Continental Focus, International Reach

Mozambique: Can You Spell Capital Gains Tax?

Tuesday, March 6, 2012

Reminiscent of the sale of Heritage Oil’s stakes in Uganda, Mozambique is looking to impose a capital gains tax on the sale of Cove Energy. Cove, which holds an 8.5% stake in Offshore Area 1, put itself on the market at the outset of 2012 and has generated a small bidding war between several companies.

Mozambique’s Minerals Minister Esperanca Bias said the government wants to introduce the tax to allow it to reap benefits from the sale that has garnered several multi-billion dollar bids based mainly on its holdings in the country.

Offshore Area 1 has seen a number of extremely successful discoveries leading to estimates of 15-30 Tcf of recoverable natural gas reserves.

"We are monitoring the negotiations, and what we have said is that we are going to put in place a capital gains tax," Bias related to reporters. The government, as yet, has not determined what the level of the tax would be but Bias said that the government would write the tax into any future deals.

On the potential winner of the Cove bid war, Bias said that Mozambique did not favor any company in particular but “as we need to develop an LNG (liquefied natural gas) plant in the country, we would prefer a company with enough capital and expertise to help in that plan."

Analysts said this could put Shell in a strong position.

Cove on its end is looking for a little clarification from the government on the possible capital gains tax before any sale moves forward. The company had more than likely hoped to avoid paying any capital gains by selling itself directly rather than selling its stakes in the Mozambican assets like Heritage did in Uganda.