Law No. 1/2024 - Establishes the Sovereign Wealth Fund of Mozambique

BOLETIM DA REPÚBLICA PUBLICAÇÃO OFICIAL DA REPÚBLICA DE MOÇAMBIQUE SUMMARY NOTICE The matter to be published in the "Boletim da República" must be submitted in a duly authenticated copy, one for each subject, which must include, in addition to the necessary indications for this purpose, the following endorsement, signed and authenticated: For publication in the "Boletim da República". NATIONAL PRESS OF MOZAMBIQUE, E.P. Assembly of the Republic: Law No. 1/2024: Establishes the Sovereign Wealth Fund of Mozambique, hereinafter abbreviated as FSM. Tuesday, January 9, 2024 SERIES I — Number 6 ASSEMBLY OF THE REPUBLIC Law No. 1/2024 of January 9 Having the need to ensure that the revenues from the exploitation of oil and gas stimulate the social and economic development of the Country, by maximizing gains for the national economy, as well as guaranteeing that these constitute a source of stabilization for the State Budget and contribute to the generation of savings and wealth for the future, under the provisions of paragraph 1 of Article 178 of the Constitution of the Republic, the Assembly of the Republic determines:

CHAPTER I General Provisions

Article 1 (Creation and nature)

1. The Sovereign Wealth Fund of Mozambique, hereinafter abbreviated as FSM, is created.
2. The FSM is a portfolio of financial assets, managed in accordance with the principles, rules, and procedures for its operation, established in this Law.

Article 2 (Definitions) The definition of the terms used in this Law is contained in the glossary, attached, which is an integral part of it.

Article 3 (Objectives of the FSM) The objectives of the FSM are: a) to support the economic and social development of the Country; b) to accumulate savings for future generations, through the collection of revenues from the exploitation of oil and natural gas and those resulting from their respective investments; c) to stabilize the State Budget, in cases of volatility of oil revenues.

Article 4 (State Ownership) The FSM, including its revenues, income, and assets arising from its investments, is property of the State.

Article 5 (Revenues of the FSM)

1. The revenues of the FSM are those originating from: a) the production of liquefied natural gas from Areas 1 and 4, Offshore of the Rovuma Basin, and future projects for the development and production of oil and natural gas, in accordance with Article 8 of this Law; b) the return on investments of the FSM revenues.
2. The tax base for the calculation of FSM revenues is: a) the gross tax revenue from the exploitation of petroleum resources, namely: i. tax on Oil Production; ii. tax on Corporate Income, including that resulting from the taxation of capital gains; b) Production Bonuses; and c) production sharing from Profit Oil.

CHAPTER II FSM Account SECTION I Transitional Account

Article 6 (Transitional Account)

1. The Transitional Account is a sub-account of the Single Treasury Account (CUT) and is denominated in foreign currency.
2. The revenues referred to in Article 5 of this Law are deposited into the Transitional Account, before their transfer to the FSM and to the State Budget, in accordance with Article 8 of this Law.
3. Monthly, a report on all values and transfers made from and to the Transitional Account is published.

Article 7 (Denomination of the FSM Account)

1. The FSM Account is located at the Bank of Mozambique and is named the Account of the Sovereign Wealth Fund of Mozambique, hereinafter abbreviated as CUF.
2. The CUF is denominated in foreign currency.

Article 8 (Projections and deposits of revenues in the CUT-OE and CUF)

1. The Ministry that oversees the area of Finance, in coordination with the Ministry that oversees the area of Mineral Resources, projects the revenues described in paragraph a) of paragraph 2 of Article 5 of this Law.
2. The methodology for calculating the projection of the revenues referred to in paragraph 1 of this article uses a moving average of past and future oil prices to protect the annual transfers to the State Budget from the volatility of oil and gas revenues, and is detailed.
3. The calculation of revenue projections is certified by an independent expert of renown, individual or corporate entity, designated by the Ministry of Economy and Finance.
4. The projected revenues referred to in paragraph 2 of this article are distributed as follows: a) in the first 15 years of operation of the FSM, 40% to the CUF and 60% to the CUT-OE; and b) from the sixteenth year of operation of the FSM, 50% to the CUF and 50% to the CUT-OE.
5. The revenues received in the CUT during a fiscal year are first distributed to the CUT-OE up to the amount calculated in paragraph 4 of this article, with the remainder transferred to the CUF in foreign currency.
6. If the revenues received during a fiscal year exceed the projected revenues to be attributed to the State Budget for the same fiscal year, the excess amount is transferred to the FSM in foreign currency.
7. The investment income of the FSM is excluded from the distribution established in paragraph 4 of this article.
8. The transfers to the CUT-OE and to the CUF referred to in paragraph 5 of this article are made quarterly.
9. The transfers are made with the objective of keeping the CUT balance as low as possible during the fiscal year.

Article 9 (Transfers from the CUF to the State Budget)

1. If the revenues received during a fiscal year are lower than the amount calculated in paragraph 4 of Article 8 of this Law for the same fiscal year, an amount up to 4% of the FSM balance calculated at the end of the previous year may be transferred from the FSM to support the State Budget.
2. Whenever in a given year a public calamity occurs leading to the declaration of a State of Siege, State of Emergency, and/or War, in accordance with the provisions of the Constitution of the Republic and applicable legislation, financial resources may be transferred from the FSM to support the State Budget, in percentages higher than those provided for in Article 8 of this Law, subject to the approval of the Assembly of the Republic.
3. The transfers made under paragraph 1 of this article require the approval of the Assembly of the Republic, which must define the terms and conditions under which the transfers are made.
4. From the fiscal year in which the projected revenues channeled to the State Budget, in accordance with paragraph 4 of Article 8 of this Law, are lower than the expected real return rate of 3% from the FSM investments, withdrawals from the FSM are made so that the total revenues channeled to the State Budget are equal to the expected return on the investment of the FSM savings.

Article 10 (Transfer to the CUF) In each fiscal year, transfers from the FSM can only occur after: a) the publication of the Budget Law or any amendments thereto, in the Boletim da República, confirming the amount of the approved allocation for the respective fiscal year; and b) the review and approval by the Assembly of the Republic of the Annual Report and Accounts of the FSM, relating to the immediately preceding fiscal year.

CHAPTER III Investments and Prohibition of Encumbrances or Charges on the FSM

Article 11 (Investments of FSM resources)

1. The investments of the FSM are made based on the Investment Policy approved by the Government.
2. The FSM must be invested in the international financial market and in assets that are not from the oil and gas sector.

Article 12 (Domestic investments)

1. Domestic investments resulting from oil and gas revenues must be made exclusively through funds deposited in the CUT-OE, referred to in paragraphs a) and b) of paragraph 4 of Article 8 of this Law.
2. The domestic investments referred to in paragraph 1 of this article are allocated to priority areas in accordance with the National Development Strategy to finance economic and social growth and development in areas of infrastructure, agriculture, renewable energy, and industry.

Article 13 (Prohibition of constituting encumbrances or charges)

1. It is prohibited to enter into any contract, agreement, or unilateral act that encumbers or imposes charges on the assets of the FSM, whether by means of guarantee, pledge, mortgage, or any other type of encumbrance.
2. The violation of the provisions of paragraph 1 of this article determines the nullity of the act, producing no effects.

Article 14 (Prohibition of use of CUF resources)

1. It is prohibited to withdraw any amount from the FSM, with the exception of transfers to the CUT-OE.
2. It is prohibited to use FSM resources for: a) granting guarantees in the contracting of loans by the State or other entities; b) contracting public debt; c) paying public debt; and d) financing political and party activities.

Article 15 (Accountability) The violation of the provisions of paragraph 1 of Article 13 and Article 14 of this Law gives rise to the duty of monetary restitution and correction in accordance with applicable legislation, without prejudice to criminal liability applicable to the case.

Article 16 (Tax exemption) Operations carried out based on FSM revenues are exempt from the payment of any taxes, fees, and commissions.

CHAPTER IV Governance and Management of the FSM

Article 17 (Governance and management of the FSM) The following are responsible for the governance and management of the FSM: a) the Assembly of the Republic; b) the Government; c) the Bank of Mozambique; d) the Supervisory Committee; and e) the Investment Advisory Council.

Article 18 (Assembly of the Republic)

1. Within the scope of the governance and management of the FSM, it is the responsibility of the Assembly of the Republic to monitor the performance of the FSM.
2. For the purposes of the provisions of paragraph 1 of this article, it is the responsibility, in particular, of the Assembly of the Republic to: a) summon the Government, at the end of each fiscal year, to present the Annual Report and Accounts of the FSM; b) review and approve the Annual Report and Accounts of the FSM; and c) create the Supervisory Committee.
3. The Assembly of the Republic, through the competent Commission, may, whenever it deems necessary, request clarifications from the Government and/or the Bank of Mozambique on matters related to the management of the FSM.

Article 19 (Government)

1. The Government is the entity responsible for the overall management of the FSM.
2. Within the scope of the overall governance and management of the FSM, it is the responsibility of the Government to: a) approve the Investment Policy of the FSM; b) establish the Investment Advisory Council of the FSM; c) approve the respective terms of the Management Agreement of the FSM with the Bank of Mozambique and authorize the signing of the respective agreement; d) approve the medium and long-term projections of revenues from the exploitation of oil and gas, based on the information presented by the Ministry that oversees the area of Finance and collected from the Ministry that oversees the area of Mineral Resources, from oil companies, and on the trends of prices in international markets; e) approve the calculations and authorize the transfers of resources from the FSM for the purposes referred to in Article 8 of this Law; f) ensure periodic monitoring of the performance of the FSM, in accordance with the provisions of the Investment Policy and the Management Agreement; g) approve the Annual Report of the FSM within 60 days from the date of the end of the fiscal year to which it refers; h) render accounts annually to the Assembly of the Republic on the activities of the FSM and information whenever this Body requests; i) adopt other measures or actions that prove necessary to achieve the objectives of the FSM; j) approve the procedures for deposits in the FSM account and all transfers of FSM assets to the state budget and to external investment managers; k) validate the selection of the independent auditor to audit the Accounts of the FSM carried out by the Minister who oversees the area of Finance; and l) submit the final audit report to the Assembly of the Republic.
3. The Government may delegate to the Minister who oversees the area of Finance the competences referred to in paragraph 2 of this article.

Article 20 (Bank of Mozambique)

1. The Bank of Mozambique is the operational manager of the FSM, in accordance with the Management Agreement to be concluded with the Government.
2. The Government may delegate to the Minister who oversees the area of Finance the conclusion of the Management Agreement referred to in paragraph 1 of this article.
3. Within the scope of the function of operational manager of the FSM, it is the responsibility of the Bank of Mozambique to: a) manage the assets and other resources of the FSM, based on the principles of responsibility and transparency, in accordance with the provisions of this Law, and its administration must be separate from the other assets/reserves of the Bank of Mozambique; b) implement the Investment Policy approved by the Government; c) inform the Government about the external managers hired, and this information must include, among other data, the level of reputation of the manager, experience, historical information on the funds managed by it, the returns obtained, and its main areas of operation; d) prepare and submit the Quarterly Investment Reports and publish them in accordance with this Law; e) provide information whenever the Government or the Specialized Commission of the Assembly of the Republic requests it; and f) prepare and publish the Annual Accounts of the FSM within 30 days from the date of the end of the fiscal year to which it refers.
4. The Governor of the Bank of Mozambique is the highest entity responsible for the operational management of the FSM.

Article 21 (Supervisory Committee) The Supervisory Committee of the FSM is an independent body and integrates representatives of civil society, the business community, academia, professional orders, and credible religious associations of recognized merit and national coverage.

Article 22 (Composition and term of the Supervisory Committee)

1. The Supervisory Committee of the FSM is composed of nine members, indicated by the entities referred to in Article 21 of this Law and elected by the Assembly of the Republic.
2. The President of the Supervisory Committee is elected from among its peers.
3. The term of the member of the Supervisory Committee of the FSM is 3 years, renewable only once.

Article 23 (Powers of the Supervisory Committee)

1. It is the responsibility of the Supervisory Committee of the FSM to control and monitor: a) matters regarding the revenues of the FSM; b) deposits in the transitional account; c) the allocation of revenues to the state budget and to the FSM; and d) the supervision of the management of the FSM.
2. The Supervisory Committee of the FSM reports directly to the Assembly of the Republic through a quarterly Report, and its conclusions are public.
3. For the execution of its supervisory mandate, in accordance with this Law, the Supervisory Committee of the FSM may request information from the Government and the Bank of Mozambique regarding the management of the FSM.
4. The remaining powers are regulated by the Council of Ministers.

Article 24 (Investment Advisory Council)

1. The Investment Advisory Council is the advisory body of the Government on the Investment Policy of the FSM.
2. The Government must consult the Investment Advisory Council before taking any decision on the Investment Policy of the FSM.
3. The opinion of the Investment Advisory Council is public.
4. The Investment Advisory Council is composed of seven members and integrates financial experts and independent members of the Government, who have experience in the management of investment portfolios, who have held executive positions in companies in the financial sector, including public companies, the Bank of Mozambique, or in international financial organizations, or who have worked or are working as academics in a university or higher education institution.

Article 25 (Investment Policy)

1. The Investment Policy of the FSM defines: a) the risk profile of the investments; b) the asset class, maximum or minimum limits per asset class, types of instruments, countries, and/or currencies eligible for the investments of the FSM resources; c) the reference duration for the application of the FSM resources and the allowed deviation margins; d) the acceptable credit risk limits for the management of FSM resources, including markets, issuers, instruments, counterparties, and maturity dates of investments; and e) one or more comparators to be applied to evaluate the management of the administration of the FSM resources and the criteria for the valuation of the investment portfolio of said resources.
2. The structure and conditions of the comparators referred to in paragraph e) of paragraph 1 of this article are measurable, quantifiable, replicable, and reviewed periodically.
3. The Investment Policy of the FSM is made available to the public.

Article 26 (Management Agreement)

1. The terms and conditions of the delegation of responsibility from the Government to the Bank of Mozambique must be contained in a Management Agreement that provides, among others, the following: a) the priority sectors for the realization of FSM investments, as provided for in the Investment Policy; b) the risk management standards and internal controls for the management of the FSM to be observed by the Bank of Mozambique; and c) the responsibilities of the Bank of Mozambique for damages and losses arising from FSM operations, in cases of negligence or fraud in the management of the FSM.
2. The Management Agreement is public.

Article 27 (Management of the FSM)

1. The Management of the FSM must be carried out through a dedicated unit at the Bank of Mozambique.
2. The management of the FSM assets must be separate from the management of other assets and operations of the Bank of Mozambique.
3. Whenever necessary, the management of the FSM resources may be carried out through external managers hired, in observance of the guidelines of the Investment Policy.

CHAPTER V Good Governance, Transparency, Accountability, and Audit

Article 28 (Principles of management and governance)

1. In the exercise of their functions and competences, and as provided for in this Law, the Assembly of the Republic, the Government, the Bank of Mozambique, the Investment Advisory Council, and the Supervisory Committee take all necessary measures to ensure transparency and the publication of information.
2. The management and governance of the FSM must be guided by the Generally Accepted Principles and Practices (GAAP), better known as the Santiago Principles, among others: a) transparency and accountability; b) legality; and c) independence.

Article 29 (Quarterly Report)

1. The Bank of Mozambique must produce Quarterly Investment Reports, reporting on the performance of the FSM.
2. Each Quarterly Investment Report must be submitted to the Government, within 30 days from the date of the end of the period to which it refers, and must contain the market value of the assets that make up the FSM portfolio, separating external and internal assets, as well as their accumulated variation in the quarter and in the last 12 months, if applicable.
3. The Quarterly Investment Reports are published on the electronic page of the Bank of Mozambique and on other channels deemed convenient, within 15 days from the date of their availability to the Government.
4. The Bank of Mozambique must produce the Annual Accounts of the FSM within 30 days from the date of the end of the fiscal year to which it refers.
5. The Annual Accounts of the FSM contain the Balance Sheet, the Statement of Changes in Equity, the Statement of Results, the Statement of Cash Flows, and the Explanatory Notes, in addition to other information about the financial situation during and at the end date of the fiscal year, its financial and result movements, as well as other relevant information.

Article 30 (Annual Report and Accounts)

1. The Government approves the Annual Report and Accounts of the FSM, reporting on its activity and performance in each fiscal year, to be prepared by the Ministry that oversees the area of Finance.
2. The Annual Report must be submitted to the Assembly of the Republic, within 90 days from the date of the end of the fiscal year to which it refers, and must contain: a) a description of the operations carried out during the year, specifying, for each one, the objectives, the amounts of investments made, the revenues earned, and the source of the invested resources, as well as the profitability achieved during the period; b) information on the economic context of the financial market segment in which the FSM operations for the fiscal year are concentrated; c) information on the macro-economic scenario used for the following fiscal year; d) profitability in the last two calendar years; and e) a list of charges debited to the FSM in each of the last two fiscal years, specifying the value and percentage relative to net equity in each fiscal year.
3. The annual report must include the Accounts and the report of the independent auditor.
4. The annual report and accounts are reviewed and approved by the Assembly of the Republic in the session immediately following its presentation.
5. The annual report and accounts are published on the electronic page of the Ministry that oversees the area of Finance and on other channels deemed convenient, within 15 days from the date of its availability to the Assembly of the Republic.
6. The preparation and publication of the reports and accounts is carried out in such a way as to ensure the non-disclosure of information classified as confidential.

Article 31 (Internal audit) The accounts, records, and other documents relating to the FSM are subject to internal audit, with semi-annual periodicity, by the internal services with competence for this purpose, of the Ministry that oversees the area of Finance and of the Bank of Mozambique.

Article 32 (External audit)

1. It is the responsibility of the Government to approve the designation of the independent external auditor to audit the Accounts of the FSM, in accordance with the provisions of this Law.
2. The designation of the auditor follows the Principle of Rotation, for periods not exceeding three successive years.
3. The Accounts of the FSM are audited at the end of each fiscal year.
4. The final audit report must be submitted to the Government and to the Assembly of the Republic.
5. In addition to the financial audit report, the independent auditor must prepare a report including the Auditor's recommendations, relating to all transfers and payments made or that should have been made by any entity, in the Transitional Account, all transfers from the Transitional Account to the CUF and to the CUT-OE for each fiscal year, as well as the legal and regulatory compliance of said transactions.
6. For the implementation of the provisions of paragraph 5 of this article: a) the independent auditor may demand any necessary information, or have proof of any facts that may be necessary, for the performance and fulfillment of its duties in accordance with this Law; and b) the Report of the independent auditor must include the demonstration of the aggregated amounts of payments made as revenues of the FSM, by each contributing entity and for each fiscal year.
7. The audit report...