Tanzania’s newly overhauled extractive legislation

In July 2017, MLiA reported on the growing tension between the Tanzanian government and the mining industry, following a series of steps taken by President John Magufuli aimed at maximising the benefits of Tanzania’s natural resource wealth. The President’s campaign to tighten control of Tanzania’s extractive sector has since been significantly advanced with the enactment of three new laws. These are the Natural Wealth and Resources (Permanent Sovereignty) Act, 2017; the Natural Wealth and Resources Contracts (Review and Re-Negotiation of Unconscionable Terms) Act, 2017; and the Written Laws (Miscellaneous Amendments) Act, 2017. The impact of the new laws on investor confidence was discussed in a report published by MLiA in August. The current article discusses the most pertinent provisions of the new Acts.

The Permanent Sovereignty Act reaffirms that the people of Tanzania have permanent sovereignty over the country’s natural resources. The natural resources shall be held in trust by the President on behalf of the people and the concomitant control and ownership of this natural wealth shall be exercised by the government. The Act also provides for certain drastic changes to the extractive industry. For example, it expands the ban on the export of metallic mineral concentrates by providing that no raw resources may be exported from the country; beneficiation must take place locally. All earnings from the disposal of minerals must be retained in Tanzanian banks and financial institutions. The only exception to this limitation is where profits are repatriated. The Act furthermore provides that all extraction-related disputes must be adjudicated in accordance with Tanzanian law and by judicial bodies or organs established within Tanzania. No foreign courts or tribunals may adjudicate these matters. This has a significant impact on multinational companies who may prefer to use forums that are more neutral. Perhaps the most controversial aspect of the Permanent Sovereignty Act is the provision that all extraction agreements may be reviewed by the National Assembly.

This mandate is given further substance in the Natural Wealth and Resources Contracts (Review and Re-Negotiation of Unconscionable Terms) Act, 2017 (hereinafter “the Unconscionable Terms Act”). The Unconscionable Terms Act provides that the National Assembly may review any existing extraction agreement. The Act, therefore, applies retrospectively. Every new extraction agreement is furthermore subject to approval by the National Assembly. The National Assembly may direct the government to renegotiate any contract that is not in the best interest of Tanzanians or that contain “unconscionable” terms. The Act provides for a very wide interpretation by defining an “unconscionable term” as any provision that is contrary to good conscience or the best interests of Tanzanians. Such terms include restrictions on the State’s sovereignty regarding Tanzania’s mineral wealth, subjecting the State to foreign laws or international forums, limitations on reviews of agreements applicable to the duration of a mine’s lifetime, and restrictions on the State’s power to regulate transnational corporations’ activities within Tanzania. Upon renegotiation, should the government and the mining company fail to agree on terms that do not conflict with the provisions of the Act, the unconscionable terms shall be deemed expunged from the contract by operation of law.

The Written Laws (Miscellaneous Amendments) Act, 2017 amend certain sections of the Mining Act of 2010, the Petroleum Act of 2015 and various pieces of mining-related tax legislation. In terms of the amended Section 5 of the Mining Act, ownership of all minerals in situ vests in the President in trust for Tanzanians. The Section also provides for a government lien over any extracted material. The latter provision has significant implications for mining companies, who previously owned all minerals extracted in accordance with a mining licence, subject only to the payment of royalties.

The amended Mining Act contains extensive provisions regarding the storing of extracted minerals. Mining right holders are required to construct secure facilities to store extracted raw minerals. Access to the storage shall be restricted – access may only be procured by joint authorisation of the mining company’s appointed official, together with the Mines Resident Officer. Details of all entries to the facility must be recorded in a logbook. Extracted minerals may be stored on the mine site for a maximum period of five days. Thereafter, it must be transported under government supervision to the Government Minerals Warehouse (still be established) for refining and disposal, as permitted.

The Mining Act now also provides for at least sixteen percent government equity in all mining operations under a mining licence or special mining licence. Such equity cannot be diluted. In addition, the government is entitled to up to fifty percent of a mining company’s shares commensurate with the tax benefits enjoyed by the company.

The Mining Act contains additional provisions regarding economic growth, local content and corporate social responsibility. Mining companies are required to reinvest profits in the national economy. Furthermore, mining companies are limited to use only Tanzanian goods and services in their operations. Where the required goods and services are not available locally, the foreign supplier must enter into a joint-venture agreement with a local company. Mineral right holders are also required to recruit and train locals to be deployed in all phases of the mining operation.

All three Bills were tabled in the National Assembly on 29 June 2017, promptly passed by Parliament and assented to by President Magufuli. On 2 July, one day prior to the passing of the Bills by Parliament, the Tanzania Chamber of Mineral and Energy issued a statement. It protested against the lack of stakeholder consultation prior to the publication of the legislation, as well as the limited time reserved for consultation. While the general objective (maximising the benefits of Tanzania’s natural resource wealth) behind these new laws cannot be argued with, concerns were raised about declining investor confidence in reaction thereto. The content of these laws and the manner in which they have been passed are therefore threatening to widen the rift between the Tanzanian government and its mining industry.

Written by Louie van Schalkwyk.