Electricity Regulations to Boost Development and Investment - International Law Office

International Law Office

Energy & Natural Resources - Mozambique

Electricity Regulations to Boost Development and Investment

August 08 2005

Introduction
From State Monopoly to Private Particiption
Forthcoming Changes
Comment


Introduction

The development of Africa's energy sector, including electrical power, is a prerequisite for the economic growth of the continent. A regular, reliable power supply will do much to attract foreign investment and persuade international companies to begin operations in Africa. The Cahora Bassa dam in the Mozambican province of Tete is the biggest hydroelectric system in southern Africa.

Mozambique is one of the largest power producers of the Southern African Democratic Community. Despite its significant hydropower potential, inefficient use of established utilities contributes to the fact that only 7% of households in Mozambique have access to electricity.

This picture is changing as the government of Mozambique recognizes the importance of electrification for the welfare of the population, in rural as well as urban areas. To this end, regulations are being drafted to aid the development of the country's power potential at all levels.

From State Monopoly to Private Participation

The main player in the electricity industry is the state-owned company Electricidade de Moçambique. It was established by the state in 1977, two years after independence. The electricity system comprises three key components: generation, transmission and distribution. For many years, Electricidade de Moçambique had a monopoly over all three parts of the system.

In 1997, after a long and complex discussion about the role of private partners in the electricity sector, the Electricity Law (21/97) was enacted. This covered the generation, transmission, supply and commercialization of electrical power, including import and export. The Electricity Law ended Electricidade de Moçambique's monopoly and paved the way for the participation of private entities. It sought to engage both the public and private sectors in the electrification effort; private partners are expected to operate in rural areas, while the stated-owned company is the key player in peri-urban electrification.

In 2000 the Electricity Law was regulated by Decree 8/2000, which contains regulations on the powers and procedures relating to the granting of concessions for the generation, transmission, supply and commercialization of electrical power, including import and export. Since the passing of the decree, the granting of state concessions has allowed private companies to participate in the electricity supply sector.

Despite the recent legislative developments, the reform of the energy sector will not be completed until other regulations on the planning, financing, construction, possession, maintenance and operation of plants for generation, distribution, transmission and commercialization of electrical power are adopted. These regulations are now awaiting approval by the Council of Ministers. Their main purpose is to provide a solid legal foundation for the various phases of the electricity chain, from generation to the end consumer, in order to attract a greater volume of private investment in this area. The statutes will regulate the obligations of a concessionaire in relation to generation, distribution, trade and transportation of electrical power, as well the concessionaire's relationship with Conselho Nacional de Electricidade (CNELEC), the electricity regulator, and other concessionaires.

Forthcoming Changes

The regulations are expected to introduce new measures such as:

  • the development of a free, competitive market without exclusive generation, transmission or distribution rights;

  • compulsory compliance with model contracts for the generation, distribution, transmission and commercialization of electricity, to be approved by the Ministry of Energy;

  • a requirement that concessionaires obtain prior approval before transferring a concession to a third party; and

  • the right of the relevant governmental authority to grant or withhold approval of the terms of supply contracts, after consultation with CNELEC.

The changes are also expected to affect:

  • consumers' obligations under supply contracts;

  • penalties for breach of the concession contracts;

  • invoicing for services;

  • the granting of licences;

  • energy efficiency rules;

  • requirements in the contract for connection to transmission facilities; and

  • management of the national grid.

In addition, the regulations are expected to establish cost-based and regionally differentiated tariff mechanisms, achieving the aim of providing low-cost access to electricity in rural areas.

Comment

Given the country's potential, electrification levels in Mozambique are low. However, the liberalization of the electricity distribution and transmission markets should encourage foreign investors. Those with the financial and technical resources necessary to play a part in the development of Mozambique's energy sector should not miss out on the opportunities in a region of proven potential.


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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