The Role of Private Enterprise in the Electricity Sector - International Law Office

International Law Office

Energy & Natural Resources - Mozambique

The Role of Private Enterprise in the Electricity Sector

March 08 2004

Legal Framework
Concession-Granting Procedures
Comment


In a country with limited financial resources, where until fairly recently only 5% of the population had the benefit of electricity, private enterprise could play an important role in electrification. Mozambique's energy sector is essentially coal and wood based, and electricity is only available in the major urban and industrial areas. Further, power generation is dominated by one major hydro facility, the Cahora Bassa dam, which exports a significant part its production to neighbouring countries, and is affected by massive debt and complicated contractual arrangements. Alternative power generation sources are thus required and private enterprise is clearly needed to this end.

This scenario has been acknowledged by the Mozambican government, which in recent years has been particularly active in searching for legal mechanisms to attract private companies, in particular foreign investors, to the country's electricity sector.

Legal Framework

The first and decisive step towards achieving the country's electricity goals was the approval of a new Electricity Law (21/97), which governs the generation, transmission, supply and trading of electrical power, including its import and export. The key feature of the Electricity Law was the opening up of the energy sector to private enterprise; previously, this sector was legally subject to a state monopoly.

Subsequently, the government's strategic guidelines for the electricity sector (and other energy sectors) were expressed in Council of Ministers Resolution 5/98, which approved Mozambique's energy policy.

Two years later, electricity law was regulated by way of Decree 8/2000, which approved the Regulations on Powers and Procedures in Relation to the Granting of Concessions for the Generation, Transmission, Supply and Trading of Electrical Power.

Also in 2000, the government approved the country's Energy Strategy, as per Council of Ministers Resolution 24/2000. The Energy Strategy is intended as a guiding instrument for the energy sector, implementing the energy policy. The strategy sets out a comprehensive analysis of the various energy subsectors, including the electricity market. It also contains a number of measures to be adopted in relation to each of these energy subsectors. The measures to be adopted in respect of the electricity subsector are aimed at:

  • resolving the problems affecting the Cahora Bassa dam;

  • restructuring the electricity supply industry, including unbundling production, transmission and supply activities within Mozambique's state electricity company (EDM - Electricidade de Moçambique);

  • implementing a tariff policy reflecting actual costs;

  • creating a system of incentives for the electrification of rural areas and the rehabilitation and upgrade of existing electrical facilities; and

  • concluding an Electricity Guiding Plan setting forth investment priorities.

The Energy Strategy also provides for the carrying out of a study to assess the need for the creation of a regulatory authority for the electricity sector. Despite this, the creation of a predominantly consultative body for the sector, the National Electricity Council, has already been provided for in the Electricity Law and its regulations. The organizational statutes of the National Electricity Council were eventually approved by the Council of Ministers by means of Decree 25/2000, which was gazetted along with the Energy Strategy.

Concession-Granting Procedures

While stressing the decisive action of the state, its agencies and state companies, the Electricity Law acknowledges that private enterprise has a significant role in the development of the national power grid. As such, the participation of private entrepreneurs in the electricity supply public service is to be ensured by the state by way of concessions, provided that the interests of the state are safeguarded.

To obtain a concession for the generation, transmission, distribution and trading of electrical power, including its import and export and the construction, operation and management of electricity facilities, both the state and private entities must file a concession request with the appropriate authority: either the Council of Ministers, the minister of mineral resources and energy or the regional authorities, depending on the nominal installed capacity of the relevant facility. In any event, a public tender will always be required and other interested parties may also submit bids for the requested concession. The Electricity Regulations list the bidding requirements for each type of concession and provide for a consultation process with the National Electricity Council and, in certain cases, with the population in general.

Following the award of the concession, the successful bidder must incorporate a company - the concessionaire - which will enter into an administrative concession contract with the appropriate governmental authority. This contract will be published in the country's Official Gazette and must contain, among other things, provisions on the matters listed in the Electricity Regulations and a draft contract binding the concessionaire to the national transmission grid operator.

The Electricity Regulations also cover the award of the concession for the management of the national transmission system. However, according to the Electricity Law, such concession must be exclusively awarded to a state entity. This role is presently undertaken by EDM. Although the Electricity Regulations already contain a general provision on access to the national transmission grid by third-party producers, the specific terms and conditions of such access are yet to be regulated.

Comment

While implementation of the above framework and strategic guidelines has been slow, the presence of private enterprise in the electricity sector is becoming a reality which the government intends to reinforce in the coming years. Negotiations are ongoing between the government and private entities for the commencement of concession tender procedures for some regions of the country, in particular the tourist region of Vilankulos.

Additional tender procedures are awaited so that the country's electrical power potential is enhanced, placing Mozambique in a competitive position with respect to its Southern African Developing Country neighbours. To this end, the government will continue to pursue the dual goals of enhancing regional interconnection between national power transmission grids and participating actively in the Southern African Power Pool.


For further information on this topic please contact Alberto Galhardo Simões at Miranda Correia, Amendoeira & Associados' Lisbon office by telephone (+351 21 781 4800) or by fax (+351 21 781 4802) or by email (Alberto.GalhardoSimoes@mirandalawfirm.com).


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