Mozambique’s revenue boosted by capital gains tax

Mozambique’s revenue from the extractive sector more than tripled in 2012, reaching almost US $400 million. The increase is largely due to the US $170m capital gains tax (CGT) payment made by the petroleum company Cove Energy, although payments from other companies also increased.

The CGT payment, based on the sale of Cove’s shares to Thailand’s PTT, represents 43% of Mozambique’s extractive revenue in 2012. PTT now, through acquiring Cove, holds an 8.5% asset in the Rovuma area 1 offshore block.

Ownership changes generate revenue

The sizeable capital gains tax payment demonstrates how the value of Mozambique’s offshore gas blocks has increased since Cove acquired its asset in 2009. Estimates of gas reserves have gone up steadily, with the EITI report noting that 190 trillion cubic feet had been discovered in the Rovuma basin so far.

The payment made by Cove underpins the petroleum industry’s growing importance for generating growth in the country despite falling gas prices. Although Mozambique also has significant mining activities, payments from oil and gas companies represented 80% of the government’s extractive revenue in 2012.

It will still take years before the first LNG is exported from Mozambique, but further capital gains tax payments deriving from the sales of assets are expected to generate government revenue in the short term.

Following in-kind gas revenue

The 2012 report describes for the first time the allocation of gas royalties from company to the state. In 2012, Sasol Petroleum Temane, the only gas project currently producing, transferred gas worth roughly US $2.5 million to the government. The National Petroleum Institute, on behalf of the government, allocated roughly 10% of the gas to the state-owned petroleum company, ENH, and 90% to Matola Gas Company (MGC).

MGC is jointly owned by ENH and foreign and local investors. MCG sold the gas to industrial companies and to AutoGas, which converts the gas into fuel for cars. MGC transfers its earnings to the national treasury under the supervision of the National Petroleum Institute.

Preparing for the large scale

When the large offshore gas fields come online, Mozambique can expect a lot more revenue from the sale of gas. The petroleum exploration and production contracts, which can be found on the website of the Ministry of Mineral Resources, include details of how much gas the exploration companies must provide to government. Strict record-keeping of the sales of this in-kind revenue helps ensure that revenue reaches the state budget.