With its total recoverable resources estimated to more than 100 trillion cubic feet (tcf), Mozambique, one of the key contributors to Africa’s economic growth and development and home to several channels of agricultural dominance, is predicted to become a top-tier gas producer as a result of recent significant offshore discoveries1 The country’s upstream sector plays a critical role in driving the growth of the petroleum industry. It is therefore important that adequate policies and regulations are put in place to ensure consistency in the country’s economic development.
Despite some setbacks faced by the oil and gas sector in Africa, Mozambique houses large opportunities and potential that could boost the production, exploration, and exploitation of its many resources, which could be used strategically to benefit the country’s population and ultimately improve investor confidence in the region. The Mozambican region has emerged as a new player in the global oil and gas industry. As of 2015, although relatively incipient, Mozambique’s oil sector was expected to reach high production levels, producing approximately 15,000 barrels per day.2With a view to ensuring an effective legislative framework for the advancement of its oil and gas industry, the country adopted Petroleum Law No. 21/2014 (“the Petroleum Law”), which established the rules and regulations regarding local participation and authorisations.3 Under the Petroleum Law, the Government is mandated to allocate a portion of the revenue generated from petroleum production to support the development of communities where petroleum operations are being conducted4; and also ensure that a minimum of 25% of the oil and gas produced within the country is reserved for the national market.5
There are several key bodies responsible for the regulation of oil and gas activities in Mozambique, including, the National Petroleum Company (Empressa Nacional de Hidrocarbonetos, ENH, E.P), the Council of Ministers, the Ministry of Natural Resources (MIREM), the Ministry of Energy, and the National Petroleum Institute6. According to the Petroleum Law, the state reserves the right to participate in any project implemented to conduct petroleum operations through the state-owned company, Empresa Nacional de Hidrocarbonetos, EP (ENH).
An interesting development in the 2014 Petroleum Law, was the adoption of the revised ENH By-Laws on December 28, 2015, by Decree No. 29/2015,7 which complements the previous operations and functions of ENH under the Petroleum Law. According to the provisions of the ENH By-Laws, it is permissible to form special purpose subsidiaries to engage in certain auxiliary operations, such as those pertaining to logistics, and to take part in joint ventures with other international and domestic businesses. This suggests that ENH will probably continue to pursue its strategy of actively participating in the supply of goods and services to the petroleum sector.8
- In its attempts to lead the marketing and commercialization of the nation’s natural gas and crude oil, Mozambique aims to develop its facilities for the production of liquefied natural gas (LNG) and synthetic fuels, as well as its gas processing and transportation facilities. To get this done, the Petroleum Law requires that all petroleum operations be conducted through concession contracts that are awarded by a public tender process that may involve simultaneous or direct negotiation (Article 17 of Petroleum Law No. 21/2014). Further, the Petroleum Law requires that, while awarding rights for the performance of petroleum operations, national interests must always be prioritized (Article 6 and 17 of Petroleum Law No. 21/2014). Another remarkable effort by the Mozambican government is the completion of its intent to create an authority that is responsible for controlling and supervising the growing energy sector in Mozambique. For example, the Energy Regulatory Authority (“Autoridade Reguladora de Energia”, also known as “ARENE”), through the approval of Law No. 11/2017, September 8. It is important to highlight ARENE’s key roles in three important aspects;
- To provide instructions and handle public tender processes for the assignment of concessions for the production, transportation, distribution, and sale of electric energy as well as the distribution and sale of natural gas, to give the appropriate opinion, and to request the transfer of concessions:
- To provide guidance and manage the awarding of licences for the distribution, marketing, and processing of liquid fuels, and to provide views on requests for licence transfers,
- To create, authorise, and enforce the use of the tariffs and pricing for energy, gas, and petroleum products governed by the law.
In conclusion, there has been tremendous effort to improve the legal and regulatory framework applicable to petroleum operations in Mozambique by establishing a comprehensive legal and regulatory framework for the oil and gas industry to promote sustainable development and benefit the Mozambican communities. There is high optimism over the country’s development in this sector; however, this should be welcomed with caution as security risks continue to pose the biggest hurdle to the region fully living up to its potential.9Reach out to our team of lawyers and business advisors at Centurion Law Group. We seamlessly guide our clients through Africa’s abundant investment opportunities.
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Authors: Ariteshoma Etete and Elizabeth Oluwatimilehin Owolab