Mozambique opposition warns of instability after autonomy bill blocked

* Mozambique developing huge gas reserves for export

By Manuel Mucari

MAPUTO, May 6 (Reuters) - Mozambique's main opposition party has warned of a growing risk of instability in the energy-rich nation after parliament rejected a bill that would have given it autonomous powers in regions where it has strong support.

Renamo, which lost fractious national elections in October, put a bill before parliament last week that would have given it rights to elect its own governors in six oil, gas and coal rich districts where it scored a majority at the polls.

However, the ruling Frelimo party voted against the measure, while the small opposition Mozambique Democratic Movement abstained, consigning Renamo to a resounding defeat.

"One thing is certain, the country is sitting on a barrel of gunpowder," Renamo parliamentarian José Manteigas told Reuters on Wednesday, urging President Filipe Nyusi, who is a member of Frelimo, to intervene and revive the legislation.

Frelimo, a former Marxist liberation movement, fought a 16-year civil war against Renamo and there have been concerns that Mozambique could slip back into conflict after Renamo withdrew from the 1992 peace deal that ended the fighting.

In power since Mozambique won independence from Portugal in 1975, Frelimo dismissed suggestions that rejection of the bill would ignite violence.

"We don't believe that Renamo would go against the will and desire of the Mozambican population, which is not a return to war, but peace and stability," Frelimo lawmaker Damião José told Reuters.

President Nyusi agreed to debate decentralisation after Renamo parliamentarians had refused to take up their seats following the 2014 election, but signs of cracks in the fragile detente between the two main parties have begun to surface.

Manteigas said Renamo preferred a peaceful resolution to the problem, but warned darkly of "armed men in the bushes" if there was no change of heart.

ONE ROAD

The tensions threaten to disrupt plans by the southern African nation to revive its economy through its untapped natural gas reserves -- some of the biggest in the world. The main energy hub is in the north of the country around Beira, Mozambique's second largest city.

"Given that you have one main road travelling up from Maputo to Beira, it wouldn't take much of a military presence to cause a disruption," said political analyst Gary van Staden of NKC Independent Economists.

"Some investors see this man (Renamo leader Afonso Dhlakama) as having the capacity to cause widespread mayhem. He doesn't, but they play into his hands by panicking," van Staden added.

Mozambique's economy grew 7.5 percent in 2014 with similar growth predicted for 2015, driven by the gas finds as well as strong performances in the agriculture and construction sectors.

In the two years leading up to the 2014 elections, Dhlakama's armed Renamo partisans clashed sporadically with government troops and police.

Robert Besseling, an analyst at IHS Country Risk, believes Renamo is losing control over its armed forces and said calls for autonomy were a way to secure benefits for its veteran fighters, many of whom felt excluded from post-war development.

"If the negotiations fail to placate Renamo's armed wing and ensure some form of demobilisation and integration, the outlook for violence will continue beyond 2015," Besseling said. (Writing by Mfuneko Toyana; Editing by Crispian Balmer)