National interest trumps investor security: How Tanzania’s new legislation will restructure beneficiation from its mining and energy sectors

The first week of July saw heated debates between Tanzania’s members of Parliament as they discussed three contentious new bills that will have a significant effect on the revenue the country will gain from its natural wealth. The bills, which provide for natural resource sovereignty, will allow the government to renegotiate or cancel current contracts with mining and energy companies. The discussions ensued after Tanzanian President John Magufuli requested MP’s to debate and endorse the tabled bills under a Certificate of Urgency.[1] Heeding his instruction, the bills were approved within a few days.

The Bills: prioritising transparency and raising revenues

The Natural Wealth and Resources Contracts (Review-and renegotiation of Unconscious Terms) Bill[2] and the Natural Wealth and Resources (Permanent Sovereignty) Bill[3] have been under debate since 2010. The debate turns on the fact that, despite being Africa's fourth biggest gold producer, Tanzania was not fully benefiting from the rising price of gold. The government, therefore, decided in 2012 to aim for increasing the mining sector's contribution to the economy to 10% of GDP by 2025 from the 3.3% contribution noted in 2011. The Magufuli administration argues that mining companies have not been paying their requisite share of royalties and taxes. The legislative reforms approved in July will therefore work towards increasing revenues for government.

The Natural Wealth and Resources (Review and Re-negotiation of Unconscionable Terms) Bill empowers Parliament to review all agreements entered into by the government that concern natural resources, and to direct the government to renegotiate or rectify any ‘unconscionable terms’.[4] One of the mining companies particularly impacted by this Bill is Acacia Mining Plc, which has also been embroiled in a dispute with the Tanzanian government over export taxes. Acacia Mining claims to have been conducting business legally by paying all appropriate royalties and taxes. An audit of Acacia Mining’s activities and revenues, however, revealed that it had under-declared revenue to an amount of $100 billion since 1998. Despite Magufuli’s warning that companies seeking international arbitration will be banned from operating, Acacia served notices for arbitration in an attempt to negotiate a resolution after the accusations of tax evasion. In addition to the taxation disputes, Acacia now also faces the possibility of government renegotiating and altering the mining contracts that govern its operations in the country.

The Natural Wealth and Resources (Permanent Sovereignty) Bill provides Tanzanian citizens with permanent sovereignty over all natural wealth and resources, but ownership and control is to be exercised by the government on the citizens’ behalf. To ensure this, the Bill further provides that every agreement regarding the extraction, exploitation, acquisition or use of natural resources, shall guarantee earnings for the benefit of the Tanzanian economy. It also states that the authorization to perform extractive activities shall be granted to mining companies subject to the right of government to obtain an equity stake in such mining companies. Measures are also provided to afford Tanzanian citizens with the opportunity to acquire equity stakes in mining companies.

The responses:

Mining companies operating in Tanzania have not reacted favourably to the new legislative provisions that envision increased taxes, resource nationalisation, and the renegotiation of existing mining contracts. The new reforms discourage new and existing investments, with experts predicting that the government may lose up to 40% of revenues if mining companies leave the country. During consultations on the new bills in 2012, AngloGold has already warned that investors require a degree of certainty to commit to long-term investments, which certainty will be compromised should government become able to renegotiate existing mining contracts.

While the President was commended by some for fast tracking the legislative changes, others have challenged the use of Certificates of Urgency in this manner. Current frictions between government and companies can be ascribed to rushed decisions under Certificates of Urgency in the past. The endorsement of bills in 1997 that initiated the saga over the export of mined concentrates is an example of such a conflict that is still unresolved. The Tanzanian government implemented a ban on copper and gold concentrate exports in an effort to develop a domestic smelting industry. This decision caused Acacia Mining to lose one million U.S Dollars a day. By taking this decision, the government also acted contrary to studies suggesting that a local smelting industry would struggle to be competitive.

Is investor security dropping a notch on African legislators’ list of priorities?

The Tanzanian president’s stance that its citizens should benefit more from the country’s natural resource wealth is not a new theme on the continent. Only weeks before President Magufuli’s announcement, South Africa’s new Mining Charter was gazetted, containing requirements to be met by mining companies that are even more stringent than earlier versions. The Charter aspires to increase the flow of benefits from the exploitation of the country’s mineral wealth to South Africans.[5] In recent years West African mining law regimes have also been subjected to reform, with Cameroon, Mali, Guinea, Gabon, Burkina Faso and the DRC all undertaking legislative changes, amendments or review processes in an effort to boost local development and beneficiation through their mining industries.

Whether Tanzania’s new bills will stimulate the mining industry’s contribution to the GDP as intended, and whether this will come at the cost of foreign investment, are questions that await answers. Whatever the outcome, the overriding concern is whether the country’s already vulnerable citizens will in fact benefit from the country’s mineral wealth as the new legislation envisions, or whether they will be the ones who suffer the most after their hasty enactment.

Written by Laura-Anne Wilson