The New Regulation on Petroleum Products
After approximately 9 years in effect, Decree no. 45/2012, of 28 December (the Old Regulation), was repealed by Decree no. 89/2019, of 18 November (the Regulation), which, like its predecessor, is applicable to the petroleum industry segment usually called “downstream”, which comprises the activities of production, import, reception, storage, handling, distribution, marketing, transportation, exportation, re-exportation, transit and pricing of Petroleum Products.
If, on the one hand, the Regulation brings some innovative aspects, on the other, it keeps unchanged aspects which, even under the Old Regulation, needed improvement in order to be better serve the increasing demands of the sector they regulate. Below is the list of what is new.
- Innovative Aspects
Quantitatively, the innovative aspects brought by the Regulation are considerable. Nonetheless, for this brief reflection we only bring those we deem most relevant from a practial standpoint, as detailed below.
On licensing, the Export License, which is the certificate that enables a given entity to sell locally produced Petroleum Products abroad, was introduced.
Regarding the license in question, the following should be noted:
- entities holding production licenses may conduct export activity without an Export License;
- entities holding Export Licenses may export locally-produced Petroleum Products, provided that the domestic market demand has been satisfied; and
- an Export License shall not suffice for the export of liquid fuels (a sub-category of Petroleum Products) by entities which are not holders of distribution licenses.
In relation to registration, which is a document issued by the National Directorate of Hydrocarbons and Fuels, in which the physical and operational characteristics of the petroleum facility are described, the Regulation is innovative to the extent that it makes express reference to the types of registration, which are:
- registration of consumption facility;
- registration of petroleum facilities; and
- registration of forwarding agent (agente transitário).
However, contrary to the Old Regulation, the Regulation provides for a renewable ten (10) year period for the validity of registration, which under the Old Regulation remained valid for an unlimited period, provided their holders complied with their conditions and the respective facilities operated properly.
One of the most significant innovations brought by the Regulation is, certainly, the sharp increase in the geographic incentive fee from one million, five hundred thousand Meticais (1,500,000.00MT) to six million Meticais (6,000,000.00 MT), which corresponds to an increase of three hundred percent (300%).
It is worth mentioning that the geographic incentive is part of the efforts that the Government, through the Energy Fund (FUNAE), has been making to expand geographically (especialy to rural areas) access to liquid fuels and natural gas for vehicles, charging, for that purpose, the geographic incentive fee at the time of the pre-registration inspection of petroleum equipment and facilities in petrol stations located in the cities of Maputo, Matola, Beira, Nampula, Nacala, Chimoio, Inhambane, Xai-Xai, Lichinga and Quelimane, as well as along the National Highways 1, 4 and 6 and the Maputo Ring Road up to 500 meters from the respective axis, areas where access to fuel is deemed relatvely easy. Considering that in light of the Old Regulation only fuel stations located in the cities of Maputo, Matola, Beira and Nampula, and National Highway 4, were covered by the duty to pay the above-mentioned fee, the Regulation is geographically more comprehensive.
As concerns the updating of the prices of Petroleum Products, the duty to revise them on a monthly basis whenever the respective base costs shows, as against the calculation date, a variation of three percent (3%) and a change in the applicable tax deductions occurs, is mantained. However, in case of an update, duly licensed distributors shall no longer be informed on the third Wednsday of each month; rather, they shall now be informed on the thrid Thursday of each month or, in the event of a public holiday, on the immediately following business day.
Also in relation to the prices of Petroleum Products, it is worth highlighting that the power to change them moved from the Ministers who oversee the energy and finance areas to the Energy Regulatory Authority (ARENE), created in 2017 and already in operation.
- Other Relevant Aspects
Among the aspects originating from the Old Regulation which require some improvement, the following are worthy of particular attention: (i) the licensing for bunkering activity; and (ii) the transfer of licenses and shares.
In General, bunkering consists in the commercial activity of supply of petroleum products to the national and international maritime, aerial, lake and river navigation markets. This activity is reserved to the holders of distribution licenses, provided they carry out the same, cumulatively, with sale in the domestic market.
In case of entities not headquartered in the Country, and which intend to carry out bunkering activity therefrom, supplying the international navigation with products placed by them in Mozambique or acquired in foreign currency exclusively for that purpose, as well as transiting those goods from and to neighbouring countries, they must do so through locally licensed entities.
Regarding the supply to platforms, ships and other prospecting and lifting equipment operating in Mozambique, the Regulation restricts the exercise of that activity to locally licensed distributing entities.
As for tranfer of licenses, the Regulation provides that, save for the license related to distribution, the licenses set forth in the Regulation are transferable upon written authorization from the National Directorate of Hydrocarbons and Fuels, without, however, giving details on the requirements and the procedure to be followed for that purpose; which is necessary.
In relation to the transfer of shares, when there is a transfer of ownership of the petroleum facility, the authorization of the Minister of Mineral Resources and Energy is needed only when there is a transfer of ownership of petroluem installations, and not in situations in which this does not occur.
- Final Remarks
While the Regulation brought elements of undeniable relevance, e.g., Export License, we believe that a golden opportunity to regulate some aspects in a manner that better suits current and future demands of the emerging Mozambican petroleum industry was missed, as is the case of the bunkering activity, which as the start-up of Liquefied Natural Gas (LNG) production in the country gets closer, may present increasing need. The same goes with the transfer of licenses and shares.Therefore, it is advisable to make the aspects raised, among others, better adjusted to current market dynamics.