On 5th of July, 2017 the National Assembly of the United Republic of Tanzania (hereinafter referred to as “Tanzania”) passed three new Bills namely:
Special Bill Supplement - The Natural Wealth and Resources Contracts (Review and Re-Negotiation of Unconscionable Terms)Act,2017;
Special Bill Supplement – The Natural Wealth and Resources (Permanent Sovereignty) Act, 2017; and
Special Bill Supplement the Written Laws (Miscellaneous Amendments) Act, 2017
(together referred to as “the Bills”).
The Bills were tabled under a Certificate of Urgency and were aimed at ‘eliminating loopholes’ in the existing laws relating to natural wealth and resources. The Bills bestow natural wealth and resources to the people of Tanzania to be held in trust by the President of Tanzania. The Bills also aim to provide for the creation of suitable environment for all agreements that relate to natural wealth and resources in Tanzania.
Below is a summary of some of the pertinent sections of the Bills, which we think may have an impact on the management of natural wealth and resources in Tanzania.
Special Bill Supplement - The Natural Wealth and Resources Contracts (Review and Re-Negotiation of Unconscionable Terms) Act, 2017
The Review and Re-Negotiation of Unconscionable Terms honors Articles 9(c) and 27 of the Constitution of Tanzania which advocates for public affairs to be conducted in a manner that ensures natural wealth and resources are preserved and applied for the common good of the people of Tanzania, and that all natural wealth and resources of Tanzania are collectively owned by its people.
Section 4(1) of this Bill provides for the supreme and independent power of the Parliament to review agreements made by the Government of Tanzania (hereinafter referred to as the Government) in relation to natural wealth and resources.
Under section 3 of this Bill, an agreement is defined as any contract relating to the extraction, exploitation, acquisition, and use of natural wealth and resources.
The Government is given power to renegotiate terms of agreements that the National Assembly finds to be unconscionable. According to section 6(2) of this Bill, an agreement can be deemed unconscionable if contains any term that:
a) aims at restricting the right of the State to exercise full permanent sovereignty over its wealth, natural resources and economic activity;
b) restricts the Right of the State to exercise authority over foreign investment within the country and in accordance with the laws of Tanzania;
c) is inequitable and onerous to the state;
d) restricts periodic review of agreement which purports to last for life time the mining;
e) secures preferential treatment designed to create a separate legal regime to be applied discriminatorily for the benefit of a particular investor;
f) restricts the right of the State to regulate activities of transactional corporations within the country and to take measures to ensure that such activities comply with the laws of the land;
g) deprives the people of Tanzania of the economic benefits derived from subjecting natural wealth and resources to beneficiation in the country;
h) is by nature empowering transactional corporations to intervene in the internal affairs of Tanzania;
i) Subjects State to the jurisdiction of the foreign laws and reform;
j) expressly or implicitly undermines the effectiveness of State measures to protect the environment or the use of environment-friendly technology; or
k) aims at doing any other act the effect of which undermines or is injurious to welfare of the people or economic prosperity of Tanzania.
Section 6(3) of this Bill provides that, the Government shall serve the other party to an arrangement or agreement a notice stating the nature of the unconscionable terms and intention to expunge the terms from the arrangement or agreement if the re- negotiation is not concluded >strong>within a specified time.
Section 7(1) of this Bill provides that, where the Government has served notice of intention to re-negotiate the arrangement or agreement and the other party fails to agree to re-negotiate the unconscionable terms or no agreement is reached with regard to unconscionable such terms shall cease to have effect to the extent of unconscionable terms shall be treated as having being expunged.
These two provisions give the Government the power to expunge unconscionable terms of an arrangement or agreement upon failure of the re-negotiation between the parties within a specified time. This Bill does not specifically spell out how long the Government can negotiate for and how the specified timeline is agreed upon by the negotiating parties.
Furthermore, we are of the view that this provision essentially empowers the Government to expunge any term from an agreement or arrangement which is deemed unconscionable by Parliament and the other party to that agreement or arrangement has very little or no say on this matter as failure to agree results in that provision being expunged from the agreement.
According to section 2 of this Bill, the Review and Re- Negotiation of Unconscionable Terms, applies retrospectively. This means, it operates to the currently existing and future natural wealth and resources arrangements or agreements. These changes may have impact in the mining investment business considering that, the Government through Parliament, may call for review of those agreements whose terms may ‘seem’ to be unfair, regardless of the time that the particular agreement was concluded.
Special Bill Supplement – The Natural Wealth and Resources (Permanent Sovereignty) Act, 2017
The Natural Wealth and Resources (Permanent Sovereignty) as its name suggests, gives Tanzanians permanent sovereignty over all natural wealth and resources where the Government will have ownership and control on their behalf.
According to section 5 of this Bill, all natural resources in Tanzania are regarded as the property of the people of Tanzania and should not be removed in any way whatsoever. The natural resources are held in trust by the President on behalf of the people of Tanzania. The Government shall conduct all the activities relating to natural resources on behalf of the people of Tanzania.
Section 6(1) of this Bill makes it unlawful to make any arrangement or agreement for the extraction, exploitation or acquisition and use of natural wealth and resources except where interest of the people and of Tanzania are fully secured and approved by the National Assembly. Again, this is a blanket provision as the section does not clearly define what is deemed as the interest of the people of Tanzania and how these interests can be fully secured.
Section 7 of this Bill provides that, in any arrangement or agreement for the extraction, exploitation or acquisition and use of natural wealth and resources, there shall be guaranteed returns into the Tanzanian economy from the earnings accrued or derived from such extraction, exploitation or acquisition and use.
We interpret this section to mean that, the Government must get a return in any arrangement or agreement with regard to natural wealth and resources activities. However, the Bill does not specify what does the guarantee return mean? This then leaves a lot left for interpretation, for instance, is it financial returns such as taxes, royalty or dividends? Is it creation of employment to Tanzanians?
Section 9(1) of this Bill provides that any arrangement or agreement for the extraction, exploitation or acquisition and use of natural wealth and resources shall ensure that no raw resources shall be exported for beneficiation outside Tanzania. This section does not expound on what happens if there aren’t any beneficiation plants within Tanzania or the present beneficiation plants do not meet the demands of the market. However, this provision was put in place so as to encourage stakeholders to invest in the construction of beneficiation plants in Tanzania, with the Government already putting in place an announcement that it will support all parties wishing to invest in a beneficiation plant.
Section 10 of this Bill provides that, any arrangement or agreement for extraction, exploitation or acquisition and use of natural wealth and resources shall require that earnings from disposal or dealings be retained in the banks and financial institutions established in Tanzania.
It is unclear how broad the term earnings will be interpreted because it does not specifically identify what the term earnings mean. For instance, what happens if a mining company needs to make payments for loans procured from foreign banks? Will this scenario be allowed under the current legislative regime?
Section 11 of this Bill provides that, dispute arising from extraction, exploitation or acquisition and use of natural wealth and resources shall be adjudicated by judicial bodies or other organs established in Tanzania or in accordance with the laws of Tanzania.
This provision may impact direct investment in natural wealth and resources in Tanzania. Currently, Tanzania is a party to some international treaties, regional treaties, and Bilateral Investment Treaties (BITs), such as, the MultilateralInvestmentGuarantee Agency (MIGA),which give investors the right to refer investment disputes to international arbitration tribunals if any of their rights are violated. As of the date hereof, we are aware that two mining companies have already issued notices to the Government of their intention to institute arbitration proceedings as a result of the introduction of these sweeping changes.
Section 12 of this Bill empowers the Parliament to review all arrangements and agreements entailing extraction, exploitation or acquisition and use of natural wealth and resources
Special Bill Supplement the Written Laws (Miscellaneous Amendments) Act, 2017
This Bill amends various written laws namely, the Mining Act Cap. 123 (as amended), The Petroleum Act Cap. 392 (as amended), the Income Tax Act Cap. 332 (as amended), the Value Added Tax Act Cap. 148 and the Tax Administration Act Cap. 438 (both as amended).
Our focus on this article is on the amendments made to the Mining Act which assert ownership over all minerals, to the people of Tanzania in trust of the President.
The Bill proposes for the following amendments to the Mining Act:-
Asserting ownership and control over all minerals to the people of Tanzania; and to recognize Government lien over all minerals and other related products extracted from Mining Operations and activities in Tanzania
The Bill repeals section 5 of the Mining Act by asserting control and ownership of all minerals within the territory of Tanzania (onshore or offshore), to the President of Tanzania in trust of the people. It also gives the Government lien over any material, substance, product or associated products extracted from the mining operations or mineral processing.
Enabling the President of Tanzania to Declare Minerals Controlled Areas for Purposes of Enhancing Control and Security in All Mining Area
The Bill adds new sections to the Mining Act which empowers the President of Tanzania to declare mining controlled areas after consultation with the relevant local authorities through the Minister responsible for Local Government.
Declaration of State Participation in Mining Operations
The Bill provides that the Government shall have not less than sixteen (16) free carried interest shares in the capital of mining operations under Mining License (ML) or Special Mining License (SML). In addition to free carried interest shares, the Government shall be entitled to acquire in total, up to fifty (50) percent of the shares of the mining company commensurate with the total tax expenditures incurred by the Government in favor of the mining company.
This means that, the Government is entitled to not less than sixteen (16) non-dilutable free carried share interest. However, where the mining company enjoys any tax expenditure from the Government (we interpret this to mean tax relief), such expenditure shall be exchanged by the Government with shares up to fifty (50) percent.
This provision read together with Regulation 4(1) and 5(1) of the Mining (Minimum Shareholding and Public Offering) Regulations, 2016 which provides that the minimum local shareholding requirement of a holder of SML shall be thirty (30) percent of the total issued and paid up shares and this minimum threshold shall be achieved through a public listing of the holder’s shares in a Tanzanian stock market.
These provisions leave a lot of ambiguity, for instance, the requirement of non-dilutable shares specifies that the Government is entitled to not less than 16 shares and not a percentage. Furthermore, this provision does not specify the maximum number of shares to be held by Government, whereas the Government is entitled to ‘acquire’ up to 50% of the issued shares in the holder of a SML and ML. This means that the Government is entitled to acquire at least 50% of the issued shares of a holder of a ML.
Establishment of the Mining Commission
a)The Bill proposes for the establishment of a Mining Commission which will be a body corporate and whose functions are:-
b)to supervise and regulate the proper and effective carrying out of the provisions of the Mining Act;
c)to regulate and monitor the mining operations in Tanzania;
d)to ensure that all mining operations in Tanzania are in accordance with the mining policy and strategy.
e)to resolve disputes arising out of mining operations
f)to carry out inspections on health and safety issues related to mining operations;
g)to advise the Government and insure compliance with all applicable laws relating to health and safety of persons involved in mining operations;
h)to monitor environmental management;
i)to counteract minerals royalty evasion in collaboration with relevant government authorities;
j)to advise the Government on all matters relating to the administration of the mineral sector;
k)to promote and conduct research and development in mineral sector;
l)to suspend and revoke exploration and exploitation licenses;
m)to monitor and audit quality and quantity of minerals;
n)to assess value of minerals produced in Tanzania; and
o)to produce indicative prices of minerals with reference to prevailing local and international markets for the purpose of assessment and valuation of minerals and royalty.
p)The Bill further states that the word Commissioner be replaced by Commission in the Mining Act which means that the functions, duties and responsibilities of the Commissioner are now vested on the Commission.
Establishment of the National Gold and Gemstone Reserve
The Minister of Finance is empowered to establish the National Gold and Gemstone Reserve after consultation with the Mining Commission and the Governor of the Bank of Tanzania. The National Gold and Gemstone Reserve will be under the control of the Bank of Tanzania.
Establishment of the Government Minerals Warehouse
The Minister of Finance is empowered to establish the Government Minerals Warehouse after consultation with the Mining Commission and the Governor of the Bank of Tanzania. The Government Minerals Warehouse will be the central custodian for all metallic minerals and gemstones won by mineral rights holders in Tanzania.
Establishment of the Geological Survey of Tanzania and the National Mineral Resources Data Bank
The Geological Survey of Tanzania will be responsible for all matters related to geological activities. The Geological Survey will establish under it the National Mineral Resources Data Bank where mineral rights holders will submit their accurate geological maps and plans; geophysical records; and interpretations relating to the mineral right area. The mineral rights holder will not be allowed to export rock samples, fluid samples or any other data collected without written authorization of the Geological Survey of Tanzania.
Establishment of Mining Cadastre
The Mining Cadastre will receive and process applications for mining rights and mineral processing licenses; administer mining rights and mineral processing licenses; and maintain public cadastral maps and cadastre registers.
Government’s Control Over Removal of Raw Minerals and Mineral Concentrates
The Government is entitled to supervise the removal of raw mineral and keep them in the Government Minerals Warehouse. One needs to obtain authorization from the Government to remove raw minerals from the Warehouse.
Regarding mineral concentrates, they are supposed to be stored in a secured yard. As it is for raw minerals, mineral concentrates should not be transported without authorization from the Government.
Stabilization Clauses
Section 100 of this Bill provides that, in any negotiation for the provision of a stabilization regime in the extractive sector, it shall be prohibited to use stabilization arrangements that entail the freezing of the laws or contracting away the sovereignty of Tanzania. It further states that, any stabilization arrangement shall be specific and time bound and it shall be unlawful to conclude stabilization arrangement or agreement guaranteed to last for a lifetime of any mine and any stabilization arrangement involving tax expenditures by the Government shall provide for the quantification of the value of the tax expenditures and how the mining company recompense the Government for the foregone revenues.
Local Content, Corporate Social Responsibility and Integrity Pledge
A mineral rights holder is required; to give preference to the goods which are produced or available in Tanzania and services which are rendered by citizens of Tanzania or local companies in Tanzania; to train and employ Tanzanians in accordance with the local content plan; to establish knowledge transfer to Tanzanians and establish management and technical capabilities; have a credible corporate social responsibility plan; and to comply with the integrity pledge.
Environmental Principle and Liability
A mineral rights holder or any other person who performs functions under the Mining Act must comply with environmental principles and safeguard provisions of the Environmental Management Act and any other related laws. A mining right holder has a duty to ensure that management of production, transportation, storage, treatment and disposal of waste arising out on mining operations is carried out in accordance with environmental principles.
Our Conclusion
It is unclear what impact, if any, these legislative changes will have on the mineral sector in Tanzania but what is clear is that the changes have sparked a lot of debate on the Bills, their rationality and practicality in implementation. As stated, so far, there are two mining companies that have instituted arbitration proceedings against the Government, a few companies from Australia with mining tenements in Tanzania have ceased trading shares in their respective stock market and one mining company has ceased operations in Tanzania until it makes an assessment on whether or not to proceed with its activities in Tanzania.
Note: This is not a legal opinion and the contents hereof are not meant to be relied upon by any recipient unless our written consent is sought and explicitly obtained in writing.
