By Aisha Ally Sinda, Senior Associate, Bowmans Tanzania.
After independence, the Government of Tanzania (the GoT) made various attempts to put in place the requisite policy and legal framework for growth of the economy. In 1967, the GoT opted for a socialist path of economic development through the Arusha Declaration on socialism and self-reliance.
The Mining Ordinance, which was a colonial law, was repealed in 1979 by the Mining Act No. 17 of 1979. The Mining Act No. 17 of 1979 promoted public enterprise and the State Mining Cooperation (STAMICO) controlled all the mines. From 1967 to the early 1990s, Tanzania’s mineral sector was under state control and the mining sector did not attract foreign investors.
In 1986, the GoT took steps to reform the mining sector as part of the structural adjustment programme (SAP) arising from the need for liberalization, with the objective of moving the country from control economy to one led by the private sector.
Pressure from Bretton Woods institutions over SAP and the need for liberalization, from the 1990s to 2000s. Over time Tanzania adapted major reforms in its investment policy including mining policy. Tanzania embarked upon an ambitious effort to conclude Mining Development Agreements (MDAs) with foreign investors and Bilateral Investment Treaties (BITs) with other countries in order to protect, promote and remove barriers to foreign investment inflows. For instance, the Bulyanhulu Gold Mine Limited MDA was signed on 5 August 1994 and the United Kingdom and Tanzania BIT was signed on 7 January 1994.
The GoT also undertook a mining sector review in 1990, which led to a Mining sector policy framework in 1994. The GoT passed its first Mining Policy in 1997. In 1998, the GoT also enacted the Mining Act 1998. The concept of MDAs was first formally introduced in the Mining Act 1998 and was further adapted by the Mining Act 2010. Most of these MDAs, were entered into before the Mining Act 1998 came into force in July 1999 and the GoT had not yet formally set out its development strategy for the sector. The effect was that today the GoT lacks capacity to regulate and monitor contracts effectively as well as revenue collection.
Based on information that is available, between 1994 and 2007, the GoT concluded six development agreements with various investors to engage in large scale mining by the end of 2007 as follows:
- Bulyanhulu Gold Mine in Kahama signed on 5 August 1994;
- Golden Pride in Nzega signed on 25 June 1997;
- Geita Gold Mine in Geita signed on 24 June 1999;
- North Mara Gold Mine in Tarime signed on 24 June 1999;
- Tulawaka in Biharamuro signed on 29 December 2003; and
- Buzwagi in Kahama signed on 17 February 2007.
The above-listed companies appear as original parties to the
Further, the Mining Act 1998 ensured that agreements between mineral rights holders and the government under the Mining Act of 1979, would remain effective. In the case of MDAs entered into before the Mining Act 2010 came into force, the contracts were similar, with only slight differences in some areas. The Mining Act 2010 also ensured that agreements between mineral rights holders and the government under the Mining Act 1998 remain in effect. I am not aware of any MDA’s signed under the Mining Act 2010.
The gap between the sector’s financial success and its uncertain benefit to citizens’ lives has made the national role of mining highly controversial. For over a decade, many Tanzanians have believed the sector unreasonably benefits foreign mining companies. This climate of doubt has only been increased by the fact that MDAs have been withheld from public scrutiny. This resulted in calls from the public, civil society organizations and opposition political parties among other stakeholders, for GoT to renegotiate MDAs.
As a result of public outcry and pressure groups, the GoT established various reforms through different committees such as 2002- Mboma report, 2004-Dr Jonas Kipokola report, 2006-Lau Masha report, 2007-Judge Mark Bomani report leading to the Mining Policy 2009 and the Mining Act 2010, and demand for further reforms continued, escalating after the reports by Professor Mruma and Professor Osoro’s reports in 2017.
In July 2017, the GoT decided to put in place a new regulatory framework for the mining sector. The following laws were passed: the Written Laws (Miscellaneous Amendments) Act 2017, the Natural Wealth and Resources (Permanent Sovereignty) Act 2017 and the Natural Wealth and Resources Contracts (Review and Re-Negotiation of Unconscionable Terms) Act 2017. The new regulatory framework entered into force in July 2017. This new framework also affected existing MDAs.
2. The MDA’s Legal Regime Before the 2017 Amendments
2.1 The Mining Act 2010
The Mining Act 2010 governs the mining industry in Tanzania. The Mining Act is supported by regulations such as Mining (Mineral Rights) Regulations 2010, which provides a standard model development agreement. Section 10 (1) of the Mining Act 2010 prior to the amendments by the Written Laws (Miscellaneous Amendments) Act 2017 allowed the Minister of Energy and Minerals to enter into an MDA with a holder of, or an applicant for, a mineral right.
Section 10(4) of the Mining Act 2010 provided important issues to be considered by potential investors in relation to large scale mining projects in a development agreement. These included:
- Fiscal stability during the whole period of the project according to the laws agreed rates of royalties, taxes, and levies;
- How the Minister or Commissioner can exercise any discretion conferred on them according to the law and its guidelines;
- Specification of the limits of the investor’s responsibility to protect/rehabilitate the environment;
- Settlement of disputes arising out of mining development agreements;
- Guarantee of procurement of goods and services available in Tanzania by the investor;
- Commitments to employment and training and succession plans for Tanzanian citizens; and
- Government free carried interests and state participation.
2.2 The Mining (Mineral Rights) Regulations, 2010
The Mining (Mineral Rights) Regulations, 2010 provided for standard MDAs. Apart from those matters dealt with in the Mining Act 2010, prior to the 2017 amendments, the standard MDAs provided that mining companies are allowed to:
- retain foreign proceeds of sales of minerals, enter into loan agreements outside Tanzania for the purpose of financing mining operations, open a bank account in any foreign currency and repatriate funds;
- grant any charge, loan assignment, pledge, debenture or mortgage; and
- export any minerals or associated products derived or extracted from the contract area and to sell such minerals and associated products to foreign purchasers.
3. New Legislations Affecting MDAs.
3.1 The Tanzania Extractive Industries (Transparency and Accountability) Act 2015
The Tanzania Extractive (Transparency and Accountability) Act 2015(TEI) amended Section 11 of the Mining Act on the validity of development Agreement. Section 11 of the Mining Act 2010 provided that the development agreement to be entered into under the Act shall be valid for the period of duration of the special mining license. TEI provided that MDAs entered into under the Mining Act, shall be valid for a maximum period of ten years and may be renewed on mutual agreement by the parties. Most MDAs that the GoT has already entered into with foreign investors have clauses that provide that the MDAs shall be valid for the duration of the special mining license.
3.2 The Written Laws (Miscellaneous Amendments) Act 2017
This new Act repealed previous provisions regulating MDAs and introduced the new basic requirement of a 16% non-dilutable, government free carried share interest in the capital of a mining company depending on the type of minerals and the level of investment. In addition, the government is now entitled to acquire, in total up to 50% of the shares of the mining company commensurate with the total tax expenditures incurred by the government in favour of the mining company. Further, although MDAs are no longer specifically provided for in the Act, the legislation still seems to contemplate “agreements or arrangements” relating to extraction, exploitation or acquisition and use of natural wealth and resources. This Act recognizes that existing MDAs remain in force subject to what follows.
The new Act further provides in relation to stabilization clauses that:
- Any negotiations for stabilization regime, freezing of laws or contracting out of national sovereignty prohibited;
- Any arrangement to be specific, time-bound and to provide for renegotiation from time-to-time;
- Any tax stabilization arrangement to quantify benefits and compensation to the government for foregone revenue; the government has the option to convert compensation into equity; and
- Any future stabilization clauses must not be for the life of the mine but have a time limit and be subject to periodic review based on the economic equilibrium principle
Most MDAs that the GoT has already entered into with foreign investors have clauses that provide for stabilization and give assurances of stability of the fiscal regime applicable to the investors at the time the agreement was made. However, the agreement must be registered by the Minister for Finance in the Register of Tax Agreements as per Section 143(2) of the Income Tax Act, 2004.
3.3 The Natural Wealth and Resources (Permanent Sovereignty) Act 2017
3.3.1 Dispute Resolution
The Act prohibits proceedings in foreign courts and tribunals. Judicial bodies or other bodies established in Tanzania and the application of Tanzanian laws shall be acknowledged and incorporated in any arrangement. Most if not all MDAs that the GoT has already entered to with foreign investors have clauses that provide for dispute settlement resolution mechanism outside the country. Foreign investors prefer a neutral forum for adjudication. Most MDAs provide for the laws of Tanzania (even in foreign arbitration), the venue now being proposed as Tanzanian Courts or Tribunals.
3.3.2 Retention of Earnings
The new Act provides that all earnings from disposal or dealings must be retained in local banks. This favours local banks. At the moment, foreign investors in the mining sector have provisions in the MDAs to have foreign bank accounts for deposit of their income acquired from export sales. This provision is also in the model MDA.
3.3.3 Review by the National Assembly
The new Act provides that all arrangements or agreements entailing extraction, exploitation or acquisition and use of natural wealth and resources may be reviewed by the National Assembly.
3.4 The Natural Wealth and Resources Contracts (Review and Re-Negotiation of Unconscionable Terms) Act 2017
The new laws allow the government to renegotiate provisions of existing MDAs based on them being unconscionable. “Unconscionable term” means any term which is contrary to good conscience and the enforceability of which jeopardizes the interests of Tanzanian citizens.
The Act makes comprehensive statutory provisions that require all arrangements or agreements on natural wealth and resources to be tabled for review by the National Assembly for purposes of ensuring that any unconscionable terms are rectified or expunged.
Where the National Assembly considers any agreement made before the Act came into effect, or any terms therein, to be unconscionable, it may through a resolution advise the GoT to renegotiate that agreement. The
GoT must, within 30 days, notify the mineral right holder of the intention to renegotiate. An extensive list of terms are deemed to be unconscionable, including those that:
- restrict government authority over foreign investment;
- are inequitable to and onerous on the State;
- secure preferential treatment of or create a separate legal regime to be applied to the investor;
- deprive Tanzanian citizens of economic benefits arising from beneficiation in Tanzania; and
- subject the state to the laws of foreign jurisdictions.
Unless extended by agreement, the period for renegotiation is 90 days. Where no agreement is reached, the relevant terms will “…cease to have effect and shall, by operation of the Act, be treated as having been expunged…” In an assessment of the stability of the sector in Tanzania, at the time of this article, we are not aware of the GoT having exercised the powers conferred on it through this legislation in many instances.
In conclusion, the new mining laws are aimed at safeguarding the nation against international exploitation of its mineral resources. These amendments have resulted in the GoT being entitled to own a stake to the mining projects operating in the country, as well as expansive powers to renegotiate existing mining contracts. On the other hand, the new laws have also drastically changed the investment climate in the country especially on how Tanzania is viewed by extractive companies.