Maputo, 8 Oct (AIM) – The Portuguese oil company, Galp, has decided to formally take the Mozambican State to international arbitration following the legal dispute between Galp and the Mozambican Tax Authority (AT).
The dispute emerged when Galp decided to sell, over the last year, its position in the consortium exploiting natural gas in Area Four of the Rovuma basin, off the coast of the northern province of Cabo Delgado, to ADNOC, the state-owned oil company of the United Arab Emirates.
Galp sold its assets in Mozambique for 1.2 billion Euros (1.3 billion US dollars, at the current exchange rate). This amount, according to the AT’s calculations, results in a taxable capital gain of 162 million Euros (based on the application of the standard 17.6 per cent rate). However, Galp claims that the fair capital gain only corresponds to 26 million Euros.
Galp then decided to take the case to international arbitration, through the World Bank’s International Centre for Settlement of Investment Disputes (ICSID).
In a statement, the company says that “in view of a disagreement, unresolved to date, regarding the taxation of capital gains relating to the process of disposal of the stake in Area 4 of the Rovuma Basin, Galp also has formally notified the State of Mozambique about the existence of a dispute, under agreements on the promotion and reciprocal international protection of investments.”
The company believes that taxes cannot be demanded without a basis in applicable law and “Galp has notified the government that it had resorted to international arbitration to challenge the levy of a 10 per cent capital gains tax on the sale of the company’s stake in gas exploration projects in Area 4 of the Rovuma Basin.”
According to the company, the government responded claiming the levy is legal and based on the agreements signed, “and that it aims to ensure that Mozambicans receive all the profits they are entitled to from the exploration of the resources.”
According to the document, with the sale of the assets (and subsequent completion of the transaction), Galp received a payment of approximately 881 million dollars, including the equity value of the shares, the repayment of shareholder loans, and accumulated investments since the transaction reference date.
“The final payment, approximately 100 million dollars, will be made shortly after the final investment decision for the Coral Norte projects. An additional contingent payment of 400 million will be made to Galp, subject to the latter’s final investment decision”, reads the note.
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