Tanzania has enacted three pieces of legislation that introduce sweeping changes to the legal and regulatory regime governing the natural resources extractive industry.
The new laws are the Natural Wealth and Resources Contracts (Review and Re-Negotiation of Unconscionable Terms) Bill, 2017; the Natural Wealth and Resources (Permanent Sovereignty) Bill, 2017 (the “Permanent Sovereignty Bill”) (awaiting assent by the President); and the Written Laws (Miscellaneous Amendments) Act, 2017. The latter extensively amends the Mining Act, 2010 and, to a limited extent, the Petroleum Act, 2015.
The Permanent Sovereignty Bill reasserts that control and ownership of natural wealth shall be exercised by the people of Tanzania through the government and held in trust by the President on behalf of the people. Unlike the old regime, the Bill extends state ownership to production arising from extraction of natural wealth resources. It further provides for:
- abolishing the export of raw minerals for beneficiation outside the country;
- abolishing the retention of mineral earnings in banks outside the country;
- prohibiting proceedings in respect of national wealth and resources in foreign courts or tribunals; and
- the review of new and existing agreements by the National Assembly, subsequent to which the government may be ordered to renegotiate terms deemed unconscionable.
The laws will affect licence tenure in view of the provision empowering the Executive to declare certain areas that are the subject of mining operations “controlled areas” without excluding areas that are the subject of granted mining licences. This issue may be clarified in the regulations, which the law requires the Minister to introduce to operationalise the process pursuant to which such declaration may be made.
The government will have at least 16% equity in all mining operations under a mining licence or a special mining licence, and such equity cannot be diluted. The government is further entitled to up to 50% equity of the shares of a mining company in proportion to tax benefits enjoyed by the company. The law provides that such a tax benefit, defined as “tax expenditures”, will be the quantified value of tax incentives granted to a mining company by the government. The law makes no reference to the mandatory listing requirements for mining companies, which must list 30% of their equity on the Dar es Salaam Stock Exchange. Further clarification will likely be provided in the regulations that will be made by the Minister of Energy and Minerals.
While existing agreements such as mining development agreements (“MDAs”) and petroleum sharing agreements (“PSAs”) have been preserved, they are nevertheless subject to review by the National Assembly. All new agreements must be approved by the Cabinet and the National Assembly, which may direct the government to renegotiate them should they be deemed to contain unconscionable terms.
Disputes must be settled pursuant to Tanzanian laws and in Tanzanian courts or judicial bodies. There will be no reference to international arbitral processes. Existing agreements that contain provisions allowing international arbitration may be of no effect, because the law regards such provisions to be unconscionable terms. If the National Assembly requires the government to renegotiate an existing agreement containing unconscionable terms, the government will be obliged to initiate negotiations within one month. Should the mining company and the government fail to reach agreement within 90 days, the law provides that the terms will be expunged. This will affect all existing MDAs and PSAs, taking away guaranteed access to international arbitration.
All proceeds from mineral sales must be maintained in local banks. Under the old regime, mining companies could, subject to Bank of Tanzania’s approval, maintain funds in foreign banks to service foreign loans.
Export of raw minerals and concentrates are now banned. Similarly, all won minerals may be held at the mine site for five days only and thereafter must be sent to government minerals warehouses (to be established in due course). Gem and mineral clearing houses for auction and exchange will also be established.
There is an increase in royalties for uranium from 5% to 6%, and gold from 4% to 6%, while the rate for other minerals (building and industrial) remains at 3%. There is an additional 1% clearing fee on all minerals exported with effect from 1 July 2017, which was introduced by the Finance Act, 2017.
More stringent local content requirements, obligatory corporate social responsibility, commitment by mining companies to reinvest profits in the national economy, engaging and training local staff, and planning and reporting requirements to monitor compliance are enshrined in the law.
Stabilisation provisions lasting the life of a mine are prohibited and, where permitted, there must be provision for periodic review and renegotiation. The value of any tax exemption under such agreements must be quantified and provision must be made for the government to take shares in the company commensurate to the tax benefit enjoyed. The freezing of applicable laws (stability clauses) is prohibited, as this is deemed as taking away the government’s sovereign powers to legislate. Nevertheless, the government has said that mine development will now be made pursuant to mining licences alone and there will not be new agreements. It is unclear if this will apply to petroleum licences as well.
The transfer of interest in mining companies of licences is restricted to the extent that consent to transfer will be granted only if there is evidence of substantial development by the transferor. A repealed consent provision has stated that consent would not be unreasonably withheld.
The government also announced on 4 July that the issuance and processing of licences have been suspended until a full evaluation is undertaken. We will continue to monitor this matter and update our clients accordingly.