Distinct from their more westerly neighbours such as Angola, Equatorial Guinea and Nigeria, it is fairly uncommon for southeast African countries to hit the headlines when it comes to oil and gas. In fact, apart from some natural gas fields, crude oil discoveries in the region are scarce and barely commercial.

This means the region's oil needs have to be satisfied externally, which in turn means facilities to bring oil products into the region are of critical strategic importance. As land transport facilities from West Africa's oil-producing countries are non-existent, transport by sea prevails. Hence the decisive role that the coastline countries play in the import and ongoing supply of oil products to the entire region.

Taking advantage of its 2,515km of coastline and of being the only feasible link to the sea for neighbouring countries such as Zimbabwe, Malawi and Zambia, Mozambique is extremely well placed to become a preferred gateway for the entry of oil products into the region. The importance of these natural advantages is enhanced in view of the problems experienced by South Africa's ports, where capacity is falling short of the local market's needs for liquid fuels. Mozambique has, therefore, been equipping herself to play an important part in the supply of oil products to southeast Africa. A couple of recently announced projects provide undisputed evidence of the country's strategy in this regard.

In the middle of this year, the construction of a pipeline linking the Mozambican capital Maputo to neighbouring South Africa was announced. This project, which is intended to be in operation by the end of 2009, will involve the construction of approximately 400km of pipeline, with a capacity for five million tonnes of diesel and gasoline per annum, as well as the refurbishment and construction of storage tanks and improvements to loading capacity in the Matola terminal, which lies within the Maputo port jurisdiction area. The pipeline is expected to relieve the fuel crisis in South Africa and, at the same time, improve the capacity to import oil products to Mozambique and neighbouring countries.

More recently, the Mozambican Government approved a project to build and operate an oil refinery in the district of Nacala-a-Velha, in the northern province of Nampula. The refinery, known as the Ayr Petro-Nacala project, will be able to produce more than 300,000 barrels of fuel per day, two-thirds of which will be exported to neighbouring countries such as Zimbabwe, Malawi and Zambia. The crude oil for the refinery will be unloaded at the Nacala port which, while being regarded as the best deepwater harbour on the East African coast, has been up until now relatively under used.

Along with the existing facilities, which include three ports – Maputo, Beira and Nacala – and the Beira-Feruka (Zimbabwe) oil pipeline, these recently announced projects will certainly boost Mozambique's prospects as a leading supplier of oil products in southeast Africa.

In order to adequately cater for investment in the petroleum sector, the Mozambican Parliament and Government have over the years created a detailed legislative and regulatory framework that applies to the construction and operation of pipelines, as well as to the production, storage, retail distribution and transport of oil products and to the operation of unloading terminals.

The construction and operation of an oil pipeline that is not covered by a petroleum exploration and production concession contract is subject to the execution of a pipeline agreement with the Republic of Mozambique, represented by the Ministry of Mineral Resources. The high-pressure transport of oil products and natural gas is treated as an upstream activity and thus governed by the Petroleum Law 2001 and the Petroleum Operations Regulations 2004. Pipeline agreements must comprise the corresponding development plan and have to be approved by the Council of Ministers. Furthermore, a public tender is required except in limited circumstances. The Petroleum Operations Regulations set out in detail the requirements applicable to companies applying for the right to construct and operate a pipeline and the terms and conditions that have to be included in the pipeline agreement. Third-party access is also provided for, as well as various matters relating to the design, construction, planning and safety of the pipeline.

As to downstream activities, the main framework is laid down in Decree 63/2006, of 26 December, 2006, which governs the production, distribution and sale of oil products, including import, storage and transport. The decree also regulates the pricing of oil products within the Mozambican territory. All downstream activities are subject to licensing and registration. The licensing procedure is fairly straightforward and is regulated in detail in Decree 63/2006. This statute also covers the safety measures and controls that apply to the unloading, transport and storage of oil products, as well as oil product specifications, which abide by internationally recognised standards.

For efficiency purposes, the acquisition and import of oil products such as liquid petroleum gas, gasoline and diesel is procured by a central operator – currently state-owned company Imopetro. The central operator controls the purchase and import process of oil products on behalf of the authorised distributors and acts as an intermediary in the relationship of the latter with port authorities, financial institutions and other entities involved in the process of purchasing oil products.

Mozambique has also put into place a framework designed for oil products that are not aimed for the domestic market, but rather for ongoing supply to neighbouring countries. In the Ministry of Planning and Finance's Ministerial Decree 13/2002, of 30 January, 2002, the Government enacted a specific regime for customs warehouses dedicated to oil products. The purpose of this statute is in essence to facilitate the customs' handling and treatment of imported oil products intended for ongoing re-exportation to neighbouring countries, in particular exempting such oil products from any customs duties in Mozambique when their local storage does not exceed a period of six months. These oil products in transit are thus subject to special customs, control, inspection, reporting and registration formalities in terms of their unloading and subsequent storage and transport between storage facilities. Once more, this procedure is handled and directed by Imopetro.

This legal and regulatory framework is a clear sign that Mozambique means business when it comes to becoming a critical player in the supply of oil products to the whole southeast African region. When the new pipeline and refinery projects are up and running, Mozambique will certainly be taking full advantage of its privileged geographical location as a regional gateway for oil products. n

Diogo Xavier da Cunha is a partner and head of the Mozambique jurisdiction group and Djamila Pontes Osman is an associate at Miranda Correia Amendoeira & Associados.