Galp Energia has filed an international arbitration case against the State of Mozambique over the taxation of capital gains arising from the sale of the Portuguese company’s stake in Area 4 of the Rovuma Basin, in Cabo Delgado.
According to Reuters, the case was registered with the International Centre for Settlement of Investment Disputes (ICSID), a World Bank Group institution responsible for administering arbitrations between foreign investors and states. The case bears reference number ARB/26/31 and involves Galp Energia SGPS, Galp Energia Portugal Holdings B.V., and Galp East Africa B.V. as claimants against the Republic of Mozambique.
The registration of the case does not constitute a ruling on the merits of the dispute, nor does it imply that the arbitral tribunal has found in favour of the Portuguese company. It represents the formalisation of the disagreement, enabling the process to advance to the constitution of the arbitral tribunal, the examination of its jurisdiction, and, subsequently, the potential assessment of arguments submitted by both parties.
At the centre of the dispute is the taxation of capital gains resulting from the disposal of the 10% stake that Galp held in Area 4 of the Rovuma Basin, one of Mozambique’s principal natural gas concessions. The transaction was completed in March 2025, when the Portuguese energy company sold its participation in Area 4 to XRG, the international energy investment platform owned by the Abu Dhabi National Oil Company (ADNOC).
At closing, Galp received approximately US$881 million, a figure that included the value of the stake, the repayment of shareholder loans, and accumulated investments since the reference date of the transaction. The agreement also established contingent payments of US$100 million linked to a final investment decision on the Coral Norte FLNG project, and US$400 million tied to a final investment decision on Rovuma LNG. Should both conditions be met, the potential total value of the transaction could approach US$1.4 billion.
The disagreement between the company and Mozambican authorities concerns the amount of capital gains tax owed on the transaction. According to available information, the Mozambique Tax Authority assessed a tax liability of approximately €162 million, while Galp maintains that the amount due should be closer to €26 million — a difference of more than €130 million.
In August 2025, the then-president of the Tax Authority rejected the characterisation of the matter as a formal dispute over €162 million, indicating that the process was still proceeding within the normal scope of tax administration. The central legal question in the dispute concerns whether Mozambique is entitled to tax a transaction carried out through the sale of shareholdings held offshore, but whose economic value is associated with assets, concessions, and natural resources located within Mozambican territory.
Such transactions are known as indirect transfers, in which an investor sells a stake in an entity that holds or controls assets situated in another country. For resource-rich states, this issue is of particular significance, as it determines where tax revenues arising from the appreciation of those assets are collected.
Mozambique may argue that the value of the stake sold by Galp derives primarily from rights associated with natural gas projects in the Rovuma Basin, justifying taxation in the country. Galp, for its part, may contend that the fiscal interpretation adopted by the Mozambican state lacks sufficient legal basis or is inconsistent with the guarantees provided under international investment protection agreements.
The Galp entities involved in the proceedings have invoked bilateral investment promotion and protection agreements concluded by Mozambique with Portugal and the Netherlands. These treaties are designed to protect foreign investors against discriminatory practices, arbitrary treatment, or other violations of international guarantees, but do not constitute an automatic exemption from tax obligations.
In the initial phase, the arbitral tribunal will be expected to examine questions relating to its jurisdiction, including the applicability of the invoked treaties and the existence of a protected investment. Only after addressing those preliminary matters may it assess whether Mozambique has breached its international obligations and whether there are grounds for any eventual compensation.
The dispute carries strategic weight given the importance of Area 4 in the Rovuma Basin, which encompasses the Coral Sul FLNG project — currently in production — as well as the Coral Norte FLNG and Rovuma LNG projects.
The concession involves major international energy groups, including Eni, ExxonMobil, CNPC, Korea Gas Corporation, and XRG, as well as Empresa Nacional de Hidrocarbonetos (ENH), the state hydrocarbons company. According to ADNOC, the projects associated with Area 4 could represent a combined capacity of more than 25 million tonnes of liquefied natural gas per year.
The outcome of the proceedings could influence future transactions involving stake sales, corporate restructurings, or asset transfers in the gas, oil, mining, energy, and infrastructure sectors.
A ruling in Mozambique’s favour could strengthen the state’s capacity to tax gains associated with natural resources located within its territory. A ruling in Galp’s favour could, on the other hand, prompt a reassessment of the rules applicable to indirect transfers.
Case ARB/26/31 places at the centre of debate the balance between Mozambique’s fiscal sovereignty and the need to provide legal predictability to international investors in one of the country’s most strategically significant economic sectors.
Source: Diário Económico
