation of South Africa (ECIC), Export-Import Bank of Thailand (Exim Thailand), Export-Import Bank of the United States (US Exim), Japan Bank for International Corporation (JBIC), Nippon Export and Investment Insurance (Nexi) and Italy’s Sace.

Export credit agencies exist to create overseas opportunities for domestic exporters, and it is not necessarily within their mandate to select more sustainable projects for exporters to get involved in. The responsibility of ensuring best practice therefore lies with the relevant government to outline its policy for agencies to follow.

The LNG project has been in the pipeline since 2010 when US exploration and production company Anadarko first discovered sizeable reserves in Mozambique. Total bought out Anadarko for US$3.9bn in September 2019.

The project has proved controversial, with experts saying that it is unclear whether or not the project has been thoroughly reviewed under current economic realities – as the comparison now between renewables and fossil fuels is vastly different to what it was even a few years ago.

Even before it is completed, the LNG plant is expected to raise GHG emissions in Mozambique. An April 2019 report by the AfDB on the effects of the project found that the fields would have a “major” impact on emissions pre and post-development.

“How can Boris Johnson expect the rest of the world to pull the plug on fossil fuels when his government is giving such enthusiastic support to a development that could have the same climate impact as the entire EU aviation sector,” says Will Rundle, head of legal at Friends of the Earth. “The UK government should be supporting the building of a cleaner, safer future – not projects that will continue to fuel the climate emergency for many years to come.”

A UKEF spokesperson told GTR: “We do not comment on ongoing legal proceedings.”

 

Muddling through

The latest action follows UKEF repeatedly being targeted by NGOs and MPs over its financing of fossil fuels, particularly as the UK government has taken a strong stance on climate change at home – in 2019 it legislated a domestic net zero GHG emissions goal by 2050.

Campaign group Global Witness submitted evidence for an inquiry into the agency, launched last year by the International Trade Committee. The inquiry is examining UKEF’s project choices, approach to target-setting and user-friendliness of its products.

The evidence, dated September 23, references analysis by Global Witness that estimates that for the 2019/20 FY, £761mn has been issued in support for fossil fuel projects, excluding the Mozambique plant.

The next meeting related to the inquiry is on April 28.

Towards the end of 2020, UK government officials announced a halt on support for overseas fossil fuels. The policy has been in effect since March 31 and has “very limited exceptions”.

However, between November 2020 and the policy taking effect, the agency was considering applications for support for seven overseas projects involving fossil fuels and 10 requests for trade finance cover in the sector.

GTR understands that with trade finance cover there is a one-year exemption from the policy for SMEs to ensure those firms are given time to adjust, meaning those applications can still be considered.

Last week, UKEF stated it backed £2.4bn of sustainable projects in 2020, doubling the amount it provided in 2019.

It comes as seven European countries have formally committed to ending export finance agency support for fossil fuel projects. Denmark, France, Germany, the Netherlands, Spain, Sweden and the UK announced a new alliance, the Export Finance for Future (E3F) coalition earlier this month.