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    Mozambique to create sovereign wealth fund to manage natural gas revenues


    September 23, 2022 - CE Noticias Financieras

     

      Mozambique will create a sovereign wealth fund to manage future revenues from natural gas.

      The Mozambican state will channel 40% of total oil and gas revenues to this fund in the first 15 years, to then start allocating 50% of the revenues, revealed "Bloomberg" today, which had access to the bill.

      In a previous 2020 version of this fund, the goal was to split the revenues equally between the Mozambican government and the fund for the first 20 years in operation. Afterwards, this share would rise to 80%.

      The bill will be submitted to the Mozambican parliament later this year, according to the Finance Ministry.

      The largest sovereign wealth fund in the world is Norway's - Norges Bank - which manages more than a trillion dollars in assets and holds the equivalent of 1.5% of all listed companies in the world. This fund manages revenues earned from Norway's oil exploration and is overseen by the Norwegian government and parliament. In 2019, this fund has renounced investments in the oil sector.

      How will Mozambique's sovereign wealth fund work?

      The fund will be prohibited from investing in oil and natural gas; if annual revenues fall below the estimated amount, the state will have to contribute the remaining money; the central bank will manage the fund through an autonomous unit and can hire external managers; the Bank of Mozambique will earn a management fee that cannot exceed 0.1% of the fund's capital and must be approved by the finance minister; the finance ministry must appoint independent auditors to inspect the fund's accounts.

      The revenues will start flowing into the Mozambican public coffers only as of 2024.

      The Portuguese-speaking country has several projects with the objective of exporting natural gas. Mozambique is one of the countries with the largest oil reserves in the world. The country has the third largest proven reserves of natural gas in Africa only behind Algeria and Nigeria, according to the International Energy Agency (IEA).

      Several projects in northern Mozambique are suspended due to Islamic State attacks.

      Mozambique could see US$96 billion (98.2 billion euros) in revenue over the next few decades from natural gas exploration by TotalEnergies and ExxonMobil projects.

      The Italian Eni's project, which is smaller, should start production in the coming weeks.

      Galp has a 10% stake in the promising Area 4 in the Rovuma basin, in the north of the country, whose operators are the North American ExxonMobil, the Italian Eni and the Chinese CNPC. But this project has experienced several delays due to the Covid-19 pandemic, funding, and attacks by Islamic terrorist groups. According to an analysis released recently by consulting firm Rystad Energy, at the moment, Exxonmobil is finalizing the project before submitting the development plan to the Mozambican authorities.

      "Sines has potential for special connection with natural gas from Mozambique"

      The Portuguese Economy Minister believes that Mozambique's natural gas ambition could turn out to be positive for Sines and Portugal.

      "I think the Mozambique project is absolutely decisive and has the conditions to move forward. This means attenuating the dependence we have on Russia and having a rebalance in the supply of natural gas," António Costa Silva told JE in early September, on the occasion of the Prime Minister's visit to the Portuguese-speaking country.

      "In my view, Portugal has some experience in this area and in the LNG market [liquefied natural gas, in a liquid state to be transported more easily] and can cooperate with Mozambique to diversify the sources of supply for the entire Atlantic basin. Mozambique is looking a lot to India, China and the Pacific, which are big consumers, but when we have ExxonMobil and Total as operators, most probably part of the cargoes come to the Atlantic," says the minister who is also an expert in the energy area, fruit of his decades-long career in the oil industry as president of Partex.

      António Costa Silva believes that Mozambican gas may be important in turning Sines into a port dedicated to the transshipment of natural gas: large methane carriers coming from producing countries around the world unload at Sines; the gas is then transferred to smaller ships that then go on to northern European countries, which are more dependent on Russian gas and whose ports are already congested with large ships.

      "If we manage to establish in Sines an important pole for supplying Europe, these connections probably make perfect sense and would reinforce Sines' potential with a special connection to Mozambique," he argues.

      The Minister of Economy considers that Mozambican gas "would be absolutely central to Portugal", if Portugal manages to "put Sines in Europe". "We are making every effort for that. Now, the question is to make the commercial component work. We're already in contact with importers in Germany, Poland and the Baltic countries.

      As he explained to the JE, "there is a pattern to how methane carriers work: if they all go to Northern Europe at the same time, it won't work because the ports are already congested. The EU imports 55 billion cubic meters of gas per year from Russia, that means about 1,400 to 1,500 ships that will suddenly have to go to northern Europe."

      "Sines with the transshipment history can contribute to the stabilization of the world routes and then make those connections everywhere. A lot of those importers have already realized that and let's see what works. We have to fight to put this on the ground," he stresses.

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