US DFC board approves deal so ‘it doesn’t fall into Chinese hands’

DFC CEO Adam Boehler. Photo by: US Embassy Guatemala / CC BY-NC-ND

WASHINGTON — The U.S. International Development Finance Corporation’s board on Wednesday approved new policies around accountability and foreign currency investing along with billions of dollars in investments — including a $1.5 billion political risk insurance deal to support a natural gas project in Mozambique, which has raised environmental and social concerns.

The decision to make that investment was at least in part driven by foreign policy objectives and to ensure it didn’t fall into Chinese hands, according to Adam Boehler, DFC CEO.

DFC has approved some $3.6 billion in new investments in the past quarter, including the first deal from the Mission Transaction Unit, which was formerly the Development Credit Authority at the U.S. Agency for International Development. It also approved several new investments through its COVID-19 liquidity facility, including in Colombia and Costa Rica.

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The Mozambique political risk insurance deal will support a natural gas project in Mozambique’s Rovuma Basin, a project with a host of potentially harmful environmental and social impacts, according to the DFC assessment. But the potential benefits outweigh the risks, Boehler told Devex.

There were significant discussions about the development impact and potential for job creation of the deal — it could create thousands of jobs, according to DFC —but foreign policy was also a key decision factor in this deal, Boehler said in an interview.  

DFC looks at foreign policy implications for every deal, alongside development impact and credit-worthiness, Boehler said. The foreign policy analysis is qualitative, he said.

In analyzing this deal it was clear that it would move forward with or without U.S. support, but DFC weighed the benefits its participation could bring, Boehler said.

“Our additive nature here was, one, to ensure that jobs are created and it is focused on development, and then also to ensure that it doesn't fall into Chinese hands in terms of controlling the entity,” he said.

The agency also sees this as a great way to get more funding to a low-income country with a project that is bankable and has the “ability to be transformative,” a senior DFC official, who asked not to be named, told Devex.

The $22 billion-total project is expected to create about 6,000 jobs with 85% local staff, the official said, but it’s still early in the process and the financing for the project is being finalized so the jobs won’t be realized yet.

DFC will have a “heavy monitoring component” with this project and watch over it carefully because it is a “sensitive” project and because of the size of the deal, the official said.

Friends of the Earth U.S., an environmental advocacy group, and its local Friends of the Earth counterpart in Mozambique, have raised a number of concerns about the project, including through comments to DFC.

In a letter to DFC, the organization said “it remains unclear how Rovuma LNG” will achieve the DFC’s development goals. “Serious concerns exist that instead of stimulating broad-based poverty alleviation, multinational corporations, and a small group of elite Mozambicans will reap all the reward, widening income disparity and leaving local communities in even more dire poverty,” it said in the letter.        

While DFC says one of the chief development impacts is job creation, the project is likely to only provide a minimal amount of jobs, and local community members will need training, Kate DeAngelis, senior international policy analyst at Friends of the Earth U.S., told Devex.

She also raised concerns that the project has “little to no plan to provide gas to local communities or Mozambique” and said that if the project moves forward, DFC should work to make sure that some of the gas developed goes to domestic use. She also urged DFC to ensure that communities are properly compensated for a loss of land and livelihoods and to ensure that any relocation is done in a way that doesn’t create disparities in new communities.  

DFC sees its investment as one piece of a broader U.S. government effort, the senior official said. DFC has been in touch with other U.S. agencies and officials, including U.S. Assistant Secretary of State for African Affairs Tibor Nagy, to discuss how the U.S. could support the government with anti-corruption efforts and other capacity-building as the project comes online, the senior official said.

While Rovuma natural gas project will produce LNG for export, another investment approved by the board in Mozambique is expected to improve local access to electricity, the senior official said. The board approved a $200 million loan to Central Térmica de Temane, to finance the operation of a 420-megawatt power plant and interconnection line, this investment will build on technical assistance from the Power Africa initiative.

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The board also established an independent accountability mechanism for DFC, and the agency released the details about how it would be implemented.

The mechanism will annually evaluate and report to the board, and Congress, about compliance with environmental, social, labor, human rights, and transparency standards. It will be a forum where concerns about project impacts can be resolved and provide advice to DFC on projects, policies, and practices.

The mechanism will be guided by seven principles: impartiality, accessibility, independence, integrity, transparency, professionalism, and responsiveness, according to the implementation document.

The implementation plan discusses access to the mechanism, outreach to stakeholders, and identifies the scope of the mechanism. The Independent Accountability Mechanisms will have the power to receive and investigate stakeholder claims and have the “necessary authorities to perform its work,” according to the document. A director for the mechanisms will be recommended by DFC and approved by the board, and that individual will report directly to the board.

The board also approved the agency’s foreign currency loan policy, which identifies six policy rationales for the use of a foreign currency-denominated loan, guarantee, or equity investment, a move required by the legislation that created DFC.

The agency hasn’t spent much time looking at deals that could involve foreign currency, a new authority, because the policy wasn’t in place, the senior official said. Now that the agency has the framework it will “dive into the details” on some of these deals, the official said, noting that they will likely be more complex, smaller deals with a greater subsidy.

About the author

  • Adva Saldinger

    Adva Saldinger is an Associate Editor at Devex, where she covers the intersection of business and international development, as well as U.S. foreign aid policy. From partnerships to trade and social entrepreneurship to impact investing, Adva explores the role the private sector and private capital play in development. A journalist with more than 10 years of experience, she has worked at several newspapers in the U.S. and lived in both Ghana and South Africa.