Mozambique: Parliament approves sovereign fund from gas revenues

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Mozambique: Parliament approves sovereign fund from gas revenues

1:04 CAT | 15 Dec 2023

File photo: Macauhub

Mozambique’s parliament gave final approval on Friday to the creation of the Mozambique Sovereign Fund with revenues from natural gas exploration, which by the 2040s should reach 6 billion dollars a year.

The proposal to create the Mozambique Sovereign Fund, presented by the government, received 165 votes in favour in the final vote, only from the Mozambique Liberation Front (Frelimo), while 39 opposition MPs voted against, from the Mozambican National Resistance (Renamo) and the Mozambique Democratic Movement (MDM).

“Projections indicate that annual gas exports could amount to around $91.7 billion over the life cycle of the project, in a scenario in which all the development initiatives approved so far by the government are in operation. In this scenario, annual revenues for the state will peak in the 2040s at more than $6 billion a year,” the minister of economy and finance, Max Tonela, explained in parliament this week.

The creation of the fund had been under discussion for several months, with the government withdrawing the proposal from discussion in parliament on more than one occasion, claiming that it was trying to achieve consensus on its approval, which did not happen.

In the model for the creation of the Mozambique Sovereign Fund, whose operational manager will be the Bank of Mozambique, Max Tonela said that “successful examples in the world and not so good cases” were taken into account, in which “countries that had great resources and were riding on the back of the resources and raised the standard of consumption of the state too much, got into too much debt and now the level of resources is reducing, and they are entering a conflict in which they don’t have the capacity to have more resources”.

“So this is the ultimate purpose of the fund. That’s why we have to look after current generations, but ensure that future generations can also benefit from the existence of resources that the country also has,” he explained, emphasising that the Mozambique Sovereign Fund will make it possible to “get resources to finance the state budget in a situation where there is no more natural gas” to exploit.

The draft law creating the Mozambique Sovereign Fund, to which Lusa had access, states in the preamble that as part of the research activities carried out in Areas 1 and 4, offshore of the Rovuma block, “huge deposits of oil and non-associated natural gas” were discovered, estimated at around 180 trillion cubic feet.

In this context, the operators and partners of Areas 1 and 4 submitted three natural gas liquefaction projects to the government, which have already been approved, namely the Coral Sul Liquefied Natural Gas FLNG, offshore, the Golfinho/Atum Liquefied Natural Gas, and the Rovuma LNG.

At the same time, research work is underway in five oil and gas exploration and production concession areas located in Angoche, in the Zambezi Delta, “with even greater benefits expected in the event of a commercial discovery”.

The Mozambique Sovereign Fund’s revenues come from the production of liquefied natural gas from areas 1 and 4 offshore in the Rovuma basin and future oil and natural gas development and production projects, as well as “return on investment from the revenues” of the fund.

“Whenever a public calamity occurs in a given year that leads to the declaration of a state of siege, state of emergency and/or war (…) financial resources may be transferred from the Mozambique Sovereign Fund to support the state budget,” in this case by a higher percentage than expected (between 50% and 60% of revenues).

“The Mozambique Sovereign Fund must invest in assets that are not in the oil and gas sector,” it also states, defining the “prohibition” of using its resources for “granting guarantees in the contracting of loans by the state or other entities”, for “paying debts and servicing debts without going through the state budget”, for financing “political and party activities” and for “contracting debts”.

Source: Lusa