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Key regulatory developments affecting Mozambique’s coal sector

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Jorge Graça, Managing Partner, CGA gave this presentation at the 4th annual Mozambique Coal conference, the very first event to focus on the coal industry in the Mozambican region and has had the …

Jorge Graça, Managing Partner, CGA gave this presentation at the 4th annual Mozambique Coal conference, the very first event to focus on the coal industry in the Mozambican region and has had the support from the Mozambique Government since the inaugural event in 2010.

With 300+ attendees each year, this event sees geographical delegate representation as diversed as Australia, South Africa, India, Bostwana, Canada, United-Kingdom, Egypt, Indonesia, Pakistan, United Arab Emirates USA, Singapore, Thailand, Japan, and of course Mozambique.

For more information about the annual event, please visit www.immevents.com/mining-conference/mozambique-coal-conference

Published in Technology , Business
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  • 1. Mozambique Coal 15th-16th July 2013 CGA – Couto, Graça & Associados Jorge Graça Lawyer Managing Partner
  • 2. Contents Subject- Key Regulatory Development Affecting Mozambique’s Coal Sector Topics:- • Clarification of the Implications of Recent Legislative Changes- Mega-Projects Law and Mining Law. • Key Regulatory Changes Affecting Foreign Investors in Mozambique Coal. • Strategies for Constructing Financing of Transactions. • Key Tendencies Shown in the Legislative and Regulatory Evolution. 2
  • 3. Main Legal References Constitution of the Republic of Mozambique (“CRM”) Business Concessions / Mega – Projects Law 115/2011 of 10th of August – on the PPP, MP and BC (the “Mega - Project Law” or “MPL”). Decree 16/2012 of 4th of June – on regulation of the Mega – Project Law (the “Mega - Project Law Regulation” or “MPLR”). Mining activities Law 14/2002 of 26th of June - on the mining sectors’ s activities (the “Mining Law” or “ML”). Decree 62/2006 of 26th of December - on regulation of the Mining Law (the “Mining Law Regulation” or “MLR”). Draft of the New Mining Law as provided in the GoM web site (not yet passed as an Act), (“the Draft Mining Law” or “DML”. Mining tax regime Law 11/2007 of 27 June 2007 - on the specific taxation regime for mining activities. Law 13/2007 of 27 June 2007 - on specific tax incentives for mining activities. 3
  • 4. Clarification of the Implications of Recent Legislative Changes- Mega-Projects Law and Mining Law. General • The Mega - Projects Law (MPL) is a cross sectors or horizontal law. It rules on any sectors and activities that fall under its scope and provisions. • The provisions of the MPL on Business Concession and on Mega – Projects are generally applicable to the relevant mining sector’s activities. The general dispositions, the institutional framework and process, the specific provisions on mega – projects and business concessions and the final dispositions are applicable to mining sector’s activities as it fits. 4
  • 5. 5 • Indeed, the Mining Law (ML) is the Act that governs mining activities (excluding non solid minerals) - it is a sectorial or specific law. • As such, the Mining Law provisions prevail in relation to the MPL provisions in any matters that the ML sets for specifically or differently from the MPL. Unless the MPL states directly that certain provision prevails over any sector’s law or specified sector’s laws or provisions therein. • The MPL complements the ML on matters it as not ruled on and are covered by provisions of the MPL. General ( Continued )
  • 6. Clarification of the Implications of Recent Legislative Changes- Mega-Projects Law and Mining Law. Specific The links between Mega – Project Law and Mining Law • Scope Exploration and / or exploitation of natural resources (ex: coal reserves); Any other resources or goods that are part of the national assets. • Concept of Business Concession A contract or any form of entitlement granted by the GoM to undertake the exploration and / or exploitation of natural resources (ex: coal reserves) and other national assets Mega – Projects – the undertaking is, with reference to 1st January 2009, of a value above 12.500.000.000, 00 Mts (+ - 500.000.000,00 USD). The MPL excludes such contractual or any other forms of entitlement from the PPP concept and specific provision therein. 6
  • 7. • Institutional framework The mining oversight and supervisory role by the sector’s Ministry, the Ministry of Mineral Resources in liaison with a strengthened finance oversight, monitoring and supervisory role of the Ministry of Finance. An inter-sectors entity to centrally: evaluate and review economically and financially, monitor a fair sharing of benefits and prevent risks from happening regarding BC and MP undertakings. • Mining contracts and licensing awarding Mega – Projects Law (article 30/1) provides for the use of the award of contracts’ modalities and procedures established under the sector’s specific laws and regulations and of the general public rules for awarding of contracts. Therefore, remain in force the current mining contracts and mining licences awarding modalities and procedures set out by the Mining Law and its Regulation. 7 Specific ( Continued )
  • 8. • Investment guarantees and benefits MLP qualifies BC and MP eligible for enjoyment of investment guarantees and incentives in terms of the specific applicable legislation. This means that the current tax regime and investment guarantees and benefits are in force for the coal sector and the mining sector, in general. • Non commercial risks MPL indicates that BC and MP undertakings may access, at its own costs, to guarantees for the coverage of non commercial risks, in terms and conditions the GoM must agree upon. • Rights acquired under mining contracts and mining licenses Remain stable and are valid and enforceable (MPL and ML). (See below) 8 Specific ( Continued )
  • 9. • Types of benefits and its sharing The Mega - Project Law introduced as a rule the criteria of fair share of benefits regarding Business Concessions and Mega – Projects undertakings. Such benefits to be agreed in the relevant contract, taking into account the financial and economic viability and the financial model of the undertaking or project. Evaluation of the benefits and its sharing must safeguard the viability and sustainability of the project, and the rights and interests of the financiers, the State, the national economy and the society at large. The benefits as financial and socio-economic. 9 Specific ( Continued )
  • 10. Key Regulatory Changes Affecting Foreign Investors in Mozambique Coal. 10 • Mining contracts – will play an increased central role in the mining title award, benefits generation and share regulation, in the mining activities and relationship with MIREM / GOM (exploration and mining concession titles). Minimum standard clauses specified in the MPL and ML are mandatory. • Renewal of mining contracts and new mining contracts Renewals are subject to the MPL applicable provisions, depending on the renewal clause terms. MPL applies to mining contracts signed after the enforcement date (10. August. 2011). . • Project implementing entity “Sociedade anónima” (public limited company / joint stock company)
  • 11. Key Regulatory Changes Affecting Foreign Investors in Mozambique Coal. 11 Financial benefits for the country: • Fees Awarding bonus in a value between 0,5% - 5% and a concession fee in a value between 2% and 5% of the fair value of the mining active (material or non material, including camp, buildings, equipment mining title, share capital, or contractual share participation).
  • 12. 12 • Mozambican participation in the share capital of the undertaking / project implementing entity or of the “consortium”: • between 5% - 20% to be reserved for sale via stock market, preferable to citizens (individuals) – favour economic inclusion; The stock may be kept in trust by the state or the project implementing entity, without conditions for sale in phases up to 5 years from the exploitation commencement date. • a participation opportunity for private or public legal entities, to be agreed in the contract. • A free carry equity of up to 5% of the share capital, at any phase of the undertaking, for the granting of the rights of exploitation of the relevant natural resource. Financial benefits ( Continued )
  • 13. Key Regulatory Changes Affecting Foreign Investors in Mozambique Coal. 13 Financial benefits (continued): • Project implementing company is required to generate profits and extraordinary benefits in order to be able to: • Distribute dividends; • Create a stabilization reserve; • Distribute any additional annual share on the extra benefit; • Reinvest; • Support social corporate responsibility programs. The annual value of the financial benefits shall not be lower than 35% of the project implementing entity or undertaking annual profit, as declared in the annual income statement for tax purposes.
  • 14. Strategies for Constructing Financing of Transactions. 14 • Financial and viability study and financial model for the project • To tender, make application and undertake negotiations taken that as the master plan for negotiations of mining contract and mining title awarding. • Ensure that the main clauses of the mining contract and the terms of the mining title are conducive for funding (bankability). • The cost of the project development and implementation and on services and infrastructures supporting it are high. • Land and the mineral resources as such are assets of public domain, not subject to be offered as securities. • Actives from the state or public institutions granted to the project remain under public ownership and any encumbrances on them will require authorisation by the relevant Minister. • Authorisation is also required for placement of securities over immovable and equipment as assets dedicated to mining operations.
  • 15. Strategies for Constructing Financing of Transactions. 15 • Transfer of mining contracts rights and / or obligations and of contractual position of the contracted party, including step in rights, require prior authorisation from the Minister of Mineral Resources. • The same applies to transfer of any mining titles such as exploration and mining concession. • Transfer of shares or social participations in a mining project company is not statutorily required to be granted a prior authorisation, although mining contracts may contain a clause so requiring. Usually there is a requirement for communication in advance of the proposed sale.
  • 16. Strategies for Constructing Financing of Transactions. 16 • Within that framework and context it appears that a combination of types of funding is required. • Corporate financing, project financing and financing through sale of shares in the stock exchange of Mozambique are, in different combination of the elements that suits the case, part of what could the components for a financing strategy. The issuance of bonds for raising of capital is also a means available. • A whole range of personal and real guarantees are available in the Mozambique legal system. • The adoption of the form of “sociedade anónima” is the adequate vehicle for supporting a financing strategy for a project under a Business Concession or a Mega-Project undertaking. • That is the type of company required under the law (MPL and the Law on the stock exchange).
  • 17. Key Tendencies Shown in the Legislative and Regulatory Evolution. 17 • Legal and contractual stability and acknowledgement and protection of acquired rights. Changes in law do not affect such rights and are not retroactive. Right of option. Changes to contract are mutually agreed. • To combine a wider use of contractual mechanisms with the public tender procedures in the granting of exploration and exploitation rights over natural resources. Acceptance of exceptions in the public interests. • To establish a standard content for the mining contracts in general through the new mining legislation to be approved, also as a way to harmonize the rules and regulation specific to the mining sector with the Mega – Project Law. • To enhance the local content in the access to natural resources and its exploitation, combining the national and foreign investment in mining.
  • 18. Key Tendencies Shown in the Legislative and Regulatory Evolution. 18 • To develop a strategic state participation in mining activities through commercial means and arms such as private companies having a dominant share capital owned by the state. • To establish a wider cooperation between the private and public sectors in the exploitation of natural resources. • To expand the taxation scope capturing capital gains generated on the basis of national natural resources. • To implement a fair share criteria in the sharing of the financial benefits generated by BC and MP, creating a local inclusion, the use of financial local stock market. • To develop the capital market in Mozambique, particularly through the stock exchange enhancement.
  • 19. Key Tendencies Shown in the Legislative and Regulatory Evolution. 19 • To offer again a wider range of tax benefits for the investment in mining activities as it appears to be the case of the draft to revise the tax incentives for mining operators. Definition of minimum and maximum percentages of deduction on certain taxes allowing the Council of Ministers some room for negotiation, instead of having a fix tax benefit as it is in the present case. • To broaden and make more comprehensive the existing legal and regulatory framework applicable to the mining sector activities, including environment and social responsibility. • To enhance the institutional strength of the government administration, specialising their institutions regarding the various roles: policy, regulatory and commercial.
  • 20. THANK YOU! 20 Contacts: Jorge Graça jgraca@cga.co.mz Pedro Couto pcouto@cga.co.mz Taciana Peao Lopes tlopes@cga.co.mz