Foreign Firm ENI to Pay Mozambique U.S. $400 Million

Foreign Firm ENI to Pay Mozambique U.S. $400 Million
Mozambique is set to become one of the world’s largest producer of natural gas

AFRICANGLOBE – The Italian energy company ENI has agreed to pay 400 million US dollars in capital gains tax to the Mozambican authorities.

The tax agreement was announced on Tuesday when the ENI Chief Executive Officer, Paulo Scaroni, met Mozambican President Armando Guebuza in Changara district in the western province of Tete.

ENI heads the consortium exploring for hydrocarbons in Area Four of the Rovuma Basin, off the coast of the northern province of Cabo Delgado, where vast deposits of natural gas, amounting to some 80 trillion cubic feet, have been discovered.

ENI signed an agreement on 13 March with the China National Petroleum Corporation (CNPC), under which CNPC was to pay 4.21 billion US dollars for 28.57 per cent of the ENI stake in Area Four. Since ENI held 70 per cent of the rights to Area Four, this equated to 20 per cent of the total stake.

When, in 2012, the London-registered company Cove Energy sold its 8.5 per cent stake in the gas field in offshore Area One to the Thai state oil company PTT, the Mozambican government imposed capital gains tax at a rate of 12.8 per cent.

But it was reported in March that ENI was exploiting an apparent tax loophole, and intended to pay no capital gains tax at all.

The trick was that CNPC was not buying its stake in Rovuma Basin Area Four directly from ENI. Instead it acquired a 28.57 per cent holding in the subsidiary ENI East Africa, whose sole asset is the block in the Rovuma Basin.

The Paris-based magazine “Africa Energy Intelligence” claimed that this transaction “will enable ENI to skirt around paying tax while putting the full 4.2 billion dollars on its books”.

A source in the Mozambique Tax Authority (AT) confirmed the tax avoidance ploy, and told reporters that Mozambican specialists were preparing a response to the Italian company, in order to collect the capital gains tax owing.

The deal with CNPC was conditional on the Mozambican government agreeing to it – and so eventually ENI had to give way. The end result of these negotiations is that ENI will pay the 400 million dollars of tax on 23 August.

An ENI press release on Scaroni’s visit added that the tax agreement also involves ENI building a 75 megawatt power station in Cabo Delgado.

It added that Scaroni discussed with Guebuza Eni’s support for Mozambique’s infrastructure development, including the reconstruction of the coastal road between the Cabo Delgado provincial capital Pemba, and the town of Palma, near the Tanzanian border, along with training, childcare, health and maternity initiatives.

ENI’s share in Area Four of the Rovuma Basin has now been reduced to 50 per cent. Its partners are CNPC (20 per cent), GalpEnergia of Portugal (10 per cent), Kogas of Korea (10 per cent), and Mozambique’s National Hydrocarbons Company, ENH (also 10 per cent).