In 2017 significant changes were introduced by the Government of the United Republic of Tanzania (hereinafter referred to as “the Government”) in the mining sector. One of the key changes which were introduced was the free carried interest shares to be issued to the Government in companies which either hold Mining Licences and Special Mining Licences. This article seeks to highlight the operational aspects of the free carried interests shares and the right to participate in the mining operations of these companies by the Government. This specific introduction is found in section 4 (1) of the Mining Act, Chapter 123, Revised Edition of 2019 of the laws of Tanzania (hereinafter referred to as “the Act”).
FREE CARRIED INTEREST SHARES
Since the introduction of the free carried interest shares under section 4(1) of the Act, stakeholders in the mining sector, which include holders of Mining Licences and Special Mining Licences, shareholders of such companies, potential investors of these companies as well as financiers, have been eagerly waiting for the methodology determining how this provision would be implemented by the Government. This wait came to an end on 30thOctober, 2020 when the Government introduced the Mining (State Participation) Regulations of2020 (hereinafter referred to as “the Regulations”) vide Government Notice Number 939 of 2020.
Regulation 5 (1) of the Regulations provides that the Treasury Registrar shall acquire, on behalf of the Government, not less than sixteen percent (16%) non-dilutable free carried interest shares in the capital of a mining company (a company incorporated under the Companies Act No. 12 of 2002, Chapter 212, Revised Edition of 2019 of the laws of Tanzania) and any other person holding a Mining Licence or Special Mining Licence.
Further, Regulation 5 (2) of the Regulations provides that, the Treasury Registrar on behalf of the Government, may also acquire, in total, up to fifty percent (50%) of the shares in a mining company and any other person holding a Mining Licence or Special Mining Licence commensurate with the total tax expenditure incurred by the Government in favour of a mining company or a person holding Mining Licence or Special Mining Licence. It is important to state at this point that the term ‘mining company’ has been defined under the Regulations to mean a company holding a Mining Licence or Special Mining Licence issued under the Act.
Regulation 5(4) of the Regulations provides that in every two (2) years after the commencement of the Regulations the Government shall review the tax expenditure enjoyed by a mining company or a person holding Mining Licence or Special Mining Licence in determining the number of shares to be acquired by the Government. Under Regulation 4(5) of the Regulations, computation of Government shares shall base on an amount of tax expenditure enjoyed by that mining company up to the date of computation divide by the market value of shares at the date of computation.
MODE OF PAYMENT OF INTEREST ON SHARES OF THE GOVERNMENT
According to Regulation 9 (1) and (2) of the Regulations, the Treasury Registrar shall determine the mode of payment of profit resulting from non-dilutable free carried interest shares or other additional shares to the Government and, in doing so, the Treasury Registrar shall notify in writing the mining companies or any other person holding Mining Licence or Special Mining Licence on the procedures of payment of profit resulting from non-dilutable free carried interest or other additional shares to the Government.
LEGAL IMPLICATIONS ON FREE CARRIED INTEREST SHARES
The Government by holding sixteen percent (16%) or more of non – dilutable free carried interest shares in the capital of a mining company or any other person holding a Mining Licence or Special Mining Licence shall enjoy the following additional rights:-
On the other hand, Regulation 11(1),(a),(b) of the Regulations gives the Government respite from any obligation to subscribe to shares neither to show readiness or commitment to take up shares or stock by actually subscribing to the Memorandum and Articles of Association nor contribute to any equity capital, repayment of shareholder loan(s) or third-party loan.
The free carried interest shares to the Government shall be allotted or issued to it as part of state participation in the mining operations of these companies. The free carried interest shares to the Government shall be deemed to be fully paid up shares at the time of its allotment or issuance. According to Regulation 13 (1), (2), (3) of the Regulations, the Government shall be allotted or issued the free carried interest shares as part of the state’s participation in that particular company’s mining operations and such shares shall be deemed as fully paid up at the time of its issuance of allotment and shall remain so throughout the lifetime of the mineral right held by that particular mining company.
Furthermore, according to Regulation 14 (1) of the Regulations, the Minister responsible for Mining Affairs, in consultation with the Minister responsible for Finance, may issue specific or general directives to the Treasury Registrar or any mining company on proper administration of the Government’s shares in the mining company or a person holding mining licence or special mining licence. This then has the potential of allowing the Government, to either extend or reduce the implications and application of the Regulations to mining companies or a person holding a Mining Licence or Special Mining Licence.
By Said Nassor Salum- Advocate
Shabnam Nabeel Satchu- Lawyer
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.
