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Mozambique eyes coal deal for tax consequences, approves power venture

24th October 2014

By: Keith Campbell

Creamer Media Senior Deputy Editor

  

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The Mozambique Tax Authority has been watching the recently concluded deal between Anglo-Australian miner Rio Tinto and Indian company International Coal Ventures Limited (ICVL), in which the former sold its subsidiary Rio Tinto Coal Mozambique (RTCM) to the latter for a reported $50-million. RTCM held 65% of the Benga coal operation in the African country’s Tete province as well as owning two other coal projects in the same area – Tete East and Zambeze. (The remaining 35% of Benga is held by Indian private-sector group Tata Steel.)

Enforcement Actions

The Authority made this known in a recent statement, in which it also affirmed that it would firmly keep its commitment to pursue enforcement actions under the country’s tax law – specifically, with regard to capital gains tax. To this end, it was working closely with all the relevant agencies to gather the information necessary to ensure this.

The Tax Authority has already held at least one meeting with ICVL regarding what the Mozambique newspaper, Notícias, called the “problematic transfer” of shares held by Rio Tinto in Mozambique. The Indian group is believed to have asked the tax Authority about continuing efforts to undertake a specialised audit of the Rio Tinto shares that were involved in the deal.

For its part, the Tax Authority is reported to have clarified that any future “qualified pronouncement” on the deal would only have validity if it was based on the report of the Specialised Audit for which the Minerals Resources Ministry, in partnership with the Finance Ministry, was responsible. The technical oversight of this was vested in the Mineral Resources Ministry and the financial oversight in the Finance Ministry.

“The Tax Authority has maintained contact with the specialised sectors of the Mirem (Mineral Resources Ministry) to get better information about the probable date for the conclusion of the [already] referred to report of the Specialised Audit,” affirmed the Authority in its statement. “It is hoped that, [owing to] this understanding, the results of the aforementioned report will be obtained during this current month of October.”

Rio Tinto originally acquired Benga from Australian junior Riversdale Mining in 2011 for $4.1-billion. However, since then, the global mining group had to write down $3.47-billion of that investment. Rio Tinto’s other assets in Mozambique were not affected by the sale. ICVL is a special- purpose vehicle created at the initiative of the Indian Ministry of Steel, with the purpose of obtaining metallurgical and thermal coal assets in foreign countries in order to assure the supply of imported coal. The sale of RTCM to ICVL was first disclosed on July 30 and its completion was announced on October 8.

Negotiation

Meanwhile, separately, according to Mozambique news agency AIM, the country’s Cabinet has authorised the negotiation of a venture to construct a hydroelectric power station at Chemba on the Zambesi river, between the provinces of Tete and Sofala, in the central region of the country. The proposed plant will have a maximum nominal capacity of 1 000 MW.

The project will be a public–private partnership, between State-owned utility Electricidade de Moçambique (better known as EDM) and private-sector Mozambique company Sociedade Hidroeléctrica de Moçambique (known as Sheza). “The Chemba venture aims [to produce and sell] electrical energy,” noted government spokesperson Henrique Banze. “The same, [that is, Chemba], will assure the availability of energy to supply the electricity needs in the central and northern regions of the country, including meeting the growth predictions for these areas.”

Edited by Martin Zhuwakinyu
Creamer Media Senior Deputy Editor

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