The Liquefied Natural Gas (LNG) revenues to be generated by the South Coral FLNG Platform may be high, but also raise uncertainties as the State will receive less than 6% of the project’s gross revenue until the initial investment is recovered, according to a warning from the Ministry of Economy and Finance (MEF).
In its latest Fiscal Risks Report for 2023, the MEF stresses that the Medium Term Fiscal Scenario 2023-2025 projects an increase in the volume of revenue by about 0.3% of Gross Domestic Product (GDP) as a result of the start of production operations of the South Coral led by the Italian company ENI, in Area 4 of the Rovuma Basin.
“Despite the completion of the initial investment in South Coral, there are still risks that may affect revenue collection from the project, which in turn will impact State revenues. In the short term, the most significant impact would result from a change in production. Changes in production at South Coral could arise from the availability and costs of funding, political and general stability of the region in which the investment is being made, and general operational risks,” the Fiscal Risks Report for 2023 states.
However, the MEF assures that changes in production will not change the overall volume extracted from South Coral, given that production will eventually happen, but reiterates that revenues will arrive later than originally anticipated and may also arrive in a different price and exchange rate environment.
The report advances that a prudent approach is recommended in the integration of gas revenues in the State Budget, since there are several factors of uncertainty about these revenues, including: the future price of LNG; the exchange rate applicable at the time; the export capacity (number of trains and time of activity); and the costs of the project that may exceed what was originally projected.
The alert comes at a time when the Government is preparing to pocket millions of dollars from taxes and more costs of that Project. This year, for example, the Executive expects to collect $32 million in revenue for the State coffers from South Coral.
Overall earnings for the State are expected to reach $20 billion over the lifetime of the Project.
The Coral Sul FLNG platform was built by the Area 4 concessionaires, namely Mozambique Rovuma Venture (MRV) with a 70% stake, Empresa Nacional de Hidrocarbonetos (ENH), Galp Energy and Kogas, with 10% each.
Being installed in the Rovuma Basin, north of Cabo Delgado, and about to start production, the infrastructure is 432 metres long and 66 metres wide, weighing more than 200,000 tonnes resulting from a complex composition that includes 12 surface modules.