Mozambique Oil & Gas: “Govt audits ENI, Anadarko, but not oil companies” – Joseph Hanlon

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Eni-Exxon deal Capital Gains Tax

The Mozambican government has commissioned an audit of Anadarko and ENI’s operating costs in their LNG operations, following allegations that the companies were inflating their recoverable costs in the Rovuma basin. The audit began on 2 April, 2018, and is expected to be completed in December of this year.

Operating costs are tax deductible on the Rovuma projects so will make a big difference to how much tax the government can claim once the projects go into operation in the next decade.

The tax authority, the Autoridade Tributaria (AT), has five years to query claims made by the companies.

Zitamar notes that the worry is that the AT does not have the capacity or expertise to audit the projects properly – though they have received some technical assistance from donors including Norway. But the Administrative Court (Tribunal Administrativa) criticised the petroleum industry regulator, INP, for not conducting regular audits of oil companies in Mozambique – saying it means the authorities don’t know the real costs of those companies’ exploration and other activities.

The TA said INP should be checking the “predevelopment” costs which are submitted by the holders of oil and gas concessions, which will ultimately be tax deductible if and when they start producing.

Mozal pays no taxes because the original deal gave the company a tax exemption in exchange for a share of profits. Profits in 2017 were on the Mozal aluminium smelter were $160 mn and normal tax would be 32% ($51 mn), but Mozambique receives just $8 mn.source: Joseph Hanlon

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