Mozambique Local Content Legal Framework - Leopoldo de Amaral - Moz Gas Summit, 30 Nov 2016

MOZAMBIQUE LOCAL CONTENT

LEGAL FRAMEWORK

2016 Mozambique Gas Summit

Leopoldo de Amaral, Partner: Natural Resources Practice Group

[email protected] +258 21 241400

Maputo, 30 November 2016

Joaquim Chissano International Conference Centre

mailto:[email protected]

Strategy for the Development of Small and Medium Enterprises in Mozambique (adopted

by the 22nd Ordinary Session of the Council of Ministers of 21 August 2007);

Industrial Policy and Strategy (Resolution No. 38/2007 of 18 December);

Mozambique’s Natural Gas Market Development Strategy (Resolution 64/2009 of 2

November);

Natural Gas Master Plan (“NGMP”)(as approved by the Council of Ministers on 24 June 2014);

Exploration and Production Concession Contract Model (“EPPC”) (Resolution 25/2016 of 3

October);

Regulation of Licensing of Facilities and Petroleum Activities (Ministerial Diploma No.

272/2009 of 30 December);

Natural Gas Distribution and Commercialisation Regulations (Decree 44/2005 of 29

November);

Labour Law (Law 23/2007 of 1 August) and Regulations on the Hiring of Foreign National

Workers for the Petroleum and Mining Sectors (Decree 63/2011 of 7 December);

Petroleum Operations Regulations (“POR”) (Decree n.º 34/2015 of 31 December);

The “Procurement Regulations” (Decree No. 5/2016, of 8 March);

Mega Projects Law (Law n. º 15/2011 of 10 August) and its regulation (Decree 16/2016 of 4 July);

Petroleum Law (Law n. º 21/2014 of 18 August), and

Special legal and contractual regime governing the Liquefied Natural Gas Project in

Areas 1 and 4 in the Rovuma Basin (Decree-Law n.º 2/2014 of 2 December).

Sector Specific Legislation on Local Content

Draft Local Content Bill – Preparatory works ongoing.

Primary Sources of Law

Leopoldo de Amaral, [email protected], 2016

Mozambique Gas Summit2

Natural Gas Strategy & Master PlanMozambique’s Natural Gas Market Development Strategy highlights:

Royalty gas is reserved first for projects with big impact on national development.

The Government will regulate the price of domestic gas for the benefit of final

consumers.

Promote the participation of national entrepreneurs in the nation’s natural gas industry.

The Natural Gas Master Plan vision is to develop natural gas resources to maximize the

benefits to Mozambican society and improve the quality of life, while minimizing negative

environmental impacts, by supporting:

• Increased capacity-building of national public and private sectors;

• Growth and strengthening national industry and companies, particularly small and

medium-scale industries;

• Strengthening the capacity to supply power to the population;

• Increase employment across the country;

• Development of infrastructure to support the expansion of economic activities,

especially in less developed provinces;

• Increased access to education and vocational training.



Petroleum Rights holders. Applicants for petroleum rights must be

Mozambicans or foreign legal persons registered in Mozambique. The holders

should demonstrate competence and technical capacity and adequate financial

resources for the purpose of carrying out petroleum operations.

Preferential rights to Mozambicans or foreign persons associated

with Mozambicans. In equality of circumstances, Mozambicans or foreign

legal persons that associate with Mozambicans shall enjoy preferential rights in

respect of the allocation of concession contracts.

Promotion of national entrepreneurship - mandatory registration of oil

and gas companies on the Mozambique Stock Exchange upon the approval of

any PoD.

Local Participation (1)



Mega-Projects Legislation - Participation of national investors in the equity

capital of project companies, on commercial terms and via the stock exchange,

in an amount between 5% and 20% of that equity capital, of which 5% shall be

free carry for the Government.

Mozambican legal person - any legal person incorporated and registered

pursuant to Mozambican legislation, with its headquarters in Mozambique, of

which over 51% (fifty one percent) of the equity capital is held or controlled

by national citizens or Mozambican companies or institutions, whether private

or public.

Mozambican natural person – a single natural person holding Mozambicannationality.

Local Participation (2)



Public Tender Rule: Acquisition of goods and services for the executionof petroleum operations in an amount equal to or greater than 40,000,000MT (roughly US$530k) shall be carried out by public tender.

Association: Concessionaires to ensure that foreign service companiesare in association with Mozambicans that results in a substantialcontribution to the production or creation of value to goods and servicesthat are Mozambican in origin or generated by Mozambican persons.

National Preference: Obligation to give preference to Mozambicangoods and services whenever they are competitive in terms of quality, andwhen the price, inclusive of taxes, does not exceed the price of theavailable imported goods by more than 10%.

“Local goods and services” means those that in essence or measuredby added value are predominantly manufactured, built or executed inMozambique.

In the evaluation of tenders, the quality of service, price, delivery time andthe guarantees offered shall be taken into consideration.

INP to be informed of the tender, bidders and has vetting powers on thetender procedures implementation.

Procurement of Goods & Services

Leopoldo de Amaral, [email protected], 2016 Mozambique Gas Summit 6

Training and employment of Mozambican nationals. Petroleum companies shall

ensure the employment, technical and professional training of Mozambique nationals and

their participation in the management of petroleum operations.

Mozambican Workforce – concessionaires shall ensure employment and technical

training of Mozambicans, as well as, their participation in the management of petroleum

operations;

Concessionaires to inform MIREME of the number of Mozambican technicians involved in

the management of petroleum operations; employ Mozambicans with suitable qualifications

and propose, implement and fund a training and employment program for Mozambican

workers.

Concessionaires to submit annual recruitment and training programmes to MIREME;

Concessionaires to pay an annual financial amount established in the EPCC for the training,

institutional support and social support programs of the Government.

The number of foreign employees to be hired within statutorily established quotas, namely:

5% of the total number of employees in large enterprises (i.e. more than 100

employees)

8% of the total number of employees in medium-sized enterprises (between 11 and

100 employees)

10% of the total number of employees in small enterprises (10 or fewer employees)

Exceptions apply for Rovuma Basin projects

Employment & Training

Leopoldo de Amaral, [email protected], 2016 Mozambique Gas Summit

7

Domestic Supply. The State shall ensure that not less than 25% of oil

and gas produced in the country be dedicated to the national market.

Government shall regulate the purchase, price-setting and other

matters relating to the use of the 25% domestic share of oil and gas.

Development of local industrial activity – the State may request

the petroleum product at negotiable prices for use in local industry

whenever the country´s commercial interest demands it, and the

petroleum resources shall be used whenever required as raw material

for the processing industry.

Sale of Petroleum in the Domestic Market. The price and

conditions for the sales of petroleum to the domestic market are set

by Government taking into account commercial market conditions.

Local Beneficiation & Industrialisation


8

Oil & gas used in Mozambique for development of the domestic industry may benefit from a 50%

reduction of the PPT rate (full rate is 6%). This is to stimulate domestic use of oil & gas.

Recoverable Costs:

• Training of Mozambicans;

• Annual payments to the Government by the Concessionaires for training support programmes for

employees in the public institutions involved in Petroleum Operations;

• Concessionaires’ payments for institutional support to the entities involved in the promotion and

administration of Petroleum Operations, and

• Concessionaires’ payments for social support projects for communities in areas where Petroleum

Operations take place.

A percentage of the income from Petroleum Operations is channeled to development of local

communities through the State Budget.

Withholding tax on payment to non-resident subcontractors - Income obtained by non-resident

companies in respect of services related to an EPCC is subject to withholding tax at the rate of

10% of the gross amount.

DTAs: non-discrimination between host country local constituted companies with

foreign companies with Permanent Establishment in the host country.

Fiscal Regime & Benefits


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Construction contractors and construction project management companies

must be registered and licensed in Mozambique;

But foreign contractors may request a temporary public works license in some

circumstances (e.g. winning an international public tender or acting as

subcontractor to a Mozambican licensed entity);

Licensing requirements include minimum Mozambique licensed technical staff,

equipment and share capital;

Construction contracts performed in Mozambique must be governed by

Mozambican Law and dispute resolution to take place in a national forum

(except on Rovuma Basin Projects);

Construction Activities & Construction

Project Management


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Rovuma Basin Projects (RBPs) are implemented through Rovuma Basin Undertakings under one or

more approved Plans of Development (PoDs).

Together with a PoD, a corresponding workforce plan and a local content plan must be submitted.

The workforce plan will be reviewed annually. The local content plan will be reviewed every three

years;

Procurement. Mozambican preference for certain classes of contracts. Specialized know-how anytype of partnership. No preference requirement for main contracts >US$25m and certain others.

Local content plan will be key.

Hiring Foreign Workers.

Global quota to be established in the workforce plan tendered as part of the PoD;

Hiring procedure simplified compared to generally applicable requirements, and

Business visa (or a special visa that may replace the business visa) may be used to enter and

stay in the country for RBP work. Business visas may be issued in any Mozambican Consulate

or in Mozambican territory.

Insurance. Substantial flexibility to contract insurance in Mozambique or abroad, without prior

approval of the insurance regulator (ISSM) subject to “ratification” requirement. However, legally

mandatory insurance must be contracted only from Mozambican insurance companies.

Local Content on the Rovuma Basin Projects



Objectives: define the legal regime for the incorporation of local content by business, on goods and services

their manufatures or provide or on those traded in Mozambique.

Incorporation of Local Content: the goods and services must be manufactured in wholly or partially with

recourse to national means of production.

National Means of Production means “elements necessary in the production process, namely, raw materials,

equipment and workmanship, for the production of goods and supply of services, expressed by a general formula

in percentage”.

Exception: in cases where it is impossible to produce and transfer goods and services with the incorporation

of resources and national means of production, namely when those do not meet the characteristics and

functionalities required or intrinsic to the nature of the project or the respective activities to be developed or

exploit.

Exclusivity on final goods and services importation: The Bill grants exclusivity to Mozambican legal and

natural persons to import and supply final goods and services in the national territory.

Monitoring and Enforcement: The role of overseeing statutory compliance with the local content obligations

will lie with the Economic Activities National Inspectorate (“INAE” or “Instituto Nacional das Actividades

Economicas”), which will also issue “local content incorporation certificates”.

Penalties: to be defined by regulations.

Sector-specific regulations to set out the local content obligations;

Draft Local Content Bill – Highlights


12

Registration of foreign ships for Cabotage Services – companies must be incorporated, and

maintain headquarters in Mozambique and a minimum of 35% of the equity capital must be held

by Mozambique nationals or companies majority-owned by Mozambicans in order to register

foreign ships for coasting navigation with a Mozambican flag under the special regime.

Insurance – concessionaires shall procure insurance with certified Mozambican companies for

civil automotive against third parties, workmen’s compensation and any other mandatory

insurance defined by law, provided that such insurance is of general applicability and not specific to

Petroleum Operations.

Preference to Mozambican Insurance Companies – Except in relation to reinsurance or

captive insurance relating to Petroleum Operations, construction or to facilities, the

Concessionaires shall give preference to Mozambican insurers, when the insurance available locally

is comparable to international standards and the prices do not exceed the price of comparable

insurance coverage by more than 10% (ten percent) from international markets, inclusive of taxes

and related fees.

Other Local Content Legal Obligations

Leopoldo de Amaral, [email protected],

2016 Mozambique Gas Summit13

Conclusion • Government´s goal is to promote the widespread use of gas in order

to develop the domestic market and industrialize the country.

• Local content requirements for oil & gas sector contractors are

currently light.

• The Natural Gas Strategy promotes the participation of national

investors.

• Mozambique does not yet have a specific national content policy and

regulatory framework. But one is coming,

• In general, commercial companies may have foreign owners and

directors (although in procurement of goods and services foreigners

shall associate with nationals).

• Employment of expatriates is through a quota system, but a special

(more generous) quota may be granted in the EPCC.

• Training of Mozambican nationals is a recoverable expenditure.

• PPP Law requires participation of nationals in qualifying undertakings

carried out in the country. Leopoldo de Amaral, [email protected], 2016 Mozambique Gas Summit

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Obrigado

Leopoldo de [email protected]



mailto:[email protected]

Documents

Mozambique Local Content Legal Framework - Leopoldo de Amaral - Moz Gas Summit, 30 Nov 2016