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
lamaral@salcaldeira.com +258 21 241400
Maputo,30 November 2016
Joaquim Chissano International Conference Centre

 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,
lamaral@salcaldeira.com, 2016
Mozambique Gas Summit
2

Natural Gas Strategy & Master Plan
Mozambique’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.
Leopoldo de Amaral,
3

 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)
Leopoldo de Amaral,
4

 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 Mozambican
nationality.
Local Participation (2)
Leopoldo de Amaral,
5

 Public Tender Rule: Acquisition of goods and services for the execution
of petroleum operations in an amount equal to or greater than 40,000,000
MT (roughly US$530k) shall be carried out by public tender.
 Association: Concessionaires to ensure that foreign service companies
are in association with Mozambicans that results in a substantial
contribution to the production or creation of value to goods and services
that are Mozambican in origin or generated by Mozambican persons.
 National Preference: Obligation to give preference to Mozambican
goods and services whenever they are competitive in terms of quality, and
when the price, inclusive of taxes, does not exceed the price of the
available imported goods by more than 10%.
 “Local goods and services” means those that in essence or measured
by added value are predominantly manufactured, built or executed in
Mozambique.
 In the evaluation of tenders, the quality of service, price, delivery time and
the guarantees offered shall be taken into consideration.
 INP to be informed of the tender, bidders and has vetting powers on the
tender procedures implementation.
Procurement of Goods & Services
Leopoldo de Amaral, lamaral@salcaldeira.com, 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, lamaral@salcaldeira.com,
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
9

 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
10

 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 any
type 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
Leopoldo de Amaral,
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 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,
lamaral@salcaldeira.com,
13

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, lamaral@salcaldeira.com,
14

Obrigado
Leopoldo de Amaral
lamaral@salcaldeira.comLeopoldo de Amaral,
15

Mozambique local content legal framework leopoldo de amaral - moz gas summit, 30 nov 2016

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