Good afternoon. Mozambique’s mining and its oil and gas sectors look set to be plunged into uncertainty, in the wake of the forthcoming new laws on mining and on oil and gas projects. For one thing, the wording of the laws on various crucial issues (such as whether the state has to pay for domestic gas, or the conditions that apply when projects are suspended) is frustratingly unclear, as the NGO Budget Monitoring Forum has noted in a new report. But the major issue with the new laws is the increased costs they place on investors, and how realistic its provisions are.
Under the laws which are currently passing through parliament (see below), the state expects to take a 25% share of production from oil and gas projects; it will not compensate private investors for the costs they incur during so-called “force majeure” events, when a project is halted for reasons beyond anyone’s control; and it also will take a 15% shareholding in all projects on a “free carry” basis; that is, it will not have to contribute towards the project’s investment costs until production begins, and at that point, it will not be charged a commercial rate of interest on its bill. This will basically mean that state-owned companies get a bigger share of revenues than they otherwise would. Currently, when oil and gas firm ENH takes a stake in a gas project, it does not contribute upfront to investment costs, but has to pay commercial rates of interest on top of its contribution. That gets deducted from its revenues.
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These laws demonstrate how much the economic nationalist movement has penetrated into government policy. Rightly or wrongly, the government has accepted the argument (which originally came from outside, including from NGOs) that private investors have been taking too much wealth out of the country and not leaving anything for Mozambicans, and that it is time to radically change the rules of the game. It is not just the ruling Frelimo party that endorses this view: the laws were passed with the support of all four parties in parliament.
