Eni Seen Paying Mozambique $538 Million or More on Capital Gains

Eni SpA, the oil company that agreed to sell a stake in its Mozambique gas assets last month, is likely to pay the government $538 million to $1.4 billion in capital gains tax, according to analysts at Eurasia Group.

“The Mozambican government is likely to insist on some kind of capital gains on the transaction before giving its approval,” Eurasia said in an e-mailed note. Uncertainty surrounding the country’s tax code will probably allow for negotiation, the analysts said.

Eni plans to sell a 20 percent stake in the Area 4 block to China National Petroleum Corp. for $4.2 billion, allowing it to spread development and construction costs. An agreement on capital gains, subject to discussion after Mozambique altered tax laws last year, will be watched by other companies studying assets in the country including OAO Gazprom and Inpex Corp.

The African nation, site of the world’s largest gas discoveries in the past decade, has increased capital gains tax to 32 percent as it seeks to reap greater revenue from its natural resources. That compares with the 12.8 percent levied on PTT Exploration & Production Pcl’s June purchase of Cove Energy Plc, a rate that would translate into $538 million for Eni.

“The lower half of the range is more likely given the PTT/Cove precedent,” Mark Rosenberg, an analyst at Eurasia, said in an e-mail. “At the same time the government will want to demonstrate that it got a higher rate this time so as not to invite a rush of transactions and/or show a weak hand.”

Tax Talks

The government has declined to specify the tax rate it’s seeking on Eni’s sale. The levy is open to negotiation because President Armando Guebuza didn’t announce the 32 percent rate before the Jan. 1 deadline for 2013 laws, according to Eurasia.

The amendments “may be unconstitutional and thus have not been promulgated by President Guebuza,” Rosenberg said.

Eni should share some of its proceeds with the government, Energy Minister Salvador Namburete said when the CNPC deal was announced. Finance Minister Manuel Chang said in an interview last week that he wanted to see talks “taking an easy way, but unfortunately this is not what is happening now.”

Eni has discovered 75 trillion cubic feet of gas in Area 4’s offshore fields, more than Norway’s current reserves. No one at the Rome-based company was immediately available for comment today.

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