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“ENH Debt Tranfer to Gas Projects Will Damage the Country Fiscally” – CIP Study

“ENH Debt Tranfer to Gas Projects Will Damage the Country Fiscally” – CIP Study

In 2022, the Ministry of Economy and Finance (MEF) reported a significant reduction in the debt of the National Hydrocarbons Company (ENH), from 188.3 billion meticals (2.98 billion dollars) to 1.1 billion meticals (18 million dollars). This sharp drop was mainly attributed to the isolation of ENH project financing through Special Purpose Vehicles (SPVs), located in the United Arab Emirates (UAE).

Meanwhile, a study presented this Wednesday, May 8, by the Centre for Public Integrity (CIP), concludes that the aforementioned transfer of ENH’s Coral Sul project loans to an SPV could result in withholding tax losses ranging from 6.3 billion meticals (100.7 million dollars) to 17.4 billion meticals (276.6 million dollars), the Carta de Moçambique news portal reported this Thursday (9).

a d v e r t i s e m e n t

‘In addition, our analysis indicates that the guarantees issued by the gas consortium for ENH’s participation in the financing of the Coral Sul project could reduce corporate income tax revenues in Mozambique by between 3.2 billion meticals (51.7 million dollars) and 3.7 billion meticals (68.9 million dollars), due to the treatment of these financial guarantees as deductible expenses.’

Centre for Public Integrity

According to the organisation’s explanation, the document also states that the justification for ENH participating in such financial structures remains unclear, raising concerns about its governance in a context of clear incentives for international consortia to use SPVs to obtain tax advantages.

‘This strategic avoidance of withholding tax in Mozambique through SPVs suggests wider tax implications. This situation requires a call for greater transparency regarding financial manoeuvres by multinational companies and ENH, along with strategic policy measures aimed at preserving Mozambique’s fiscal interests.’

Centre for Public Integrity

In response to the challenges related to Mozambique’s hydrocarbon sector, the CIP presents policy recommendations to safeguard fiscal health and ensure sustainable development.

The highlight of the recommendations is improved supervision, which should be strengthened to more closely monitor transactions involving SPVs in tax havens, guaranteeing transparent accountability and auditing processes that safeguard the integrity of Mozambique’s tax policies and protect the country against the erosion of its tax base.

CIP also recommends establishing strong policy frameworks, including an independent Court of Auditors, to control the executive branch and prevent the misallocation of resource revenues. This will strengthen regulatory capacity and promote accountability of all stakeholders.

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It is also recommended to establish strong policy frameworks, including an independent Court of Auditors, to control the executive power and prevent the misallocation of resource revenues. This will strengthen regulatory capacity and promote accountability of all stakeholders.

Centre for Public Integrity

The civil society organisation also suggests that the Ministry of Economy and Finance together with ENH follow the guidelines of the International Monetary Fund (2024) and publish quarterly updates on ENH’s debts, repayments, interest accruals, debt maturity modifications, state guarantee balances, as well as production and financial performance data for LNG projects.

The study also recommends that tax treaties that could facilitate tax evasion should be evaluated and, where necessary, taxes should be renegotiated, ensuring that multinational entities contribute fairly to Mozambique’s tax revenues. As vital measures to prevent tax evasion, loopholes in existing double taxation agreements should be closed and caution should be exercised when concluding new agreements.

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