Law requiring the use of local companies reduces interest in Mozambique

23 January 2015

The uncertainties on regulation in Mozambique and the risk of an increase in “resource nationalism” may diminish investor interest and postpone projects, according to Business Monitor International (BMI).

In its “Oil & Gas Report” for the first quarter of this year, the consultancy’s analysts said, “the regulatory uncertainties and the risk of increased resource nationalism [mandatory to hire a certain percentage of the workforce and local businesses] could decrease interest in investments and delay projects.”

The new Oil Law, passed last year, remains, “in general, relatively attractive, but shows some implementation of resource nationalism, such as stipulation of up to a 20 percent stake by national oil and gas company ENH and ensuring that 25 percent of the production of futures contracts will be reserved for the domestic market,” the BMI said.

In the report, the consultants said one of the most important notes to be drawn from recent exploration and resource evaluation work in Mozambique is “growing confidence” that the operators have about natural gas reserves, which will make way for liquefied natural gas exploration projects.

However, they point out, “the delays in foreign direct investment, policy, the costs and restrictions of infrastructure and suspension of approval of the regulatory laws are some of the main challenges the country will face when moving from exploration to production.”

Mozambique’s reserves, according to a recent World Bank report, exceed 20 billion equivalent barrels of oil, more than Nigeria and Angola, the two largest African producers, and the first export of liquefied natural gas is expected in 2021, although the government points to 2020 as the most likely date. (macauhub/MZ)