Universal access to energy is one of the priorities of the Government of Mozambique. To achieve this goal, the Government's actions must be complemented by private investment, a fact that has been conditioned by unattractive legal barriers to investment in this sector. In fact, the legal framework has seen substantial improvements in terms of market liberalisation and the introduction of mechanisms aimed at attracting more private investment, especially in segments that are still less explored by the Government, such as the Off-Grid Zones ("ZFR").
In the Mozambican context, the ZFRs are of paramount strategic importance in the framework of the objectives of universal access to energy for two reasons: first, because the Government's efforts are currently concentrated on the National Electricity Grid rather than ZFRs, which creates a space that can be filled by private investment; second, because the energy options in ZFRs tend to be ensured by mini-grids whose sources are predominantly clean and renewable, a fact that follows the Integrated Master Plan for Electricity Infrastructures[1] and the National Electrification Strategy[2] that envisage, among other aspects, the diversification of the energy matrix as the country responds to the objectives of sustainable development with regard to the energy transition.
The newly approved Electricity Law[3] and the Regulation on Access to Energy in Off-Grid Zones[4] ("Off-grid Regulation") shows the Government's vision to attract electricity generation investments in ZFRs. However, the higher concern has always been to understand how the process of awarding a concession for the ZFRs is enough to attract private investment, when compared to the normal procedure to grant concessions under the Electricity Law. This article aims to answer this question through the summary analysis of the Regulations for the Allocation of Concessions for Mini-Grids (the "Regulations on Concessions for Mini-Grids"), whose approval aims to complement the Off-grid Regulation.
Although the granting of concessions for mini-grids is still subject to some general formalities according to the Electricity Law, the innovations in the sense of flexibility and attraction of private investment for mini-grids in the off-grid context are remarkable. Among the various aspects, the following are highlighted:
The establishment of concession contract models and performance assurance
The concession contract models to be signed between the concessionaires and the Minister of Mineral Resources and Energy are attached to the Regulation on Concessions for Mini-grids, namely:
- Format A: For category 2 and 3 projects (with capacity up to 1 MW);
- Format B: For category 1 projects (with a capacity between 1 MW and 10 MW).
This gives greater predictability to the process of awarding concessions, unlike the concessions granted under the Electricity Law whose content, despite being tendentiously standardized, reflects the long negotiation processes. On the other hand, the content of the performance guarantee also confers predictability in terms of the objective delimitation of its scope.
Waiver of public tender for allocation of concession for mini-grids:
Although the public tender remains the general rule for the allocation of concessions, the Off-grid Regulation and the Regulation on Concessions for Mini-Grids define clearly the situations that may be subject to direct award. For purposes of private investment, the following are highlighted:
- Situations in which private financing requires it. This means that investors can substantiate the objective reasons as to why direct award is the best option for making the investment viable. This possibility opens up space for investors to adhere to more simplified financing packages, the disbursement of which is not compatible with the bureaucratic procedures that are typical of public tenders.
- In situations where the project is, cumulatively, (i) of public interest and (ii) has a majority shareholding by a public entity: In practice, once the public interest of a given project has been determined, a public entity can take the lead on it, and as a way of making up for the financial and/or technical shortfall, for example, the public entity can enter into partnerships with private investors. This can be a practical way of establishing partnerships with a guarantee of almost immediate award of concessions to operate in the RFZ segment.
Easy provision of performance guarantees
The issuing of guarantees has been a significant burden, especially when its scope is broad and its presentation is required at the concession application stage. The Regulation on Concessions for Mini-grids limits the value of the guarantee to the construction phase and stipulates a maximum of 5 per cent of the value of the project. This guarantee must be made available within 30 days of the award of the concession, and the Energy Regulatory Authority - ARENE must return it within 90 days of the start of commercial operations.
Non-enforceability of the demobilization fund
Under the terms of the Electricity Law, the concessionaire must open a bank account in Mozambique by the date of the start of commercial operation and deposit the funds to cover decommissioning costs. This requirement is a significant burden for investors. However, according to the Regulation on Mini-grid Concessions, the concessionaire must ensure the decommissioning of the infrastructure with its own funds, under the terms of the mitigation plan and the environmental management plan, thus making it unnecessary to open a bank account for this purpose.
The possibility of submitting terms of commitment at the concession application stage
One of the major obstacles to analyzing concession applications has been the need to submit consolidated documents and/or information, even if there is no certainty that the concession will be awarded. Under the terms of the Concessions Regulation for Mini-grids, at the stage of applying for the concession, the concessionaire can limit itself to submitting terms of commitment regarding (i) financial capacity; (ii) civil liability insurance and (iii) a performance guarantee, i.e. the actual documents will only be required once the concession has been awarded. This gives investors greater flexibility in the tendering phase.
In general, the Regulations on Mini-grid Concessions clearly defines the simplified requirements for submitting an application for mini-grid concessions, as well as the procedures that culminate in the award of these concessions. It is therefore the materialization of the liberalization of the energy sector in general and the off-grid segment in particular, the foundations of which were laid by the Electricity Law and reinforced by the Off-grid Regulation.
As these are new procedures, the government entities involved in the process as well as investors still need to test the operationalization of these procedures. Above all, given that the process continues to be guided by the general principles laid down in the legislation applicable to the electricity sector, investors should always seek legal advice.
[1] Approved by Resolution no. 48/2028, of 31 December;
[2] Approved by Resolution no. 49/2028, of 31 December;
[3] Approved by Law no. 12/2022, of 11 July;
[4] Approved by Decree no. 93/2021, of 10 December;
--
Read the original publication at Sal & Caldeira Advogados.
