STIMULATING PRIVATE INVESTMENT IN MOZAMBIQUE’S

ENERGY SECTOR THROUGH REGULATORY REFORMS.

Introduction.

Mozambique is taking steps into a new direction toward creating an enabling environment that favours private investment in the energy sector to spur economic activities that will lead to a more sustainable development. In recent years, the energy sector’s development policy efforts have strongly focused on the exploitation of gas reserves and using the resources as the springboard for facilitating socioeconomic development of the country. The country is now turning to renewable energy off-grid segment to spur its energy development. However, a major challenge to the development of the energy sector, particularly the electricity sector, is the non-cost-reflective tariffs that limit its ability to direct sufficient investment into increased energy access. Recently, through reforms in its energy regulatory policies, the country aims to achieve universal energy access by 2030 and major investments are needed to achieve this goal. The country has identified the development of off-grid energy infrastructures as a potent tool for achieving the national goal of universal energy access.  Therefore, the country recognized that the energy policy environment needs to be improved through reforms that will support the achievement of this developmental aspirations.

Mozambique’s Energy Regulatory Framework.

An important energy policy document that states the needs of energy access for the population and the productive sectors is the Mozambique’s Energy Policy enacted in 1998. Some of its main objectives include the promotion of economically viable programmes for the development of energy resources, ensuring reliable energy supply, and improving energy access in the domestic sector. The prevailing regulatory instrument for electrification in Mozambique was the electricity law from 1997 which was updated in July 2022 to reflect the current social, technical and financial dynamics in the country, with emphasis on renewables. This law defines the general policy framework of the power sector and all activities related to production, distribution, transmission, consumption and storage of electricity, including export and import.

In December 2021, a new regulation for energy access in off-grid was published and approved. This new regulation, active since January 24th, 2022, acts as support to the current legal framework in the off-grid energy sector in Mozambique. It is expected that this new framework offers the private sector a clearer and more transparent instrument for the implementation of their off-grid electrification projects, help reach the electrification objectives for 2030 and attracts more private investment into the country’s energy sector.

These regulatory reforms will be implemented through the Energy Regulation Authority, Autoridade Reguladora de Energia (ARENE).  The Authority has the responsibility for implementing  and coordinating all processes regarding approval for concessions before and after they have been submitted to the Minister for approval.

Facilitating Private Investment in the Energy Sector.

The new regulatory energy framework was intended to create a favourable and enabling environment that facilitates private investment into energy sector via mini-grids with a dedicated policy.  The policy targets smaller installations (through lower transaction costs) as well as opening end-customer energy service provision to private sector players and allowing diversion from the standard national tariffs. The policy offers an improved regime for solar home systems and other stand-alone energy solutions that are expected to play a key role in energy access for a significant part of the Mozambican population living in rural areas.

Thus, policymakers intend to use the new energy policy regulatory framework to mobilize additional funding from donors and crowd in private investment for the development of energy infrastructures in the country. Development partners are showing support for the reform. This new policy will use the existing incentive schemes to mobilize resources from international partners, aimed at supporting private sector energy provision. Notably, the new policy will also compel the Mozambican energy sector public institutions, such as the Ministry of Mineral Resources and Energy, the Energy Regulatory Authority, and the National Energy Fund to adapt to new technologies, financing models, increased knowledge and understanding of the specifics of the rural energy market, institutional discipline, and coordination to manage a growing number of stakeholders involved in the market. Importantly, practical implementation and enforcement of the policy will be key to success.  Therefore, the details on application procedures, standards, and the full requirements of the new regulation will need to be clearly articulated for the understanding of all the stakeholders.

It is expected that key state actors in Mozambique energy sector will effectively coordinate their actions with other energy market players to manifest the necessary commitment that will ensure the positive outcomes of this new policy and regulatory reforms.  Moreover, the support of the  government and international development cooperation partners would be indispensable to the success of the new policy reforms.  Their support would be needed to strengthen the capacity of the regulators in establishing and managing the new processes, to clarify the roles of state institutions in grid expansion and off-grid zones for electrification as well as to establish sector working groups and associations to facilitate a consultation process and sharing of best practices. Increased coordination among state institutions on expansion plans as well as priorities and specific targets of donor programs is equally important for ensuring efficiency and complementarity of planned energy projects and programmes in the country. If well implemented, the new energy policy framework could stimulate and accelerate the improvement of energy access, building trust into the country’s business opportunities, and increasing foreign direct investment in the energy sector.

Conclusion

Mozambique is demonstrating her willingness to promote private investment in the energy sector in a way that leads to a more sustainable economic performance. No doubt, Mozambique will face challenges in the implementation of the new energy regulatory policies.  These challenges include the recent spike in commodity prices as a result of the Russian invasion of Ukraine which may slowdown the momentum for the implementation of the much-needed reforms. Nonetheless, the pressure for the reforms remains very strong and inevitable given Mozambique’s debt burden and other constraints. It is hoped that that investors will respond favourably and positively to the new energy policy through increased private sector investment that would result in the much-needed positive prospects for the country through energy access and improved economic growth and development.

It is in this regard that AMETRADE is organizing, with the support of the Ministry of Energy, the 9^th edition of the energy industry flagship event, Mozambique Mining and Energy Conference and Exhibition (MMEC2023). The conference will take place at the Joaquim Chissano Conference Centre in Maputo from April 26-27, 2023.  The theme of this year’s edition is “Utilizing Mozambique’s natural resources for Transformational & Sustainable Economic Development”. The conference will showcase the energy and mining development projects and programmes that have been implemented by the government to boost local capacities and skills that support value addition by the private sector, particularly the Small and Medium Enterprises (SMEs) through national industry participation.

During the Conference, a session will be devoted to discussing energy access for industrialization and national development in Mozambique.  The session will discuss the issue of low energy access which has been a great concern for the government and private sector operators and a constraint to a durable industrialization and economic development of the country. It will bring together policy makers, investors, and energy professionals to discuss the opportunities and challenges of harnessing the off-grid renewable energy in the country.  Specifically, the session will highlight the need for accelerating the expansion of off-grid energy markets, unlocking investment in mini-grid development and deployment through enabling policy and regulatory environment and supporting SME’s and entrepreneurship with energy access. It is a must-attend for all energy stakeholders in Mozambique and the Southern African region, particularly those who would like to take opportunities that are offered by the enabling environment through the implementation of the new energy regulatory reforms.