Decree-Law No. 2/2014 of December 2 Establishing the Special Legal and Contractual Regime Applicable to the Liquefied Natural Gas Project in Areas 1 and 4 of the Rovuma Basin

BOLETIM DA REPÚBLICA PUBLICAÇÃO OFICIAL DA REPÚBLICA DE MOÇAMBIQUE SUMÁRIO A V I S O The matter to be published in the «Boletim da República» must be submitted as a duly authenticated copy, one for each subject matter, containing, in addition to the necessary indications for that purpose, the following endorsement, signed and authenticated: For publication in the «Boletim da República». IMPRENSA NACIONAL DE MOÇAMBIQUE, E.P. SUPPLEMENT Council of Ministers:
Decree-Law No. 2/2014:
Decree-Law establishing the special legal and contractual regime applicable to the Liquefied Natural Gas Project in Areas 1 and 4 of the Rovuma Basin.
Tuesday, December 2, 2014 I SERIES — Number 96

COUNCIL OF MINISTERS
Decree-Law No. 2/2014 of December 2
Via Decree-Laws No. 67/2006 and 68/2006, both of December 26, two Concession Contracts for Exploration and Production were approved for Areas 1 and 4 of the Rovuma Basin, which resulted in the discovery of enormous deposits of non-associated natural gas.
Given the need to conclude contracts to establish the terms and conditions for the design, construction, installation, ownership, financing, operation, maintenance, use of wells, facilities and related equipment, whether onshore or offshore, for production, including LNG units, multi-purpose wharves, material unloading wharves, surface equipment construction base, facilities for maritime operations and modifications, capacity optimization and their respective expansions, necessary for the production, processing, liquefaction, storage, transportation, delivery and sale of natural gas from the petroleum deposits in Area 1 and/or Area 4 of the Rovuma Basin under paragraph d) of paragraph 1 of Article 204 of the Constitution of the Republic of Mozambique, combined with Article 1 of Law No. 25/2014 of September 23, the Council of Ministers determines:

CHAPTER I
Disposições Gerais (General Provisions)
Artigo 1 (Article 1)
Definições (Definitions)
The meanings of the terms and expressions used in this Decree-Law are contained in Annex A, which contains a glossary that is an integral part thereof.

Artigo 2 (Article 2)
Objecto e âmbito de aplicação (Object and Scope of Application)

1. This Decree-Law and its annexes, which are an integral part, aim to establish a special legal and contractual regime applicable to the Rovuma Basin Project.
2. The Rovuma Basin Project shall be implemented through Rovuma Basin Developments under one or more approved development plans, as they may be amended.
3. This Decree-Law applies to each Rovuma Basin Development, whether carried out solely under Concession Contracts for Exploration and Production or under the combined terms of Concession Contracts for Exploration and Production and Government Agreements, as well as under other contractual instruments in which the Government is a party regarding the implementation of the Rovuma Basin Project.
4. The following persons are subject to the terms and conditions of the special legal and contractual regime provided for in this Decree-Law:
   a) Concessionaires of the exploration and production contracts for Area 1 and Area 4; b) Specific Purpose Entities, directly or indirectly established by the concessionaire(s) pursuant to paragraph a) for purposes of the Rovuma Basin Project; c) Persons who conclude contracts with the Concessionaire(s), pursuant to paragraph a), or with the Specific Purpose Entities provided for in paragraph b) regarding the Rovuma Basin Project; 1852 — (2) I SERIES — NUMBER 96 d) Subcontractors and any other persons directly involved in the Rovuma Basin Project; and e) National Hydrocarbons Company, E.P., also known as ENH, its affiliates or any other entity qualified as a state-owned company as part of the Rovuma Basin Project.
5. With the entry into force of this Decree-Law, existing and still in force Concession Contracts for Exploration and Production are safeguarded for all legal purposes, as well as their effects and acquired rights by the Concessionaires.
6. In all matters not regulated in the special legal regime established by this Decree-Law, Mozambican legislation on the subject shall apply subsidiarily.

Artigo 3 (Article 3)
Competência específica (Specific Competence)
The Minister overseeing the petroleum sector is authorized to approve and sign, when the Government is a party, any concession contract or any other contract related to or connected with the Rovuma Basin Project, as provided for in the already concluded concession contracts.

CHAPTER II (CAPÍTULO II)
Operações Petrolíferas (Petroleum Operations)
Artigo 4 (Article 4)
Implementação e Operação (Implementation and Operation)

1. Specific Purpose Entities may be established for purposes of the Rovuma Basin Project in accordance with this article.
2. For purposes of the Rovuma Basin Project and upon any Government authorization, each Specific Purpose Entity shall:
   a) be incorporated in Mozambique; b) be subject to Mozambican law; c) have its registered office located in Mozambique; d) be endowed with human resources and authorized to independently manage all activities arising from the construction, ownership, operation and use of the Rovuma Basin Project Infrastructure relevant or related thereto.
3. Specific Purpose Entities, upon Government approval and subject to paragraph 6 of this article, for purposes of developing financing activities, sales, maritime transportation related to the Rovuma Basin Project may, exceptionally, be incorporated in any jurisdiction outside the Republic of Mozambique subject to transparency rules applicable to the sector.
4. Unless otherwise agreed, Government approval is required for:
   a) the incorporation of Specific Purpose Entities outside the Republic of Mozambique; b) the constitutive documents of any Specific Purpose Entities and any amendments thereto; and c) the transfer of equity interests or change in control of such Specific Purpose Entities, except under the circumstances provided for in paragraph 7 of Article 16.
5. All approvals provided for in this article shall be granted by the Minister overseeing the petroleum sector within 10 (ten) days from the date of submission of the respective request, unless a different period has been fixed by the Government within an approved development plan in accordance with paragraph 7 of Article 8 of this Decree-Law.
6. Each Specific Purpose Entity is obliged to submit annually a report on its activities related to any Rovuma Basin Development, and the Government may audit them once a year.
7. Concessionaires and Specific Purpose Entities shall not be required to be listed on any stock exchange.

Artigo 5 (Article 5)
Contratos (Contracts)

1. Each Rovuma Basin Development may be implemented solely under Concession Contracts for Exploration and Production or under the combined terms of Concession Contracts for Exploration and Production and Government Agreements, as well as under other contractual instruments concluded or amended.
2. For purposes of Article 178 of Law No. 14/2011 of August 10, contracts or agreements in which the Government is a party and rights related to the Rovuma Basin Project may only be modified or terminated by mutual agreement or in accordance with their respective contractual provisions.

Artigo 6 (Article 6)
Parcerias Público-Privadas, Projectos de Grande Dimensão e Concessões Empresariais (Public-Private Partnerships, Large-Scale Projects and Business Concessions)

1. Rovuma Basin Developments are classified as large-scale projects for purposes of Law No. 15/2011 of August 10, unless they are not subject to that law pursuant to paragraph 1 of Article 37.
2. ENH's participation in the Rovuma Basin Project satisfies the Mozambican participation requirements provided for in paragraphs a) and b) of paragraph 1 of Article 33 of Law No. 15/2011 of August 10.
3. ENH's participation in the Rovuma Basin Project, the State's share of profit oil provided for in Concession Contracts for Exploration and Production and the fiscal regime applicable to Concessionaires must satisfy the revenue generation requirements and positive contribution to the public treasury provided for in paragraph d) of paragraph 1 of Article 33 of Law No. 15/2011 of August 10.
4. The equitable sharing of extraordinary direct benefits provided for in paragraph f) of paragraph 1 of Article 33 of Law No. 15/2011 of August 10 is effected through the progressive increase of the profit oil share attributed to the Government pursuant to Concession Contracts for Exploration and Production resulting from increases in oil prices.
5. Given that Concession Contracts for Exploration and Production were awarded under applicable public procurement rules at the time, the conclusion of any new contract pursuant to paragraph 1 of Article 5 of this Decree-Law shall be effected through negotiation or direct award to Concessionaires and/or any Specific Purpose Entity.
6. The socio-economic benefits provided for in Article 34 of Law No. 15/2011 of August 10 are calculated proportionally within the Rovuma Basin Project through, inter alia, Article 10 (Acquisition of Goods and Services), Article 13 (Rights to Use Rovuma Basin Project Infrastructure by Third Parties), Article 18 (Workforce) and Article 19 (Training) of this instrument.
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7. In compliance with paragraph f) of Article 34 of Law No. 15/2011 of August 10, the plan or plans for development regarding the Rovuma Basin Project must include an activities program, corporate social responsibility projects, and social development and sustainability projects.
8. The requirements arising from Law No. 15/2011 of August 10, including any regulation thereof, are satisfied pursuant to this article.

Artigo 7 (Article 7)
Unificação (Unification)

1. Autonomous and coordinated initial development of 12 (twelve) trillion cubic feet (tcf) of natural gas from Area 1 and 12 (twelve) trillion cubic feet (tcf) of natural gas from Area 4 is authorized, originating from petroleum deposits crossing the boundary between these areas (straddling reservoirs), in accordance with the master depletion plan for such petroleum deposits, jointly prepared by the Concessionaires of Area 1 and Area 4.
2. By virtue of this authorization, both the Concessionaires of Area 1 and the Concessionaires of Area 4 have the duty to submit their respective commerciality declarations regarding part of the straddling reservoirs located within the boundary of their respective Concession Contract for Exploration and Production area, and they undertake to submit the plan or plans for initial autonomous and coordinated development of 12 (twelve) trillion cubic feet (tcf), as well as to execute them upon Government approval.
3. Within a maximum period of 6 (six) months after the entry into force of this Decree-Law, Concessionaires must conclude and submit to the Government a unification agreement, with gas quantities produced from developments pursuant to the preceding paragraph subject to unification.
4. To facilitate negotiations and agreement between Concessionaires regarding unification, the Government may appoint an independent expert who, when requested, will advise on specific issues regarding which there is no agreement.
5. If the unification agreement is not concluded and submitted by Concessionaires within 6 (six) months after the entry into force of this Decree-Law, the Government shall appoint an independent expert to decide on issues related to unification where there is no agreement. The expert shall make a decision within 12 (twelve) months after the entry into force of this Decree-Law, with each operator of Area 1 and Area 4 submitting to the expert their respective proposals regarding unification.
6. The expert shall observe the principle of adversarial proceedings, ensuring overall process transparency and confidentiality of information received from or known to Concessionaires in the exercise of their functions, applying industry best practices regarding gas field unification.
7. The Government shall notify Concessionaires of the independent expert's decision, which shall be final and binding on the disputing parties, with implementation effected through a unification agreement concluded between Concessionaires and drafted by the expert on a fair and equitable basis, consistent with applicable engineering, technical and socio-economic principles.
8. Any further development regarding straddling reservoirs shall be subject to the unification agreement concluded pursuant to paragraphs 3 and 5 of this article, with necessary adaptations.
9. If Concessionaires of one area challenge the unification decision issued by the independent expert, the Government has the option to approve any development proposed by Concessionaires of the area that did not challenge the appointed independent expert's decision, provided such development relates to deposits located within the boundary of their respective Concession Contract for Exploration and Production area.

Artigo 8 (Article 8)
Requisitos do Plano de Desenvolvimento (Development Plan Requirements)

1. Each development and production period regarding a Rovuma Basin Development shall have a duration of 30 (thirty) years from the date on which its development plan was approved by the Government, provided any suspensive conditions stipulated therein are met, and this period may be extended pursuant to the respective contract or law.
2. Each Rovuma Basin Development, which may encompass one or more petroleum deposits, shall be subject to one or more development plans, which must regulate development and production operations, as well as liquefaction, delivery and sale, and also the installation, maintenance and operation of Rovuma Basin Project Infrastructure necessary for that purpose. These development plans shall be submitted to the Minister overseeing the petroleum sector in accordance with this article. Development plans may be amended to cover new significant investments.
3. In cases where a Rovuma Basin Development encompasses one or more petroleum deposits requiring phased development, Concessionaires may submit multiple development plans for such petroleum deposit(s) for Government approval.
4. When applicable, an initial development plan or plans may be accompanied by a master depletion plan establishing a comprehensive plan for the integral and phased development of such petroleum deposit or deposits, including the forecast of subsequent development plans or amendments to existing development plans.
5. No new development plan may be submitted regarding a Rovuma Basin Development intended after the 10th (Tenth) year of the commercial evaluation period, pursuant to Concession Contracts for Exploration and Production, relating to the petroleum deposits subject to that Rovuma Basin Development.
6. The development plan for Rovuma Basin Developments must include the elements enumerated in Annex B.
7. To enable development of Rovuma Basin Developments onshore and offshore, the Government ensures that all Rovuma Basin Developments are implemented in a coordinated manner, and that no development plan regarding a Development submitted by Concessionaire(s) shall be approved when likely to negatively affect the ability of Concessionaires to develop deposits for which they hold rights under their respective Concession Contract for Exploration and Production.
8. By virtue of the preceding paragraph, operators under Concession Contracts for Exploration and Production regarding Area 1 and Area 4 shall, within 6 (six) months after the entry into force of this Decree-Law, jointly submit to the Government: i) the master depletion plan regarding straddling reservoirs provided for in paragraph 1 of Article 7 of this Decree-Law; and ii) an implementation plan (layout) for Afungi facilities regarding the construction, development and operation of their respective onshore facilities in Area 1 and Area 4, as well as offshore facilities establishing the connection of each Area to the coast.
9. Each development plan drafted pursuant to the applicable Concession Contract for Exploration and Production or under the combined terms of the aforementioned Contracts and Government Agreements shall be submitted to the Minister overseeing the petroleum sector for Government approval, subject to the following procedures:
   a) Within a maximum of 9 (nine) months from the date the development plan in question was submitted, the Minister overseeing the petroleum sector shall analyze and: i) respond in writing to Concessionaires or Specific Purpose Entities, notifying them of the existence of irregularities or deficiencies in the submitted development plan or requesting additional information deemed necessary for the Government to approve the development plan, and/or, alternatively, ii) submit it for Government approval. b) In the case provided for in sub-paragraph i) of paragraph a) of this number, Concessionaires or Specific Purpose Entities shall have a period of 45 (forty-five) days from the date of receipt of the Minister's response to make necessary amendments to the development plan or provide additional information regarding it, after which the Minister overseeing the petroleum sector shall have a period of 1 (one) month to notify the relevant operator whether it approves or rejects the submitted development plan.
10. The development plan shall take effect upon fulfillment of the following requirements:
    a) written notification by the Minister overseeing the petroleum sector approving the development plan; and b) written notification by the relevant operator indicating that all suspensive conditions stipulated in the development plan have been fulfilled.
11. The regime established pursuant to this article, including the requirements set forth in Annex B, applies only to development plans submitted after the entry into force of this Decree-Law.

Artigo 9 (Article 9)
Vendas (Sales)

1. Without prejudice to the Government's right to approve natural gas sales, the right to carry out any marketing and commercialization activities, on a joint and dedicated basis, regarding petroleum produced from any Rovuma Basin Development, as provided for in Concession Contracts for Exploration and Production, constitutes an acquired right for purposes of paragraph 5 of Article 2 of this Decree-Law.
2. Without prejudice to the preceding paragraph, for purposes of selling natural gas quantities owned by the State corresponding to the Petroleum Production Tax and the State's share of profit oil under applicable Concession Contracts for Exploration and Production, ENH shall act as the authorized representative of the Government.
3. The Minister overseeing the petroleum sector may delegate to ENH its competence under applicable Concession Contracts for Exploration and Production to approve contracts with a maximum duration of 12 (twelve) months for the sale of Natural Gas.
4. ENH is the entity representing the State, as buyer, regarding sales and marketing of Natural Gas destined for domestic consumption or other local industrial developments in projects approved by the Government in the Republic of Mozambique, with sales terms and conditions, including volumes and prices, being economically established in contracts concluded with Concessionaires, considering market commercial conditions.

Artigo 10 (Article 10)
Aquisição de Bens e Serviços (Acquisition of Goods and Services)

1. The acquisition of goods and services by Concessionaires and Specific Purpose Entities for the Rovuma Basin Project, including, inter alia, services, supplies, materials and construction or contracting contracts, shall be effected in accordance with this article to ensure that the Rovuma Basin Project is constructed in compliance with international best standards, in a timely, economical and safe manner, and according to the national objective of preference for contracting goods and services to national companies owned by Mozambican citizens or Mozambican legal entities and/or owned by Mozambican citizens or legal entities in partnership with foreign companies, so as to enable a gradual transfer of operational capacity and stimulate the private sector of the economy.
2. The persons indicated in paragraph 1 of this article shall individually prepare a local content plan for each Rovuma Basin Development, in accordance with the principles established in this article, which shall be approved by the Government jointly with the approval of the development plan for the relevant Rovuma Basin Development. Each local content plan shall define the participation of Mozambican natural or legal persons and Mozambican citizens in the supply of goods and services destined for the relevant Rovuma Basin Development, and shall be updated every 3 (three) years by the relevant persons referred to in paragraph 1 of this article and approved by the Government so as to readjust to the growth of Mozambique's oil and gas industry.
3. The local content plan shall be drafted in accordance with the following principles:
   a) preference shall be given, pursuant to paragraph 8 of this article, to Mozambican natural or legal persons for goods and services; b) regarding categories of goods and services requiring specialized know-how, preference shall be given, pursuant to paragraph 8 of this article, to Mozambican natural or legal persons, to foreign companies that associate with Mozambican natural or legal persons, by any means legally permitted, including through subcontracting or partnerships in the form of joint ventures;