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UK to review fossil fuel lending

Storage tanks with Mozambique LNG logo
Mozambique LNG

The UK government is reconsidering its support for financing foreign oil and gas projects, following UK Export Finance’s (UKEF) commitment to the Total-led Mozambique LNG project.

UK Prime Minister Boris Johnson has ordered a review of government guarantees for oil and gas projects around the world, according to The Times. The newspaper reported Johnson had been “bounced” into approving UKEF support for Mozambique LNG.

UKEF committed $300 million in direct loans to Mozambique LNG, with another $850mn in guarantees for commercial banks. The total financing package for the two-train project was worth $14.9 billion.

“We’re very concerned [UKEF] is funding the wrong projects. Supporting this gas project in Mozambique has the impact of increasing carbon emissions, displacing local communities and spoiling the coastline – it makes a mockery of the idea of the UK as a climate leader,” Friends of the Earth (FoE) campaigner Tony Bosworth told Energy Voice.

The prime minister was reported as being “pretty furious”. The Times also reported business secretary Alok Sharma and foreign secretary Dominic Raab as having criticised the UKEF lending. The newspaper cited concerns that UKEF was operating without “proper ministerial oversight”.

The UK is due to host the United Nations Climate Change Conference (COP26) in November 2021. It had been scheduled for November 2020 but was pushed back because of COVID-19.

Global Witness’ senior climate campaigner Adam McGibbon said the UK government’s support for fossil fuels overseas, while claiming to take action on the environment, “is nothing but climate hypocrisy. The devil really is now in the detail and we need both rapid and watertight action, to prevent further projects slipping through the net and to make sure not a single British penny goes to any projects involving climate-wrecking fossil fuels.”

Energy poverty

McGibbon went on to say Mozambique LNG would have “disastrous consequences for both the climate and the local population in Mozambique”. Johnson should “reverse” the UKEF funding decision, he said.

The International Monetary Fund (IMF) has predicted Mozambique’s economy will grow by 9.2% in 2023 and 11.5% in 2024 as LNG exports start up.

Mozambique LNG will support a number of gas-based projects, including a fertiliser plant and local power generation. The project will supply 100 million cubic feet (2.8 million cubic metres) per day to the local market.

Bosworth said there was a need for the UK to support Mozambique, and other energy-poor countries, but without investing in fossil fuel projects.

“Britain should be harnessing its expertise to harness the renewable energy opportunities and tackle energy poverty. We have to leapfrog the 20th century technologies and go to the 21st century,” Bosworth said. He compared supporting oil and gas projects to investing in landlines, rather than mobile telephones.

FoE is considering its options to challenge UKEF lending for Mozambique LNG. The group has sent a pre-action letter to find out “more about the scheme and the decision making process. We will wait to hear back,” Bosworth said.

Jobs

A number of other export credit agencies (ECAs) also backed the Mozambique project. These included US EXIM Bank, the Japan Bank for International Co-operation (JBIC) and the Thai Export-Import Bank (EXIM). The African Development Bank (AfDB) committed to providing $400mn.

ECAs typically link lending to domestic benefits. The US’ EXIM Bank provided $4.7 billion, which it said would support 16,700 jobs in the US over five years. The UKEF lending said its financing would provide more than 2,000 jobs in the UK and sustain a number of businesses.

FoE’s Bosworth said there was scope for UKEF funding to continue supporting UK jobs.

“The government is making plans for the economy to recover from COVID-19’s impact and has talked about ‘building back better’. That’s got to be investing in energy saving and renewables, rather than fossil fuels.”

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