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Overcoming investor concerns in electricity generation concessions projects in Mozambique

The recent gas discoveries and the specific characteristics of the Mozambican territory have increased  investors interest in developing the energy potential of Mozambique. The electricity generation sector has increasingly gained preponderance on foreign direct investment in Mozambique.

The main concern that investors have consistently raised is related to the applicable regime of awarding electricity generation concessions by the State of Mozambique, particularly with regard to the public tender requirement as opposed to the direct award of the concession.

Access to the electricity generation activity is regulated by two distinct legal frameworks, namely the Electricity Law, as approved by Law 21/97 of 1St October and its underlying Regulations, and the Public Private Partnership Law, as approved by Law 15/2011 of 10th August and its underlying Regulations.

Although these legal frameworks are meant to compliment each other, both laws contain an apparent contradiction with respect to the applicable regime of awarding electricity generation concessions. This fact amounts to the increasing difficulties that investors have been facing within the context of making the decision of investing in Mozambique, based upon the applicable legal framework. The Electricity Law expressly provides that the awarding of such concession is subject to public tender, whilst the Public Private Partnership Law provides that, besides the public tender requirement, in duly justifiable and in weighty circumstances, the concessions may be awarded by way of direct award, and also as a last resort measure, provided that the Mozambican government has granted a prior approval.

This difference and apparent contradiction between the two legal frameworks has resulted in several legal debates and has contributed to a certain legal insecurity from the investors’ side as to which legal regime applies, through which they can access the electricity generation activity.

The said contradiction and legal debates will be resolved based on the regime that will take precedence between the two legal frameworks.

In this regard, reference must be made to the fact the Public Private Partnership Law has introduced an overarching regime that is applicable to all projects of public private partnerships, large scale projects and business concessions that may be implemented in Mozambique, although each of such projects are also governed by sector specific laws and other applicable rules and regulations.

The Public Private Partnership Law contains an exception to the applicability of the electricity sector specific laws, as it includes within its scope of application the regulation of certain matters, like, the awarding of concessions for implementing projects of public private partnerships.

Although both the Electricity Law and the Public Private Partnership Law define the public tender as the general regime of awarding concessions, the legal framework set out by the Public Private Partnership Law allows concessions of electricity generation projects to be awarded by way of direct award. The framework defined by the Public Private Partnership Law shall take precedence over that which is defined by the Electricity Law.

Based upon this assumption, the Mozambican government has awarded the most recent concessions of electricity generation projects by way of direct award.  This has contributed to helping the investors to overcome some of their concerns with regards to the applicable regime in Mozambique.

Article compilé par Márcio Paulo , lawyer at CGA – Couto, Graça & Associados, Mozambique

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