AFRICANGLOBE – The Mozambican government must draw a deep breath before releasing the regulatory framework for exploiting its gas deposits, as it stands on the threshold of significant wealth.
The recent bonanza of gas discoveries in Mozambique has the attention of the international oil and gas industry, but most of the country’s acreage is still unexplored.
There will be a new licensing round next year. At the moment the focus is on blocks off the coast of Cabo Delgado Province, with an estimated 150 trillion cubic feet (tcf ) of gas waiting offshore.
Luca Bertelli, vice-president for exploration of Italy’s Eni – its Mamba field discovery was the largest in the firm’s history – told reporters that test wells drilled in the Rovuma Basin were extremely productive because of the area’s geology.
“This means that this huge resource base can be exploited with a limited number of producing wells that will make the upstream project highly efficient,” said Bertelli.
US- based Anadarko, the other major player in the sector, is thinking off cashing in on outside interest to help fund its development programme.
Investors are keen to see the shape the final regulatory framework will take, especially regarding what happens to gas once it is onshore.
A new law is expected in early 2013, with liquefied natural gas (LNG) at the centre of negotiations. “We are planning the construction of the LNG plant in the area of Palma because of the proximity to the offshore.
Anadarko and the state will lead the consortium,” says Bias.
The government is juggling the need to keep strategic control over natural resources and to collect revenues to reinvest in development with the desires of companies that have to answer to their investors.
In the Money
Managing expectations is critical.
Revenue will not arrive before 2018, but royalties could reach $5.2bn per year by 2026, assuming that the Rovuma discoveries are fully exploited.
Income tax revenue from megaprojects could reach $7bn per year according to ICF, the consultancy that drew up a draft Gas Master Plan.
Ensuring that revenue arrives un- touched and in full to the central bank will be critical.
Jenik Radon of Columbia University helped negotiate Georgia’s section of gas pipeline from Azerbaijan and Turkey, and now advises African governments on energy legislation.
He believes that getting the legal frame-work and the governance structures around it is critical to avoid the traditional ‘resource curse’ – the twin afflictions of Dutch disease and entrenched corruption.
“My principle is very simple: the person who issues the permit should not be the one who enforces regulation, and the person who enforces regulation should not be the one who collects the money,” says Radon.
Apart from the separation of powers among ministries and regulators in the energy sector, Radon believes there is a need to put very simple self-enacting laws in place until the sophistication of Mozambique’s legal sector catches up.
“It’s the enforcement of laws that is difficult. Oil major BP had 845 violations in two states before the Deepwater Horizon spill.
But if your law is simple – three spills in a month and you lose your licence – it will force management to build the structures in their companies that will help avoid it.”
Given that one of the great gems of Mozambique‘s tourism potential – Quirimbas National Park, which includes the breathtaking Quirimbas archipelago – is less than 100km away, there are serious economic stakes rid- ing on the ability of the government to force companies to comply.