The Board agreed that Mozambique has made meaningful progress with considerable improvements in implementing the 2016 EITI Standard.

Board decision

The Board came to the following decision: 

The EITI Board agrees that Mozambique has partly addressed the corrective actions from the country’s first Validation. Consequently, Mozambique has made meaningful progress overall in implementing the 2016 EITI Standard, with considerable improvements across several individual requirements.

The Board is delighted that government engagement in the EITI has strengthened. EITI implementation has improved coordination between government agencies. Mozambique is encouraged to ensure the sustainability of transparency and multi-stakeholder governance in the extractive sector by completing the institutionalisation of the EITI secretariat. The Board encourages the industry constituency to engage more actively in the EITI to ensure that the process reflects the interests of extractive companies as well. Company representatives on the multi-stakeholder group are expected to liaise with the broader constituency.

Having published EITI Reports covering nine financial years, Mozambique is encouraged to consider routine disclosures to ensure that information is made available in a timely and cost-efficient manner. The Board commends Mozambique for improving the availability of license information. The government is encouraged to use the extractives license portal to disclose granular data related to, for example, production, exports, payments and beneficial ownership.

The Board recognises that significant gaps remain in disclosures related to state participation in the extractive industries. The MSG is encouraged to work with state-owned enterprises (SOEs) and the government agencies overseeing them to ensure that comprehensive information about the policies and practices regarding the financial relationship between the state and SOEs is comprehensively disclosed.

The Board has determined that Mozambique will have 18 months, i.e. until 16 April 2021, before a third Validation to carry out corrective actions regarding industry engagement (1.2), license allocations (2.2), state participation (2.6), comprehensiveness (4.1), in-kind revenues (4.2), barter agreements (4.3), SOE transactions (4.5), subnational payments (4.6), data quality (4.9), subnational transfers (5.2), social expenditures (6.1), quasi-fiscal expenditures (6.2), economic contribution (6.3) and public debate (7.1). Failure to achieve satisfactory progress in the third Validation will result in suspension in accordance with the EITI Standard. In accordance with the EITI Standard, Mozambique’s MSG may request an extension of this timeframe, or request that Validation commences earlier than scheduled.

Corrective actions and strategic recommendations

The Validation Committee recommends that the Board agrees the following corrective actions to be undertaken by Mozambique. Progress in addressing these corrective actions will be assessed in a third Validation commencing on 16 April 2021:

1. In accordance with Requirement 1.2, companies should demonstrate that they are fully, actively and effectively engaged in the EITI process. The company constituency should establish mechanisms for communicating about the EITI with companies beyond the MSG and play an active role in setting objectives for EITI implementation in the country.

2. In accordance with Requirement 2.2, Mozambique is required to disclose licenses awarded and transferred in the period covered by the EITI Report and ensure that information about the licenses is publicly available, for example in the license cadastre or on the INAMI and INP websites, provided that the continuous functioning of these websites is guaranteed. Mozambique is encouraged to disclose the process and criteria for transferring a petroleum license. INAMI and INP are encouraged to carefully consider the recommendations presented in the report on strengthening the license allocation process.

3. In accordance with Requirement 2.6, Mozambique should provide a comprehensive explanation of the prevailing rules and practices regarding the financial relationship between the government and state-owned enterprises (SOEs), including the rules and practices governing transfers of funds between the SOE(s) and the state, retained earnings, reinvestment and third-party financing. The government should also disclose a comprehensive account of any loans or loan guarantees extended by the state or SOEs to mining, oil, and gas companies operating in the country. The government should also disclose details regarding the terms attached to their equity stake in each project, including their level of responsibility to cover expenses at various phases of the project cycle, e.g., full-paid equity, free equity, carried interest. The MSG should discuss and document its definition of SOEs taking into account the different arrangements for state participation defined in national laws, government structures and ongoing reforms.The government and the MSG are encouraged to undertake a study on the rules and practices of state participation in the extractive sector. Government agencies, such as INP, INAMI, IGEPE, the tax authority (TA) and state-owned enterprises are encouraged to routinely disclose data about the extractive sector through their own reporting systems and websites.

4. In accordance with Requirement 4.1, the MSG should clearly justify the selection of material revenue streams by demonstrating that the omission of some revenue streams does not materially affect the comprehensiveness of the EITI Report. The MSG is encouraged to consider raising the threshold for selecting material companies to ensure a cost-benefit balance in reconciliation. Mozambique should document the options considered and the rationale for establishing the materiality definitions and thresholds. Mozambique should disclose aggregate information about the amount of total revenues received from each of the benefit streams agreed in the scope of the EITI Report, including revenues that fall below the agreed materiality threshold.

5. In accordance with the Requirement 4.2, Mozambique is required to annually disclose the volumes of in-kind royalty gas sold to each company and the resulting revenues received by the government from each individual buying company. Mozambique is encouraged to disclose the contracts underlying the allocation of in-kind royalty gas.

6. In accordance with Requirement 4.3, the MSG is required to consider whether there are any agreements, or sets of agreements involving the provision of goods and services (including loans, grants and infrastructure works), in full or partial exchange for oil, gas or mining exploration or production concessions or physical delivery of such commodities. Where the MSG concludes that these agreements are material, the MSG and the Independent Administrator are required to ensure that the EITI Report addresses these agreements, providing a level of detail and transparency commensurate with the disclosure and reconciliation of other payments and revenues streams. Where reconciliation of key transactions is not feasible, the MSG should agree an approach for unilateral disclosure by the parties to the agreement(s) to be included in the EITI Report. The MSG should clarify whether EITI reporting comprehensively addresses the possible existence of such agreements not covered in the report, and ensure that it is clearly stated if they do not exist.

7. In accordance with Requirement 4.5, Mozambique is required to ensure that the EITI reporting process covers all dividends received by the state from reporting entities. Mozambique is encouraged to disclose financial transactions between extractive SOEs and their subsidiaries.

8. In accordance with Requirement 4.6, it is required that the MSG establishes whether direct payments from companies to subnational governments are material. Where material, Mozambique must ensure that direct company payments to subnational government entities are disclosed and reconciled in future EITI Reports. If the central government does not have data about subnational payments, as a practical solution, the MSG is encouraged to ask companies to submit data on payments to subnational government entities.

9. In accordance with Requirement 4.9, Mozambique should ensure that (1) the procurement of Independent Administrators for future EITI Reports follows the Standard Terms of Reference agreed by the EITI Board, (2) the MSG’s decisions on reporting templates and data assurances are clearly documented, (3) EITI Reports clearly document whether payments and revenues are subject to credible, independent audit and whether assurances agreed by the MSG were complied with and (4) the IA submits electronic data files and summary data in accordance with the latest template provided by the International Secretariat The MSG is encouraged to assess the reliability of non-financial information, disclose how government entities collect the data and make recommendation for strengthening data reliability.

10. In accordance with Requirement 5.2, Mozambique should ensure that the specific formula for calculating transfers to individual local governments be disclosed, to support an assessment of whether executed subnational transfers correspond to the formula defined in legislation. Mozambique is encouraged to follow up on the EITI Report’s observations regarding weaknesses in the management of subnational transfers. Mozambique could also consider reviewing and drawing on the various publicly accessible sources of information related to subnational transfers published by the Ministry of Economy and Finance and the Administrative Court (Tribunal Administrativo) in its EITI reporting.

11. In accordance with Requirement 6.1, Mozambique should clarify whether all companies making material mandatory social payments are comprehensively disclosing information about such payments. Companies should distinguish whether mandatory social expenditures are made in kind or in cash. Where beneficiaries of mandatory social expenditures are a third party, i.e. not a government agency, Mozambique should ensure that the name and function of the beneficiary be disclosed. The MSG should provide a comprehensive overview of existing social expenditures by oil, gas and mining companies, and further clarify how disbursement from social funds are being made and the basis for selection of beneficiaries.

12. In accordance with Requirement 6.2, Mozambique should undertake a comprehensive review of all expenditures undertaken by extractives SOEs that could be considered quasi-fiscal. Mozambique should develop a reporting process for any quasi-fiscal expenditures undertaken by extractives SOEs with a view to achieving a level of transparency commensurate with other payments and revenue streams.

13. In accordance with Requirement 6.3, Mozambique is required to publish a comprehensive figure of total government revenues generated by the extractive industries and an estimate of informal mining activity. Mozambique may wish to ensure that figures of total government revenues from the extractive industries published by government agencies such as the Administrative Court (Tribunal Administrativo) and the tax authorities are consistent.

14. In accordance with Requirement 7.1 and to facilitate the use and analysis of data by stakeholders, the MSG should ensure that data from EITI Reports is published in open format (xlsx or csv). The MSG is encouraged to seek funding from the government, companies or development partners to communicate the findings and results of EITI disclosures.

Mozambique is encouraged to also consider the strategic recommendations in the Secretariat assessment.

Background

Mozambique joined the EITI in 2009 and was declared compliant with the EITI Rules in 2012. Mozambique’s second Validation commenced on 25 April 2019. The EITI International Secretariat has assessed the progress made in addressing the 19 corrective actions established by the EITI Board following Mozambique’s first Validation in 2017. The 19 corrective actions related to:

1. Government engagement (Requirement 1.1)
2. Industry engagement (Requirement 1.2)
3. MSG governance (Requirement 1.4)
4. License allocations (Requirement 2.2)
5. License register (Requirement 2.3)
6. State participation (Requirement 2.6)
7. In-kind revenues (Requirement 4.2)
8. Infrastructure provisions and barter arrangements (Requirement 4.3)
9. Transportation revenues (Requirement 4.4)
10. Transactions related to SOEs (Requirement 4.5)
11. Direct subnational payments (Requirement 4.6)
12. Data quality and assurance (Requirement 4.9)
13. Distribution of extractive industry revenues (Requirement 5.1)
14. Subnational transfers (Requirement 5.2)
15. Social expenditures (Requirement 6.1)
16. Quasi-fiscal expenditures (Requirement 6.2)
17. The contribution of the extractive sector to the economy (Requirement 6.3)
18. Public debate (Requirement 7.1)
19. Discrepancies and recommendations from EITI Reports (Requirement 7.3).

The Board asked Mozambique to address these corrective actions to be assessed in the second Validation. Mozambique has undertaken a number of activities to address the corrective actions:

• The 2015-2016 EITI Report was published in February 2018.^[1]

• Constituencies appointed new representatives to the MSG through free and open processes. Additional state entities and SOEs were invited to observe meetings.

• A Coordinating Commission was appointed to act as an interim national secretariat.

• The MSG discussed the corrective actions in a retreat in late 2018 and agreed an operational plan for 2019-2021.^[2]

• The Coordinating Commission has developed a draft study on aligning the scope of the EITI Standard to the institutional and regulatory context of Mozambique.^[3]

Mozambique’s second Validation commenced on 25 April 2019. The Secretariat assessed the progress made in addressing the 19 corrective actions established by the EITI Board. The EITI International Secretariat’s assessment is that Mozambique has fully addressed six of the 19 corrective actions, with significant improvements on two other outstanding requirements.  The assessment of progress of Requirement 4.4 as ‘satisfactory’ is subject to consideration of information disclosed after the commencement of Validation. In addition, the Secretariat found that progress in implementing Requirement 4.1 has fallen below ‘satisfactory’.

The draft assessment was sent to the Multi-Stakeholder Group (MSG) on 12 June 2019. Following MSG comments received on 3 July, the assessment was finalised for consideration by the EITI Board