The Assembly of the Republic has recently approved the new Petroleum law, introducing significant amendments to the legal framework governing the petroleum sector in Mozambique.

The reform confirms a broader trend towards increased State intervention in Petroleum Operations, stricter local content requirements and enhanced national participation throughout the extractive sector value chain.

Whilst the public policy objectives underpinning the reform are understandable, notably the maximisation of national economic benefits and the strengthening of local participation, certain of the approved measures may have a material impact on the structuring, financing and regulatory stability of petroleum projects.

Among the principal matters of relevance to investors and operators, the following should be highlighted:

• Minimum 15% State free carry participation - the new Law introduces a mandatory State participation regime in Petroleum Operations, establishing a minimum participating interest of 15%, which may be increased in areas of high geological prospectivity. In addition, State participation of up to 40% shall be carried by the Concessionaries on a free carried basis until the commencement of Commercial Production.

This measure represents a significant departure from the traditional economic balance applicable to petroleum projects in Mozambique and may affect the profitability, bankability and risk profile of future investments.

• Domestic market obligations and LNG projects - the new Law maintains the obligation to allocate a minimum quota corresponding to 25% of the oil and gas produced within the national territory to the domestic market, whilst extending such obligation to Liquefied Natural Gas (LNG). This development may be of particular relevance to the Rovuma Basin projects, which have traditionally been structured on a predominantly export-oriented basis and are governed by the special legal regime established under Decree-Law No.2/2014 of 2 December (“Decree-Law”).

Although the new Law generally safeguards vested rights arising under existing Concession Contracts, it does not expressly preserve the special regime applicable to the Rovuma Basin, which may give rise to debate regarding the interaction between the new general framework and the legal instruments currently governing LNG projects.

From an investor´s perspective, this issue may prove particularly relevant in terms of regulatory stability and the predictability of the legal framework applicable to projects currently under development.

• Carbon Capture, Utilisation and Storage (CCUS) - the new Law also extends its scope to activities relating to Carbon Capture, Utilisation and Storage (CCUS), subjecting such activities to the authorisation of the Minister responsible for the petroleum sector. The express inclusion of these activities may create new investment opportunities associated with the energy transition and decarbonisation of the energy sector.
• Local content and operational obligations - the reform further strengthens the local content regime and reinforces the broader trend towards increased economic national participation of the petroleum sector. The practical implementation of these measures will largely depend on future implementing regulations and on the effective capacity of the domestic market to meet the technical and operational requirements of the industry.

Overall Assessment

In broad terms, the new Law points towards a substantially more demanding regulatory environment, characterised by increased State intervention in Petroleum Operations, heightened financial obligations and the strengthened regulatory and sanctioning powers of the sectoral authorities.

Although vested rights arising under the Concession Contracts currently in force remain, in principle, safeguarded, future contracts, renewals and extensions shall become subject to the new legal framework.

The practical impact of the reform will depend not only on the final version of the Law as officially enacted, but also on the supplementary regulations to be approved and on the manner in which the new regime is implemented by the competent authorities.

Final Note

This News Flash is based on the draft legislative proposal submitted to the Assembly of the Republic and on publicly available information as at the date hereof. The definitive content and practical of the Law may only be confirmed following its official publication.