Maputo — The Mozambican Tax Authority (AT) has confirmed that the Italian energy company ENI is attempted to avoid paying any capital gains tax on the sale of part of its stake in Area Four of the Rovuma Basin to the China National Petroleum Corporation (CNPC).

Assets in the Rovuma Basin, off the coast of the northern province of Cabo Delgado, have become extremely valuable with the discovery of enormous offshore deposits of natural gas.

Under the deal with the Chinese company, signed on 13 March, CNPC will pay ENI 4.21 billion US dollars for 28.57 per cent of its stake in offshore Area 4, where it is the operator. As ENI holds 70 per cent of the rights to Area 4, this equates to 20 per cent of the total stake.

ENI seems to imagine it has found a loophole to avoid paying tax on this sale. CNPC is not buying a share in Rovuma Basin directly from ENI, but instead is purchasing a 28.57 per cent holding in the subsidiary ENI-East Africa. It so happens that the sole asset of ENI-East Africa is the Rovuma Basin block.

A source in the AT, cited in Thursday’s issue of the independent daily “O Pais”, confirmed that ENI was attempting to avoid its tax liabilities. A team of Mozambican specialists is now preparing a reply to the Italian company, in order to collect the capital gains tax owing.

Previous capital gains were taxed at the rate of 12.8 per cent – this is what the British firm Cove Energy paid when it sold its 8.5 per cent stake in the gas field in offshore Area 1 to the Thai state oil company PTT.

But the formula used for Cove Energy expired on 31 December 2012. The rate Mozambique now wishes to charge is 32 per cent. On the ENI sale that would net the Mozambican treasury 1.35 billion dollars (at the earlier rate, the sum collected would be 539 million dollars).

The justification for more than doubling the rate at which capital gains tax is charged is that it should discourage speculative investment, in which companies acquire assets with the intention, not of developing them, but of selling them off at a vast profit a few years later.

The deal with CNPC could still fall through, if ENI digs its heels in over the tax issue. For as ENI itself admitted in the press release announced the deal, “the completion of the transaction is subject to the fulfillment of certain standard conditions including obtaining all necessary authorizations from Mozambique’s authorities”.