Mozambique
efits for the country from each public-private part- nership, large-scale project and business concession undertaking must be expressly referred to in the con- tract to be concluded between the contracting party and the contracted party. More specifically, the con- tract must set out the participation reserved for sale through the stock market in favour of the economic inclusion on commercial market terms, preferably of Mozambican natural persons, in the share capital of the undertaking or in the joint venture equity, whether or not foreign investment is involved, and guaranteed by the State or other public entity appointed thereby, in a percentage not less than 5% nor greater than 20% of the referred capital, or by the entity implementing the undertaking, of the same level of participation, for unconditional sale, under the same terms and conditions. It is expected that these legal provisions will boost
the capital and financial markets for mining activities in Mozambique in the near future. Existing mining activity has been financed main-
ly by foreign investment; Mozambican investment capital is, therefore, limited, both with respect to pri- vate individual investors and Mozambican entities. Within this context, the main forms of capital
market investments in mining activities are direct for- eign investments, financing through financial institu- tions and project finance. Given the fact that Mozambique has little infrastructures, and much of what it has is damaged, those undertaking mining projects face high costs as the investment will be based upon these limitations. The financial benefits under the PPP Law, as referred to above, should be regarded as a cost associated with the project. Given the limited or non-existent technical and
financial resources, as well as experience in the man- agement and undertaking of mining activities, from Mozambican natural and legal persons, the vast majority of investors in the Mozambican mining space are still foreign mining companies with global coverage and extensive experience in the sector.
Corporate and securities law requirements The principal corporate and securities requirements relating to capital raising for mining activities are in general governed by the Mozambique Civil Code, which classifies securities in personal guarantees and real guarantees. Personal guarantees are created by individuals and/or entities, pursuant to which such individuals and/or entities personally secure the fulfil- ment of certain obligations by their own patrimony.
In this case, the enforceability of such securities will depend on the availability of the guarantor’s patrimo- ny. As an example of personal guarantees for securing own or third parties’ obligations assumed in terms of certain agreements, a surety-ship, a comfort letter or a bank guarantee are admitted under Mozambique law, although the general regime does not contem- plate the comfort letter and the bank guarantee as typical personal guarantees and, therefore, does not regulate such guarantees in detail. On the other hand, real guarantees that are regu-
lated are the pledge of movable assets and rights, and the mortgage of immovable assets. Real guarantees may assure a priority of the
respective security interest in favour of the lender, provided that such security has been registered in favour of the lender. However, in personal securities there is no such mechanism which would assure the priority of the lender’s security interest, hence person- al securities are not registered. Personal securities and pledges over movable
assets are perfected when the respective document/contract creating security is entered into and (in case of a pledge) the pledged assets or the doc- ument that grants exclusive disposal of the assets to the creditor of the pledged assets. Perfection of a secu- rity over immovable assets is reached at its registration with the respective Immovable Registration Office. There are notary and registration costs for perfec-
tion of securities which cannot be avoided or min- imised; such costs are calculated in accordance with a determined formula prescribed by law. Additionally, the formula for calculating the costs has in consider- ation the amount guaranteed by the securities that are created. In respect to corporate law requirements relating
to capital raising, a company may recourse to internal funding through its own shareholders, or external funding through third parties. Internal funding of a company may take place by
means of supplementary capital subscriptions and shareholders loans. On the other hand, funding through third parties may assume the form of simple loans or project finance. Two other means of capital raising are increasing
equity and the share capital and bond loans. The exploration of a mining undertaking by a
company falls within the scope of the PPP Law, which has some provisions in respect of the securities to be created over assets that have been allocated to the exploration of the mining activity by a project
company. In accordance with the PPP Law, certain public
domain assets (such as the land granted for exploring the activity and the undergrounds) cannot be subject to any securities form of security. However, the exploited minerals as well as the proceeds of the sale of such minerals can be subject to security: in partic- ular, a pledge over such minerals and proceeds can be created. If the project capital has been raised through a
project finance model, the proceeds of the mining activity may be subject to securities (a pledge, in par- ticular). Given the social and economic context of Mozambique, however, a simple form of project finance may not be feasible, meaning there may be a need to create other forms of direct and indirect secu- rities – such as a step in rights in the exploration of the mining activity – as the proceeds of the activity may reveal inefficient for securing the lender’s posi- tion.
Tax advantages and incentives Certain fiscal benefits are available for mining activi- ties. Mining undertakings benefit, for five years, counting from the date of commencement of the mining exploitation, from exemption from customs duties due on the import of equipment for mining reconnaissance or exploration, classified under class K of the customs tariff. Such imports also benefit, dur- ing the same period, from an exemption from VAT and excise duties, as provided under the PPP Law. These benefits are granted only when the goods to
be imported are not produced in Mozambican terri- tory, or when their production in Mozambique does not fulfil the particular needs and characteristics inherent to the nature of the activity to be developed and explored. In order to apply for these benefits, an undertak-
ing must have been authorised by the competent authority to undertake mining activities; must be reg- istered at the Tax Authority Department and have a tax payer number; must have organised accounting, as per the provisions of the Code of Corporate Income Tax; and must not have committed fiscal infringements. There is no distinction between taxes payable by
domestic parties and those payable by foreign parties. Moreover, Mozambique has bilateral treaties for the avoidance of double taxation with Portugal, Mauritius, Italy, the United Arab Emirates, Macau and South Africa.
About the author Márcio Paulo is a senior associate lawyer in Couto Graça & Associados’ energy, natural resources and infrastructure practice. His main practice areas are corporate and commercial law, banking and finance law, infrastructure, gas and oil, and mining. Paulo has five years’ experience in general corporate and commercial law
and banking and finance fields. In 2011 he joined the firm’s energy, natural resources and infrastructure practice where he has been advising in the areas of infrastructure, energy, gas and oil and mining.
Contact information
Márcio Paulo Couto Graça & Associados
Av Kim Il Sung, 961 Maputo,
Mozambique
T: +21 48 64 38/9/40/2/3/5 F: +258 21 48 64 41 W:
www.cga.co.mz
www.iflr.com
IFLR|FOREIGN DIRECT INVESTMENT 023
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