On the 14th of August, the Parliament of the Republic of Mozambique approved a revised version of the Petroleum Law that revoked the existing Law nr. 3/2001, of 21 February.

In the context of the significant discoveries and rapid growth of the Mozambican oil and gas industry, the emphasis of the new Petroleum Law has been to ensure that Mozambique and its population benefit from the exploration and production of these discoveries. However, Law nr. 21/2014 of 18 August was approved in a significantly different version than that which had been heavily discussed between industry players and regulating authorities and subsequently submitted to Parliament. Where the Ministry of Natural Resources in the initial draft law had hesitated to impose concrete measures and/or restrictions in relation to local content and domestic consumption requirements, Parliament showed a heavier hand. There is now a requirement for foreign operators to “associate” with local companies in the acquisition of goods and services, as well as a requirement for 25% of all oil and gas produced to be delivered to the market in Mozambique.

As a result of the Government’s guarantee to the Mozambican population of equitable compensation in relation to its rights to use the land and sea that may be affected by petroleum operations, concessionaires can expect a higher cost arising from land expropriation (e.g. for pipeline corridors) and population re-settlement. What’s more, oil and gas companies will be required to enter into a tripartite “memorandum of understanding” with the Government and the local communities as a condition precedent to obtaining an oil and gas concession. The detail of such document is yet to be worked out.

Under the new Petroleum Law, the Government has the power to directly or indirectly carry out any activities related to the scope of any phase of petroleum operations, from exploration and production to marketing and refining of hydrocarbons. In implementing this increased Government participation, the new Petroleum Law makes the national oil company, Empresa Nacional de Hidrocarbonetos – ENH, E.P. the Government representative in “oil and gas transactions”. Whereas this isn’t necessarily innovative within the context of management of upstream operations, the ability of ENH, E.P. to participate in the “commercialization of oil and gas and derived products, including LNG and GTL in Mozambique and abroad”, could potentially impact the dynamic of negotiation of petroleum sales in the foreign market by operators.

The question still remains, however, whether this new legal framework will impact the Government’s regulation of a special regime for the proposed LNG Projects in Areas 1 and 4 of the Rovuma Basin, whose enabling law was approved in the same parliamentary session. This is an exciting energy market in a state of regulatory flux. It will be interesting to see whether the new regulatory developments bring with them much needed clarity or whether, as some are suggesting, they add more opacity as the oil and gas industry begins to get to grips with their translation into day-to-day activities.

Originally published in Petroleum Review in October 2014.