Economy Finance Government Mozambique Natural Resources

Helping Mozambique Retain its Extractives Revenues

Approximate reading time: 4 minutes

Mozambique is one of the latest resource-rich countries in Africa to face the challenge of harnessing its resource wealth for the benefit of future generations and avoiding the unwanted side effects of this wealth, such as corruption. Using information made publicly available after Mozambique joined the Extractive Industries Transparency Initiative (EITI), civil society successfully advocated for legislative changes that will increase the future revenues that the government collects from the sale of the country’s natural resources that can be channeled to education, health, and agricultural services for its citizens.

In 2012, the extractive sector accounted for 2 percent of Mozambique’s Gross Domestic Product (GDP). The sector is rapidly expanding, with significant new investments being made in oil, gas, and mining. The extractives sector was the country’s fastest growing sector in 2012, and helped propel GDP growth that year to 7.4 percent, and commercial oil production has recently started.

Mozambique joined the EITI in May 2009 and was declared EITI compliant in October 2012. The first EITI report for the year 2008, published in January 2011, revealed numerous problems in the country’s governance of natural resources. Major discrepancies between the payments reported by companies and the government were uncovered along with very low tax contributions by mining companies due to sizable tax benefits and from the government’s inability to properly value its natural resources. There was also a lack of information about in-kind benefits received by the state.

The issue of low tax contributions by extractive companies was particularly serious. To illustrate, the amount of revenues from a single revenue stream that was lost as a result of redundant fiscal incentives to one company, Sasol Petroleum Temane, resulted in a tax on company profits that was 12 times higher than the entire discrepancy calculated by the EITI for the extractives sector.

Centro de Integridade Publica (CIP) used the information about low company tax contributions to advocate for the public disclosure of contracts between the government and extractive companies, and for the renegotiation of such contracts before updating the new Fiscal Benefits Code. They published a series of articles to draw attention to the issue. A civil society platform, first hosted by Centro Terra Viva and then by CIP, further mobilized civil society. Civil society conducted and published diverse assessments regarding contract disclosure, fiscal issues and contract renegotiation, and stimulated public debate via seminars, conferences and media articles. The idea of contract renegotiation was soon supported by international organizations and renowned economists as well as by the governor of the Bank of Mozambique.

Initially, the Mozambique government strongly opposed the idea of contract renegotiation, stating that the (then) current status quo was sustainable and that existing contracts were “responding effectively to the needs of the country.” However, thanks to civil society’s efforts to raise public awareness and generate public pressure it helped place the issue on the political agenda and change the government’s position.

As a result of this pressure, the government agreed to reform the legal framework for the extractives sector. In August 2014, the new Petroleum and Mining Law and the new Petroleum and Mining Tax Law were passed. The new laws aim to strengthen the country’s position as a resource owner of these extractive companies and respond to civil society’s primary concerns. The laws establish the legal framework for contract terms, making bilateral contract negotiations unnecessary. They set the parameters for safeguards for community rights, capital gains taxation, the mineral resource rent tax, contract disclosure, revenue payment disclosure, and local content requirements.

These changes reflect the impact of civil society’s campaigns. As Fatima Mimbire of CIP notes, “the changes in the legal framework are mainly the result of civil society’s work.”

Additional legislative reforms are currently on the agenda. The redefined National Petroleum Institute (INP) has drafted a Model Exploration and Production Concession Contract, which, if adopted in the new law, will be used as a template for future transactions with companies, especially in the production of liquefied natural gas.

Key Lessons:

  • Transparency of extractive revenues and contracts is a necessary condition for keeping people informed about the sector’s contribution to the government.
  • Access to information is critical for helping civil society spark public debate that can lead to government reforms.

Source: World Policy Blog/ ONE

Advertisements

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.