April 01, 2016

Mozambique’s New Petroleum Legislation Completed: Toeing the Line in a Challenging Market


Jump to...

Newsletter   Read more articles from the April 2016 
  Energy Update newsletter > 


In 2014, Mozambique reformed the legislation affecting the oil and gas sector by passing a new Petroleum Law (Law No. 21/2014 of 18 August) and a new Petroleum Tax Law (Law No. 27/2014 of 23 September). The impetus for these new laws was to increase Mozambique’s share of benefits from its recently discovered vast hydrocarbon reserves, including in the Rovuma Basin.1 The details of many of the changes introduced by these new laws were to be set out in implementing regulations that were originally due to be enacted within 60 days of the passing of the new laws. However, they were only published at the end of 2015. In the interim, oil prices have fallen from approximately US$100 per barrel to less than half that at approximately US$40 today, significantly changing the dynamics of the oil and gas markets and the economic outlook for petroleum-producing countries.

The new regulations comprise: (a) the New Petroleum Tax Regulations (Decree No. 32/2015 of 31 December) and (b) the New Petroleum Regulations (Decree No. 33/2015 of 31 December). These new regulations replace the previous Petroleum Tax Regulations (Decree No. 4/2008 of 9 April) and Petroleum Regulations (Decree No. 24/2004 of 20 August).

In this article, we analyze the impact of the new regulations and their relationship to the Petroleum Law and Petroleum Tax Law, including in light of the changes in the oil and gas market since the enactment of these laws.

Scope of Application

The New Petroleum Regulations and New Petroleum Tax Laws apply to any undertaking conducting “petroleum operations” (as defined in the Petroleum Law). Neither of these regulations sets out how they are intended to apply to existing concessions. We assume that their application would be considered subject to the grandfathering provisions set out in the Petroleum Law and Petroleum Tax Law. Offshore Areas 1 and 4 in the Rovuma Basin that are currently under development and contain most of Mozambique’s discovered non-associated gas reserves would not be affected by these new regulations, thanks to the grandfathering provisions included in the decree-law specific to those projects (Decree Law No. 2/2014 of 2 December).2

Purpose and Content

The new regulations generally follow the structure and content of the regulations they replace but include certain new provisions, mostly to reflect the additional requirements imposed under the Petroleum Law and Petroleum Tax Law.

A. New Petroleum Regulations

Domestic Petroleum Allocation

One of the key concerns arising from the Petroleum Law was the requirement that at least 25% of all oil and gas produced in Mozambique is to be allocated to the domestic market. It was hoped that the New Petroleum Regulations would clarify this allocation requirement, and in some respects they do. First, the amount to be allocated to domestic consumption is to be agreed upon as part of the development plan. This is helpful as it seems to allow more leeway to discuss how the 25% is calculated (e.g., whether net of royalties or not). All sales will be done through the Mozambican state-owned national oil company Empresa Nacional de Hidrocarbonetos (ENH), and while the terms of such sale will be set by the Government, they will be on “market terms.”

Listing on Stock Exchange

The Petroleum Law required all “oil and gas companies operating in Mozambique” to be listed on the Mozambican stock exchange. The New Petroleum Law clarifies that this listing is only required of the entities holding oil and gas concessions and must occur after the approval of any development plan in accordance with applicable law. We assume the applicable law in question is Law No. 15/2011 of 10 August (also known as the “PPP Law” or “Mega Projects Law”), which requires a listing of 5-20% of shares in the concessionaires. The timing of the listing is not very clear, but it would need to be done within five years of commercial operations, assuming existing legal requirements apply.

Clarification of Regime for Infrastructure Concessions

One of the key changes expected to be introduced by the Petroleum Law relates to the creation of a regime for concessions involving LNG projects and other upstream and midstream infrastructure, as only pipelines were provided for under the previous Petroleum Law of 2001. While the Petroleum Law introduced a concept of “infrastructure concession” to cover these types of assets, it failed to provide any details as to the terms of such concessions. Under the New Petroleum Regulations, however, infrastructure concessions can be granted for a maximum of 30 years and may be granted through a direct award. The application process and content requirements for infrastructure concessions are also detailed and are very similar to those applicable to pipeline concessions.

Under the Petroleum Law, holders of infrastructure (and pipeline) concessions are required to grant third parties access to their facilities. While this has been a requirement of Mozambican petroleum legislation since its inception, there were concerns as to its practical implications. The New Petroleum Regulations clarify that tariffs that would apply to third-party users should cover all costs plus a margin.

Local Content and Participation

As with the Petroleum Law, the changes introduced by the New Petroleum Regulations focus on increasing local content and the Mozambican state’s oversight over petroleum operations. The New Petroleum Regulations describe the obligations of foreign persons to associate themselves with Mozambican persons when supplying goods and/or services in Mozambique and to give preference to Mozambican goods and services that are set out in the Petroleum Law. Despite concerns raised (and addressed in the Decree Law for Offshore Areas 1 and 4) with respect to the impact of these obligations on the availability of export credit agency financing, no exception is made for these under the New Petroleum Regulations. The New Petroleum Regulations also reflect the requirements imposed in the Petroleum Law as concerns the training and hiring of Mozambicans. However, no further information is provided as to the minimum terms of such local content efforts. These will need to be discussed and agreed under each concession. Helpfully, the Petroleum Law and New Petroleum Regulations do not change the rules applicable to the hiring of foreign nationals.

Natural Gas Resources

Unlike pre-existing legislation that was focused on oil extraction, the New Petroleum Regulations introduce specific provisions addressing the sale of associated and non-associated natural gas that concession holders are encouraged to pursue (although the terms of any such sale are subject to the approval of the Government). With respect to associated natural gas, under the New Petroleum Regulations, if concession holders elect not to sell associated natural gas, the Government may (without compensation to the concessionaire) collect such associated gas and sell it itself.

Alignment to Concession Practice

The New Petroleum Regulations codify certain terms typically included by the Mozambican government in its oil and gas concessions. These include: (a) the joint and several liability vis-a-vis the Mozambican government of concessionaires comprising more than one legal entity; (b) the creation of a decommissioning fund; and (c) the Mozambican government’s right to require immediate transfer of the concession interests to it and without compensation in the event of concessionaire breach. The termination regime under the New Petroleum Regulations imposes specific–and quite short–cure periods and time limits to exercise termination and transfer rights. No provision is made for lender direct agreements. However, it should be possible to amend this regime in the specific concession contracts as, once approved and executed, these would typically prevail over conflicting regulations.

The New Petroleum Regulations also clarify that the responsibility for managing the concessions rests with the concessionaire (previously this was stated as being the responsibility of the operator) and provides Mozambique’s National Petroleum Institute (Instituto Nacional de Petróleo) with day-to-day management responsibilities previously vested in the Ministry of Mineral Resources.

B.   New Petroleum Tax Regulations

The Petroleum Tax Law included detailed provisions regarding the calculation and payment of taxes for undertakings in the petroleum sector. As a result, the New Petroleum Tax Regulations mostly reflect the terms of the Petroleum Tax Law. One notable clarification relates to the circumstances in which a lower petroleum production tax rate applies (50% of the headline rate). Under the New Petroleum Tax Regulations, this reduced rate would only apply to sales to ENH in fulfilment of the concessionaire’s domestic petroleum sales obligations. The tax will be calculated on the revenues generated from sales to ENH.


The New Petroleum Regulations and New Petroleum Tax Regulations provide some helpful clarifications as to some of the new requirements introduced by the Petroleum Law and Petroleum Tax Law. As we understand that they will only apply to new petroleum concessions, they will be relevant to new investors in Mozambique or investors seeking to increase their footprint in that jurisdiction. The Petroleum Law and Petroleum Tax Law were developed at a time of high oil and gas prices with a view to helping monetize and control these resources for Mozambique, often resulting in less favourable terms for investors. Due to current market conditions, new investor interest in Mozambique is likely to be more limited–as may have been evidenced by the fact investors only bid for eight of the 15 blocks tendered during Mozambique’s last licensing round in 2015. While the new regulations do not impose materially more stringent requirements than the laws they are implementing, they also do not purport to temper those new requirements to reflect less advantageous market conditions.

1 For further information, see our articles “Mozambique’s New Petroleum Legislation: Are Investors Ready to Hit the Gas?,” September 19, 2014, and “Mozambique’s Decree Law: Worth the Wait,” January 30, 2015, which can be made available on request.

For further information, see our article “Mozambique’s Decree Law: Worth the Wait,” January 30, 2015, which can be made available on request.

Authors and Contributors

John Inglis



+44 20 7655 5790

+44 20 7655 5790


Jean-Louis Neves Mandelli



+65 6230 3834

+65 6230 3834