Key Legal and Commercial Risks in Energy Projects in Mozambique
This trajectory is underpinned by a policy framework that has increasingly signalled a decisive openness to private-sector participation, particularly in energy generation and the development of major infrastructure projects. This approach has already resulted in a number of successful investments, demonstrating not only the country’s potential but also its ability to attract investors and international financing.
Nevertheless, the development of energy projects in Mozambique remains constrained by an evolving legal and regulatory environment which, in certain respects, is operationally demanding. For investors, financiers and project developers, identifying and managing the key risks remains crucial to ensuring that projects are both bankable and feasible.
Mozambique’s energy policy reflects a pragmatic approach, recognizing the central role of private investment in meeting growing demand and enabling large-scale projects. This is particularly evident in the electricity sector, where independent power producers (IPPs) are playing an increasingly important role in developing new capacity, including in the renewable energy segment, which has benefited from greater support and growing interest from investors. At the same time, Mozambique has a relatively favorable framework for investment in strategic projects, including the possibility of accessing incentives, particularly of a fiscal and customs nature. These incentives can significantly improve the economics of projects, although they are subject to structured approval processes and must be analyzed within the context of the applicable regulatory and commercial framework.
Whilst some projects have successfully reached financial close and are already operational, others continue to highlight the importance of rigorous structuring and realistic management of timelines, particularly with regard to obtaining approvals and negotiating commercial terms.
In practice, the main constraints lie less in the absence of a legal framework and more in the sequencing and coordination of critical approval processes. These include, in particular, the awarding and negotiation of concessions; the negotiation of key project contracts such as power purchase agreements (PPAs) with Electricidade de Moçambique (EDM) and concession agreements with the State; foreign exchange approvals relating to the investment and financing structures; land access; and environmental assessment processes. Delays on any of these fronts have a direct impact on the project’s timelines and the financing process; it is therefore essential to identify these workstreams in advance and to manage stakeholders proactively.
From a commercial perspective, the financial viability of projects remains heavily dependent on the structure of power purchase agreements. In most cases, projects are based on a single-buyer model, which introduces a significant concentration risk. This risk is exacerbated by tariff constraints and, in particular, by the exchange rate mismatch between revenues denominated in Meticais and financing structured in foreign currency, typically US dollars. Added to this is the ongoing challenge of aligning tariffs with a cost-reflective basis. Although the economic viability of projects – especially those that are capital-intensive or fuel-dependent – requires tariffs that fully reflect the underlying costs, social and political constraints relating to the affordability of tariffs remain.
In this particular context, experience shows that, in Mozambique, the challenge rarely lies in a lack of opportunities, but rather in the ability to align regulatory, commercial and public policy realities within a framework that is both financeable and implementable. Without adequate mitigation mechanisms, the factors mentioned above may compromise the financial viability of projects; it is therefore essential to carefully define tariff mechanisms, including indexation, pass-through clauses and payment guarantees.
State involvement and the regulatory framework for approvals also continue to play a decisive role. State intervention can take various forms, including shareholding, ‘free carry’ arrangements or regulatory oversight, and is often accompanied by multi-tiered approval processes, sometimes extending as far as the ministerial level or the Council of Ministers itself. Furthermore, changes in public policy, at both central and provincial levels, can introduce uncertainty, particularly in projects with longer time horizons. In this context, early alignment with the relevant public authorities and the clear formalisation of agreed commercial and structural principles are essential to mitigate the risks of delays or renegotiation.
Political and sovereign risk remains equally relevant in long-term investments. Despite Mozambique’s consistent commitment to attracting private investment and its growing track record of successfully implemented projects, risks remain associated with policy changes, shifts in the regulatory approach, administrative delays or constraints on the performance of public bodies. These risks are particularly significant in projects with long durations and high initial investment, and are typically mitigated through contractual mechanisms, such as stabilisation clauses, provisions for legislative amendments and compensation schemes in the event of termination, as well as through political risk insurance and the involvement of multilateral institutions.
Land use and exploitation rights constitute another fundamental pillar. All projects depend on securing these rights, and the processes for granting them, the requirements for community consultation, and the limitations on their transferability or use as security can present significant challenges. Delays or disputes in this area can have a significant impact on project timelines and financing structures, making rigorous due diligence and the proper management of relationships with local communities essential.
At the same time, the application of foreign law – typically English law – and international arbitration remains common in certain project documents, particularly in financing agreements and, in some cases, in EPC and O&M contracts. However, the project’s key contracts with a direct link to Mozambican jurisdiction, such as concession agreements, PPAs and other local contracts, are, as a rule, governed by Mozambican law. The coherence of this hybrid contractual framework and its compatibility with local implementation rules constitute an essential element of the legal structuring.
Finally, it is important to recognise that the regulatory framework for the energy sector and PPPs is constantly evolving. There is a growing emphasis on local participation, greater scrutiny of the economic sustainability of projects and increased concern regarding alignment with the public interest. Whilst these trends are consistent with the country’s strategic objectives, they may introduce regulatory uncertainty throughout the life of the projects. The inclusion of appropriate stabilisation mechanisms and safeguards against legislative changes is therefore of particular importance.
In conclusion, Mozambique offers significant opportunities in the energy sector, underpinned by a policy framework favourable to private investment, a growing track record of successful projects and a relatively attractive incentive scheme for strategic projects. However, the success of these projects depends on carefully navigating a challenging legal and commercial environment. Experience shows that projects which invest in robust structuring, early alignment with stakeholders and disciplined risk allocation are better positioned to achieve sustainable results.
