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Mozambique

Governmental Framework

Mozambique has been implementing energy sector reforms for over two decades. Policies and strategies have been adopted for the development of new and renewable energy and for biofuels, including multiple blending targets. The implementation of hydropower projects along the expanded grid network close to load centres will promote the connection of renewables-based electricity and increase the electricity access rate. The country’s Renewable Energy Strategy 2011 – 2025 outlines the objective to develop 125 MW of small hydro-power as well as a 100 MW up to 2025. While the strategy additionally mentions the objective to utilize solar PV for off-grid electrification, no concrete national electrification plan is currently in place.

 

 

Governmental institutions

Ministério dos Recursos Minerais e Energia (MIREME)

The Ministry of Mineral Resources and Energy is responsible for national energy planning, policy formulation and overseeing the operation and development of the energy sector. MIREME is represented through the Provincial Directorates of Mineral Resources and Energy (DIPREME) in all provinces. The current minister is Leticia Klemens.

 

Conselho Nacional de Electricidade (CNELEC)

The Electricity Act 1997 established CNELEC as a governmental consultative body in tariff setting and issuing generation concessions. It also acts as conciliation, mediation and arbitration authority for disputes between different concessionaires, as well as between concessionaires and consumers. It is not a fully independent entity and not a regulator, but has administrative and financial autonomy and a consultative mandate with regard to concessions, electricity tariffs and arbitration.

CNELEC is being transformed into the Energy Regulatory Authority (ARENE), a fully independent body with executive powers expanded from electricity only to across the energy sector. ARENE is not yet operational.

 

Fundo de Energia (FUNAE)

FUNAE was established in 1997 as a public institution. Its objectives are to develop, produce and use different forms of low-cost power and promote the conservation and rational, sustainable management of power resources. Since its establishment, FUNAE has implemented numerous projects using renewable energy technologies to electrify schools, clinics and communities. FUNAE focuses primarily on the deployment of renewable energy, and has in past years been funded by international development institutions (60%) and the national budget (40%).

FUNAE’s responsibilities include:

  • providing financial assistance or financial guarantees and loans to enterprises whose objectives include the production, distribution and conservation of power in its various forms, as well as the dissemination of production techniques
  • offering financial assistance for the installation of power production or distribution systems, and installing such systems
  • acquiring equipment and machinery used in the production and distribution of power, and financing or supplying financial guarantees for the purchase such equipment, with a particular focus on new and renewable power sources
  • promoting the installation of distribution networks for petroleum products in rural areas, and installing such networks
  • providing consulting services and technical assistance
  • publishing and funding studies and investigative papers on technologies for the production, distribution and conservation of power products or renewable power
  • promoting the development of biomass production and planting forests for this purpose
  • providing financial assistance for sourcing transportation of petroleum products for the supply of rural Areas

 

While FUNAE has reached nearly 5 million beneficiaries through the implementation of more than 1,200 projects, it has been observed to have at times operated in conflict with its own objectives. On one hand, while it is mandated to increase private sector investment in the off-grid sector, it is also mandated to support rural electrification at highly subsidized costs. It has been noted that some of FUNAE’s activities have (i) negatively impacted willingness to pay for energy services among rural communities; (ii) crowded out commercial energy businesses; (iii) allowed for a loss of trust in solar technologies, due to mismanaged expectations during the implementation of the Strategy for the Development of New and Renewable Energies (EDENR); (iv) potentially distorting the market landscape by incentivizing “tenderpreneurs” as opposed to sustainable businesses, and; (v) precluding the softening of import restrictions and duties on solar PV, as a result of its solar PV production facility in Beleluane Industrial park.

 

Electricidade de Moçambique (EdM)

Electricidade de Moçambique is a vertically-integrated, government-owned electricity utility responsible for generating and transmitting electricity, and distributing it through the national grid. Founded in 1977, EdM buys most of its power from HCB. EdM currently owns hydro/gas and diesel capacity, as well as the national power grid excluding lines owned by HCB and MOTRACO.

The Electricity Act passed in 1997 allowed for private participation in the electricity sector under a concession system, as well as maintaining a special position and responsibilities for EdM.

EdM’s tariff structure doesn’t allow for full cost recovery and the utility is thus dependant on Government budget, donor contributions, and debt from financial markets. EdM is also financially constrained due to a significant amount of debt relative to its earnings. In 2013, EdM’s current ratio was very close to 1 and the debt service coverage ratio below 1. Although EdM is signing Power Purchase Agreements (PPAs) with Independent Power Producers (IPPs), it is not currently required to follow a pre-agreed least cost generation expansion plan.

 

Hidroeléctrica de Cahora Bassa (HCB)

HCB is the operator of the Cahora Bassa Dam that was built in 1969 by the Portuguese administration. It is the largest power producer in the country with an installed capacity of 2,075 MW. The Mozambican government has increased its stake over the decades, and currently owns 92.5% of the company. The remaining 7.5% is owned by the Portuguese government.

 

Centro de Promoção de Investimentos (Investment Promotion Centre, CPI)

The centre offers a range of services designed to help domestic and foreign investors gain access to the incentives offered by the government for the establishment of their businesses. Its mandate is to attract and retain substantial direct domestic and foreign investment. The aim is to boost economic growth and wealth creation, including the promotion of public-private partnerships for economic and infrastructure development. At the time of writing, no sector specific exemptions or fiscal incentives exist for renewable energy investment in Mozambique. However, for sectors that are considered to be of public interest, such as electricity and energy, the CPI can evaluate investment proposals to facilitate the acquisition of incentives provided for in the Investments Law and the Tax Benefit Code. Such incentives include exemption from customs duties and VAT for the importation of capital goods, a reduction of the Corporate Income Tax for infrastructure investments by 80% for the first five years, by 70% for years 6 to 10, and by 25% for years 11 to 15. However, market participants note that even when incentives are granted, they are not always uniformly applied.

 

 

Associacao Moçambique de Energias Renovaveis

RECP, in conjunction with Associacao Lusofono Energias Renovaveis (ALER) is currently supporting the setting up of a national Renewable Energy Association with main mission to promote business development, local capacity building and exchange information. It is expected in the course of 2017, the association will be officially launched. The latest information can be found on: www.amer.org.mz .

 

Strategies, Policies, Acts, and Regulations

Electricity Act 1997

In 1997, Mozambique reformed the electricity market by adopting the Electricity Act, which was introduced with the aim of regulating electricity production, transmission, distribution and commercialization. The act established the principle that all activities should be carried out under concessions and created the advisory body CNELEC as well as FUNAE.

In theory, the Electricity Act opened up all areas of electricity production, distribution and sales to private operators through concession contracts, issued by the Ministry of Mineral Resources and Energy, and PPAs set with EdM. However, the involvement of private sector operators has been limited so far, apart from two recently commissioned gas power IPPs and one utility scale solar PV project.

As mentioned earlier, IPPs that intend to generate power require a concession granted by the Ministry. Being granted such a concession is subject to public procurement procedures. Concessions are limited to 50 years for hydropower projects and 25 years for all other technologies. The concessionaire is required to pay annual concession fees based on its gross revenues. In addition to entering into a concession contract, the project company will need to enter into a power purchase agreement (PPA) for the sale of its capacity and energy with EdM. No standardized PPA exists.

Currently concerns of conflicting clauses of the Electricity Act and the PPP law raises the question whether generation projects must be selected via a competitive tender process or if direct PPA negotiation is allowed.

 

Energy Policy 1998

The Energy Policy is one of the major initiatives governing the sector today. It presents a clear statement on the importance of providing energy to households and productive sectors. The aims of the policy include building capacity and improving management in the electricity sector, thereby increasing exports and efficiency. It outlines the following vision for the sector:

  • Guarantee a reliable supply of energy, at the lowest possible cost, in order to meet present demand and future levels based on economic development trajectories
  • Increase the energy options available for household consumption
  • Secure better efficiency in energy utilisation
  • Promote the development of environmentally friendly conversion technologies, namely hydro, solar, wind and biomass
  • Promote competitive, dynamic and more efficient entrepreneurs

 

Energy Sector Strategy, revised 2000

The Energy Sector Strategy focuses specifically on the means for implementing the Energy Policy, concentrating on increasing the role of the private sector, developing more competitive markets, and the need for regulation. The strategy paves the way for the development of plans, programmes, projects, investments and other steps for the different energy sub-sectors. It provides essential guidance for operators in the sector, and for financial institutions and investors.

The strategy takes into account the acceleration of the electrification drive, giving priority to rural areas by expanding and enhancing the coverage of the national grid, and to the use of renewables, the optimisation of low-cost solutions, and the introduction of measures to ensure a productive and efficient use of electricity.

 

The National Energy Strategy (2014 – 2023)

Mozambique’s Energy Strategy was designed for a ten-year period (2014 – 2023) and it provides a vision and path to respond to the challenges and opportunities in the power sector. The main goals are to reinforce Mozambique’s position as an important regional energy producer, to support social development and poverty alleviation, and to promote general economic growth. The strategy for instance compromises the following:

 

(i) Regulation – Establishment of an energy authority as the regulator for the entire energy sector, which will include liquid fuel, natural gas (downstream) and renewable energy.

 

(ii) Energy efficiency – To promote habits of reasonable and responsible consumption of energy and to create a legal framework that guarantees these behaviors both in the efficient production and consumption of energy.

 

(iii) Feed-in Tariff – To be approved by the government, the tariff for renewable energy is for projects in which the generation cost is equivalent to the contract cost of natural gas power stations, with an extra incentive on the bidding process and an environmental tax. Special attention will be made so that there are no increases to the EdM operational and maintenance costs, which need to be retained.

 

(iv) The new tariff methodology settlement – Due to the large-scale energy projects in Mozambique, the investments made are significant. Therefore, tariff methodology settlement is an important tool used to help ‘bail out’ the investor in this sector, especially in operations on the local market. The new tariff needs to take the operation and maintenance cost into account.

 

(v) Rural and Peri-Urban Electrification – The main challenges are extending grid access, improving the quality of the energy, and improving the capacity of the administrative posts to promote the productive use of energy and to generate more income. The goal is to mobilize USD 200 million every year over the next seven years to expand and improve energy access in the rural and peri-urban areas, achieving 44% universal access by 2021 and 50% grid based access by 2023.

 

The Government of Mozambique also plans to launch a transmission and distribution grid rehabilitation program for the entire national territory to increase energy quality and efficiency in urban areas. There are also plans to further strengthen the institutional capacity of FUNAE to increase its role in the process of rural electrification.

 

2009 Policy and 2011 Strategy for New and Renewable Energy

In 2009, the Policy on the Development of New and Renewable Energy was launched to promote greater access to clean energy services through the use of equitable, efficient, sustainable and culturally sensitive energy sources.

In 2011, the Strategy for New and Renewable Energy Development was adopted with the aim of developing national renewable resources for generating electricity, ensuring that demand can be met, diversifying the energy mix, and preserving the environment. This is to be accomplished by using both off-grid and on-grid applications. The off-grid component is linked to the Action Plan for the Reduction of Absolute Poverty II/III, which considers access to electricity as a catalyst for poverty alleviation and economic development in rural Mozambique.

 

Proposed feed-in tariff (FIT)

On 17 October 2014, Decree 58/2014 was approved creating Mozambique’s feed-in tariff for renewable energy. Further regulation is still pending to implement the price premium. Decree 58/2014 creates Mozambique’s feed-in tariff, which applies to biomass, wind, small hydro and solar projects from 10 kW to 10 MW. Prices vary according to technology and capacity.

According to this Decree, all projects must sell electricity to the state-owned utility Electricidade de Moçambique. Tariffs proposed can be found at: http://global-climatescope.org/en/policies/#/policy/4631 however are already outdated as they are in MT and in the meantime a devaluation of 50% has taken place versus major currencies. It is therefore expected that anyone developing an on-grid system will have to negotiate on a bilateral basis with EdM.

Additional laws and regulations of relevance to the sector include the Regulations to License Electric Installations (2007), and the Concession Decree (2000).

In 2015 Mozambique received a USD 0.74m grant from the African Development Bank’s Sustainable Energy Fund for Africa (SEFA) to enhance the enabling environment for private investments in renewable energy. The assignment is currently underway, with the objectives of supporting the implementation of the country’s feed-in tariff regime for small/medium renewable energy projects through the provision of standardized power purchase agreements, guidelines for grid connectivity and investor guidelines for prospective developers. The grant will additionally lay the foundations for a mini-grid regulatory framework, with special focus on designing a tariff structure and corresponding technical and environmental regulations, as well as providing capacity-building and awareness-raising activities for national and local representatives.

Currently, RECP is supporting MIREME in dealing with minigrid concessions through legal technical assistance, which will feed into a reform study planned to be undertaken by the African Development Bank in the course of 2017.

 

Investment Considerations

The basic Investment law was approved in 1993 and its complementary legislation and amendments followed after that. The main investment laws are the following:

  • The Investment Law No 3/93
  • The Regulation of the Investment Law under the Decree Law No 43/2009
  • The Fiscal Benefit Code under Law n° 4/2009
  • The Public and Private Partnership Law No 15/2011

 

Most relevant incentives and investment restrictions may be as follows:

  • Corporate Income Tax (IRPC) reduction: 80% reduction for the first 5 years, 60% reduction for years 6-10 and 25% reduction for years 11-15.
  • Accelerated depreciation: 50% on new immovable assets, rehabilitation of machinery and machinery and equipment used in the industrial sector.
  • Tax deduction for modernisation and introduction of new technology: tax deduction of up to 15% of taxable income, which can be carried over for five years, for the amount invested in specialised equipment.
  • VAT exemption: certain sectors and investments are eligible for VAT (and import duty) exemptions on equipment, machinery and their ancillary goods for the first five years of project implementation, including large infrastructure projects and projects in rural areas and specific zones.
  • Exchange controls apply for movements of funds in/out of the country, i.e. registration with Central Bank is required.
  • In case of loan agreements of an entity incorporated in Mozambique with a foreign registered entity, approval of loan and loan terms by Central Bank is required. Repayment and interested payments do also require Central Bank approval.
  • Land in Mozambique is the property of the state and cannot be sold, transferred, mortgaged or charged – developers need to acquire right to use the land.
  • The Public-Private Partnership Law No 15/2011 requires quota of no less than 5% and no more than 20% to Mozambican singular or collective entities and the state or public Company.

 

Electricidade de Moçambique (EDM)

Electricidade de Moçambique is a vertically-integrated, government-owned electricity utility responsible for generating and transmitting electricity, and distributing it through the national grid. Founded in 1977, EDM buys most of its power (approx. 400 MW) from HCB. EDM currently owns 240 MW of installed capacity, as well as the national power grid excluding lines owned by HCB and MOTRACO.
The Electricity Act passed in 1997 allowed for private participation in the electricity sector under a concession system, as well as maintaining a special position and responsibilities for EDM.

http://www.edm.co.mz/

 

Hidroeléctrica de Cahora Bassa (HCB)

HCB is the operator of the Cahora Bassa Dam that was built in 1969 by the Portuguese administration. It is the largest power producer in the country, generating 2,075 MW . The Mozambican government has increased its stake over the decades, and currently owns 92.5% of the company. The remaining 7.5% is owned by the Portuguese government.

http://www.hcb.co.mz/eng

 

Centro de Promoção de Investimentos (Investment Promotion Centre, CPI)

The centre offers a range of services designed to help domestic and foreign investors gain access to the incentives offered by the government for the establishment of their businesses. Its mandate is to attract and retain substantial direct domestic and foreign investment. The aim is to boost economic growth and wealth creation, including the promotion of public-private partnerships for economic and infrastructure development.

http://www.cpi.co.mz/

 

Regulatory framework – act, policies and regulations

Electricity Act 1997

In 1997, Mozambique reformed the electricity market by adopting the Electricity Act, which was introduced with the aim of regulating electricity production, transmission, distribution and sales . The act established the principle that all activities should be carried out under concessions and created the advisory body CNELEC as well as FUNAE.

In theory, the Electricity Act opened up all areas of electricity production, distribution and sales to private operators through concession contracts, issued by the Ministry of Mineral Resources and Energy. However, the involvement of private sector operators has been limited so far.

A number of supporting decrees issued subsequently under the Electricity Act have defined the roles of CNELEC, awarded the concession for the operation of the transmission network to EDM and established the methodology by which tariffs are set.

 

Energy Policy 1998

The Energy Policy is one of the major initiatives governing the sector today. It presents a clear statement on the importance of providing energy to households and productive sectors. The aims of the policy include building capacity and improving management in the electricity sector, thereby increasing exports and efficiency. It outlines the following vision for the sector:

  • Guarantee a reliable supply of energy, at the lowest possible cost, in order to meet present demand and future levels based on economic development trajectories
  • Increase the energy options available for household consumption
  • Secure better efficiency in energy utilisation
  • Promote the development of environmentally friendly conversion technologies, namely hydro, solar, wind and biomass
  • Promote competitive, dynamic and more efficient entrepreneurs

 

Energy Sector Strategy, revised 2000

The Energy Sector Strategy focuses specifically on the means for implementing the Energy Policy, concentrating on increasing the role of the private sector, developing more competitive markets, and the need for regulation. The strategy paves the way for the development of plans, programmes, projects, investments and other steps for the different energy sub-sectors. It provides essential guidance for operators in the sector, and for financial institutions and investors.

The strategy takes into account the acceleration of the electrification drive, giving priority to rural areas by expanding and enhancing the coverage of the national grid, and to the use of renewables, the optimisation of low-cost solutions and the introduction of measures a ensure productive and efficient use of electricity.

 

2009 policy and 2011 strategy for renewable energy

In 2009, the Policy on the Development of New and Renewable Energy was launched to promote greater access to clean energy services through the use of equitable, efficient, sustainable and culturally sensitive energy sources.

In 2011, the Strategy for New and Renewable Energy Development was adopted with the aim of developing national renewable resources for generating electricity, ensuring that demand can be met, diversifying the energy mix and preserving the environment. This is to be accomplished by using both off-grid and on-grid applications. The off-grid component is linked to the Action Plan for the Reduction of Absolute Poverty II/III, which considers access to electricity as a catalyst for poverty alleviation and economic development in rural Mozambique.

 

Proposed feed-in tariff (FIT)

The country’s first feed-in tariff scheme is under development. Covering wind, solar, biomass and hydropower generation, it will promote private investment in generating capacity and open up opportunities for accelerating the expansion of generating capacity and connectivity by attracting independent power producers (IPPs).

 

Key figures

Available statistics:
Capital
Maputo
Official language
Portuguese
Population (2014), m
26.47
Population growth (2013), %
2.5
Compound Annual (GDP) Growth Rate, (2011-2015), %
7.0
GDP per capita (2015), USD (current rate)
525.0
Rural population (2013), % of total
68
Ease of Doing Business Index (2014)
127 (of 189)
Median age of population (2014 est.), years
16.9
Inflation (2014), %
3
National currency
Mozambican metical (MZN)
Installed generation capacity (2014), MW
2,475
Installed fossil fuel capacity (2014), MW
200
Hydro capacity (2014), MW
2,275
Other RE capacity (2014), MW
0
Renewable electricity output (2014), % of total electricity output excl. hydroelectric
0.0
Average distribution and transmission losses (2012), % of output
15
Net electricity imports (2012), GWh
-1,487
Peak demand (2015), MW
1,960
Per capita electricity consumption (2012), kWh
444
Electrification rate, total (2012), %
39
Electrification rate, urban (2012), %
66
Electrification rate, rural (2012), %
27
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