Mozambican government extends jurisdiction over mergers and acquisitions of foreign companies

7 May 2012

The Mozambican government is extending its jurisdiction over mergers and acquisitions of foreign companies that own assets in the country, particularly in the mining sector, where these kinds of deals are at a high, according to the Economist Intelligence Unit (EIU).

Teams from the ministries of Finance and Mining Resources are working on a clause, which will be included in the review of the mining law, about how to calculate the tax on profits from the sales of foreign companies, the EIU said in its latest report on Mozambique.

This proposal, it said, would allow Mozambique to charge a tax on the sale of Irish company Cove Energy, which owns 8.5 percent of a large natural gas block in the Rovuma basin, in Cabo Delgado province.

The measure underlines the intention of the authorities to extend jurisdiction over foreign mergers and acquisitions and is a significant political development for foreign investors in Mozambique,” said the EIU economists.

The new legislation, they said, also includes increase the State’s involvement in the mining sector, including a larger slice of state revenues in mining projects as well as the option of a direct stake in projects of “strategic importance.”

“How this strategic interest will be defined and if this clause will be used selectively is something that has to be clarified by the authorities,” said the EIU.

“The new legislation comes at a time when Mozambique appears to be close to becoming a significant new producer of hydrocarbons,” the EIU noted.

An investment of US$18 billion, which would be the biggest ever in Mozambique, is being planned by US oil company Anadarko Petroleum in a unit for exporting natural gas.

Other large international groups such as Malaysia’s Petronas and South Africa’s Sasol, are also involved in the development of the natural gas industry in Mozambique.

The transport and distribution facilities required to export these natural resources are also leading to significant infrastructure projects, particularly roads and railways.

The two largest companies, Rio Tinto and Vale, have surplus production capacity, given that the main means of transport – the Sena Railroad – does not have the capacity to carry all the coal that is mined.

Vale plans to invest US$1.5 billion in a 900 kilometre railroad to the port of Nacala, which will be concluded by 2016, and Rio Tinto proposes to build a new railway to an export terminal in Zambézia province. (macauhub)