UPDATE 1-Bumper gas prospect Mozambique sets 32% gains tax from 2014 | Reuters

(Adds detail, analyst, graphic)By Manuel MucariMAPUTO Aug 29 Sales by foreign companies ofassets in Mozambique will be taxed at a fixed rate of 32 percentfrom next year, a tax official said, as the government tries toextract more benefits from its huge gas discoveries.Civil society groups and the opposition have criticised bigtax breaks that were granted to foreign firms as the southernAfrican nation struggled to attract investment in the yearsfollowing a bloody civil war which ended in 1992.Mozambique is now a key prospect for the export of liquefiednatural gas because of the size of recent discoveries, itslocation en route to Asia and its appeal to buyers trying todiversify away from big suppliers Qatar and Australia.Up to now, the sale of local assets belonging to foreigncompanies in Mozambique had been taxed on a progressivelydeclining basis, depending on the length of time they were held.This is why Cove Energy paid a rate of only 12.8 percentwhen it sold out to Thailand's PTT Exploration and Production in 2012.Mozambique's parliament passed an amendment to the taxregime last year, stipulating that sales of assets held bynon-resident firms would be taxed at 32 percent withoutconsideration for the period they were held.But the new law was put on hold, pending a review by thepresident of the southeast African state."The constitutional issues that delayed the passing of thetax law have been overcome and the president has promulgated thelaw," Rosario Fernandes, head of the tax authority, told Reuterslate on Wednesday."Come Jan. 1, capital gains in all mega-projects, includingoil and gas, will be taxed according to the new legislation."The fixed-rate tax will affect any future gas field deals inMozambique's attractive Rovuma basin and could spur companieswith agreements on the table to try get them wrapped up by theend of the year.Italian oil and gas company Eni agreed this monthto pay the former Portuguese colony $400 million in taxes on its$4.2 billion sale of a gas field stake to China's CNPC.Eni also pledged to build a power plant, which Fernandessaid is worth another $130 million.If the new tax rule had been applied, Eni's tax bill on thedeal would have been as high as $1.35 billion, analysts said.They said Mozambique was receptive to approving the Eni dealunder the existing, more flexible tax rule given Eni's financialstrength and ability to get capital-intensive LNG plants off theground. The government also has a close relationship with China,which has invested a lot in infrastructure in Mozambique.India's Oil and Natural Gas Corp (ONGC) said thisweek it had agreed to buy 10 percent of a gas block fromAnadarko Petroleum Corp for $2.64 billion."Anadarko is relatively well-placed to negotiate an approvalbefore year-end 2013, thereby securing a lower tax bill," MarkRosenberg, an analyst at Eurasia Group, said in a note."Like Eni, Anadarko is critical to developing the Mozambicangas industry: it is the lead operator of the Area 1 block and isjointly leading construction of a large LNG plant at Palma withEni," Rosenberg added. "Still, a pre-2014 approval is far fromcertain."Approval on other outstanding deals may also slip into 2014.In June, ONGC and state-run Oil India Ltd agreedto buy a 10 percent stake in a gas field from Videocon Group for $2.48 billion, while Norway's Statoil isselling 25 percent of its licence to Japan's INPEX.Mozambique has become an attractive gas investmentdestination, with current estimates for its reserves at 150trillion cubic feet - enough to supply Germany, Britain, Franceand Italy for 15 years - but sporadic raids by former rebelsthis year have raised fears the country could slip back intoconflict.In neighbouring Tanzania, which also boasts attractive gasdiscoveries, albeit of smaller size, capital gains are taxed ata rate of 10 and 20 percent for residents and foreignshareholders, respectively.(Additional reporting by Fumbuka Ng'wanakilala in Dar esSalaam; writing by Agnieszka Flak; editing by Pascal Fletcherand Tom Pfeiffer)