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In July 2017, the government of Tanzania passed a number of sweeping changes to the Mining Act of 2010 – the legal and regulatory framework that regulates the country’s natural resources.

Supporting regulations were also enacted in 2018 and later amended in 2019.

The changes enacted to regulations by the government of President John Magufuli have made the operating environment for mining companies more restrictive, denting investor sentiment in the country, CHANTELLE KOTZE writes.

This article first appeared in Mining Review Africa Issue 2, 2020

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The bad

The three new laws that were enacted in 2017, which significantly increased government control over the mining sector in Tanzania, include:

  • The Natural Wealth and Resources (Permanent Sovereignty) Act, 2017;
  • The Natural Wealth and Resources (Review and Renegotiation of Unconscionable Terms) Act, 2017; and
  • The Written Laws (Miscellaneous Amendments) Act, 2017.

These new laws provide the national assembly with sweeping powers to review and instruct renegotiation of previous arrangements or agreements concluded by the government.

Read: Claim to arbitration against Government of Tanzania continues

They also stipulate new requirements for state participation in all mining companies, including at least a 16% free-carried interest, which may be increased up to 50% to match the value of historical tax benefits granted to mining companies.

It also increases royalty rates – for gemstones and diamonds from 5% to 6%, for metallic minerals such as copper, gold, silver and platinum group minerals from 4% to 6%.

Moreover, the new laws have stripped foreign companies of the right to seek international arbitration in the event of a domestic legal dispute.

Furthermore, these regulatory changes (as well as further ones enacted in 2018 and then amended in 2019) have led to significant policy uncertainty in the country, which will hamper new investments and disrupt existing ones.

The ugly

According to Diego Oliva-Velez, commodities analyst at Fitch Solutions, the most evident example of regulatory uncertainty is the dispute that came to the fore in January 2020 between three mining companies and the government of Tanzania over repossessed retention licenses issued prior to 2018.

On 10 January 2018, the government published the Mining (Mineral Rights) Regulations, 2018 which under Regulation 21 cancelled all retention licenses issued prior to that date, which would cease to have any legal effect.

Read: Amani Gold secures gold dealer licence in Tanzania

As such, the retention licenses granted to TSXV-listed battery metals exploration and development company Montero Mining (Wigu Hill rare earth element project), ASX-listed resources company Indiana Resources (Ntaka Hill nickel sulphide project) and TSXV-listed junior gold explorer Winshear Gold Corp. (SMP gold project) prior to 2018 have now been revoked by the Tanzanian government. In response, these companies have initiated international arbitration procedures, Oliva-Velez notes.

In the short-term, the Tanzanian general election is expected to increase the country’s policy uncertainty over the coming months, likely stalling new investment decisions until after the vote takes place in October 2020.

Read: Tanzanian Government and Barrick bury the hatchet

Fitch Solutions’ Sub-Saharan Africa Country Risk team foresees risks of social unrest in the run up to the elections, especially if any further shift towards authoritarian behaviour takes place on behalf of the government, with opposition activists likely to draw more attention to the issue at such a time.

In the long-term, Oliva-Velez notes that the Tanzanian mining sector has significant potential as the country contains significant high-grade gold deposits that are yet to be exploited.

Read more about gold mining

Furthermore, a sustained recovery in global gold prices over the next few years should provide companies with an incentive to expand their operations or to launch new mining projects in the country. Nevertheless, in order for this potential to be unlocked, Oliva-Velez advises that the country’s investment environment be significantly improved.

The good

The most recent amendments to Tanzania’s mining sector include four key regulatory changes enacted in February 2019, all relating to the country’s Local Content Regulations.

The Local Content Regulations follow the amendments of the Mining Act, 2010 through the Written Laws (Miscellaneous Amendments) Act, 2017, which introduced the local content requirements.

Local content regulations now require that at least 20% of a mining company operating in Tanzania must be owned by Tanzanian citizens, down from 51% previously (as stipulated by the Mining Local Content Regulations introduced in 2018).

Other requirements for an entity to qualify as an indigenous Tanzanian company remain the same (the company must be incorporated in Tanzania, Tanzanian citizens must hold at least 80% of the company’s executive and senior management positions and 100% of its non-managerial and other positions).

With regards to the provision of financial services, a contractor, subcontractor, licensee or other allied entity is still required to retain only the services of a Tanzanian financial institution or organisation.

Further alterations to the Local Content Regulations have reduced the stringent financial services requirements for mining companies operating in the country.

Read more about mining in East Africa

While the original Local Content Regulations stipulated that mining companies or other companies involved in the sector could only open a bank account with an “indigenous” Tanzanian bank, in other words, with a bank that was majority owned by Tanzanians.

Under the amended regulations the word “indigenous” has been removed and stakeholders can now maintain bank accounts with Tanzanian banks that have a minimum of 20% Tanzanian shareholding.

Moreover, stakeholders in the Tanzanian mining industry must submit local content plans to the Mining Commission, which decides or approves the plans as per the recommendations of the Local Content Committee.

The amended regulations have extended the timeframes (to 60 days, compared with 25 previously) by which the Mining Commission and Local Content Committee acknowledge receipt of, review and communicate decisions on local content plans.

In summary

On the whole, the changes enacted over 2019 have been positive as they have made the country’s local content requirements less stringent, thus making it easier for foreign mining investors to operate in the country.

Despite the recent positive alterations to local content requirements, changes enacted to regulations in recent years have made the operating environment in the mining industry more restrictive with investor confidence in the country’s mining sector expected to remain bleak for the time being.