TANZANIA’S NATURAL RESOURCES SECTOR LEGISLATIVE REFORMS – ATTENTION TO INVESTORS IN EXTRACTIVE INDUSTRIES.
In July, 2017, the Parliament of Tanzania made comprehensive statutory provisions with a view to enhancing the country’s overall control and power over all natural wealth and resources and ensuring that such resources are used for the greatest benefit and welfare of the “People” of Tanzania. Pursuant to such ends, the Parliament of Tanzania passed three new laws affecting the natural resources sector, namely:
- 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 KEY CHANGES INTRODUCED
The Natural Wealth and Resources (Permanent Sovereignty) Act, 2017
The Act proclaims the permanent sovereignty of Tanzania and its “People” over all natural wealth and resources and inalienability of such resources from the ownership of the “People” of Tanzania. As a result, the law requires every arrangement or agreement for extraction, exploitation or acquisition and use of any of such resources to:-
- secure the interests of the People;
- guarantee returns into the Tanzania economy;
- ensure no raw resources shall be exported for beneficiation outside of Tanzania;
- require earnings to be retained in banks and financial institutions of Tanzania; and
- be reviewed by National Assembly.
The Act further prohibits adjudication of disputes relating to natural resources by “any foreign court or tribunal”, and consequently requires that all disputes arising from extraction, exploitation or acquisition and use of natural wealth and resources shall be adjudicated by “judicial bodies or other organs established in the United Republic and in accordance with laws of Tanzania.
The Natural Wealth and Resources Contracts (Review and Re-Negotiation of Unconscionable Terms) Act, 2017
The Act empowers the National Assembly to:-
- review any natural resources contracts made by the Government; and
- the act direct the Government to re-negotiate natural resources contracts (including minerals and oil and gas) that contain “unconscionable terms”, including those entered into before the amendments came into force if such contracts are found by the National Assembly to contain unconscionable terms. The law further provides that any “unconscionable terms” will be automatically deleted if the other party fails to agree to re-negotiate or no agreement is reached.
The Written Laws (Miscellaneous Amendments) Act, 2017
The Written Laws (Miscellaneous Amendments) Act, 2017 substantially amends, among others, the Mining Act, 2010 (Act No. 14 of 2010) and the Petroleum Act, 2015 (Act No. 21 of 2015). The law, as amended, requires that:-
- the Tanzanian Government shall have a non-dilutable free carried interest of no less than 16% in the capital of mining companies which have mining operations under a mining licence or special mining licence in Tanzania;
- the right for the Tanzanian Government to acquire up to 50% of any mining asset commensurate with the value of tax benefits provided to the owner of that asset;
- as well as an increase in revenue royalties from 4% to 6% on gold, copper, silver and platinum exports, and from 4% to 5% on uranium exports.
The law further abolishes the Mining Advisory Board and replaces it with a more powerful Mining Commission that shall be a body corporate, capable of suing and being sued and who shall be the advisor to the Government on mining matters. This Mining Commission shall also examine annual reports of mining companies, have powers to suspend and revoke licences and permits, audit quality and quantity of minerals produced and exported, as well as audit capital investment and operating expenditure.
THE LEGAL IMPLICATIONS
These changes are of high importance for companies with investments or plan to invest in Tanzania’s natural resources sector because the new laws heighten the government’s role and power in investment contracts, they are designed to increase the government revenue and thus likely to increase the costs of foreign investment in Tanzania, and block international arbitration. The changes obviously enact the principle of the country’s permanent sovereignty over natural resources. The changes are a call for fair and equal treatment between parties. More importantly, the new laws enact an implied term in every natural resources contract that negotiations are concluded in good faith and fairly and, at all times, observe the interests of the People and the United Republic of Tanzania.
- Investors considering investment opportunities in Tanzanian natural resources should contemplate structuring their investments in strict compliance with the principles enshrined in the new laws, that is, the permanent sovereignty principle and fairness and equitable treatment between parties.
- Companies with investments in Tanzania should review their contracts with the Government and re-negotiate the unconscionable terms as a means to avoid unnecessary and unhealthy frictions.
- Companies considering investment opportunities in Tanzanian natural resources should be prepared to act in good faith in all dealings in natural resources.
- Investors in Tanzanian natural resources need to observe all compliance requirements without fail whatsoever if they are to avoid unnecessary friction with the government and the citizens surrounding the sites of such investors’ investment projects.
- Investors intending to invest in Tanzania should contemplate structuring their investments to take advantage of the existing local investment protections and other bilateral and multilateral treaty investment protections in absence of international arbitration.