Legal Alert | Tanzania | Sweeping Changes to Tanzania’s Natural Wealth & Resources Landscape Expected to Significantly Impact Business in Tanzania - Africa Legal Network

Legal Alert | Tanzania | Sweeping Changes to Tanzania’s Natural Wealth & Resources Landscape Expected to Significantly Impact Business in Tanzania

 

Background

Two new Acts of Parliament have been swiftly approved by the National Assembly and will shortly come into force on a date to be appointed in the Government Gazette, namely:

  1. the Natural Wealth and Resources (Permanent Sovereignty) Bill 2017 (the “Permanent Sovereignty Act”); and
  2. the Natural Wealth and Resources Contracts (Review and Re-Negotiation of Unconscionable Terms) Bill 2017 (the “Unconscionable Terms Act”).

As the final approved texts are not yet publically available, this Alert assumes that the Acts are identical to the Bills presented to the National Assembly on first reading on 29 June 2017.

These new Acts apply generally to Tanzanian “natural wealth and resources”,  including any type of materials or substances occurring in nature, living and non-living resources which can be extracted, exploited or acquired and used for  economic gain (whether processed or not).  This is wide enough to apply to various industries and activities, including the electricity, oil and gas, minerals mining, fishing and agriculture, horticulture and other natural resources industries, dealing with both raw natural resources and goods resulting from the processing of natural resources.

The Unconscionable Terms Act

This Act enables the National Assembly to require the Government to renegotiate terms in Government contracts relating to extraction, exploitation or acquisition and use of “natural wealth and resources”, where such terms are found (in the opinion of the National Assembly) to be “unconscionable”. After a 90 day period of renegotiation with the contract-counterparty/ies, if no agreement is reached between the parties, the “unconscionable” terms are automatically unilaterally deleted from the relevant Government contract. This can apply retrospectively to contracts made before the coming-into-force of the Act, as well as to new contracts.

The test for whether a term is “unconscionable” is very wide, and certain terms will be automatically deemed “unconscionable, including terms which investors in proposed multi-million dollar projects are likely to insist on in order to commit to investing in Tanzania.

As the Unconscionable Terms Act resulted from the findings of two recent Presidential Committees, following which the President had urged the National Assembly to urgently consider current mining contracts, it is highly likely that the process of “renegotiating” historic contracts will begin soon.

The Permanent Sovereignty Act

In contrast, the Permanent Sovereignty Act applies to (amongst other things) contracts relating to “natural wealth and resources”, without limiting these to “Government” contracts. If this is intentional, it suggests that this Act could be applied to private contracts affecting “natural wealth and resources”.

The Act enumerates various principles under the overarching statement that the Tanzanian People have permanent sovereignty over all of Tanzania’s “natural wealth and resources” – which the Act states is the inalienable permanent property of the People, held in trust by the President and for which all exploration activities must be conducted by the Government on behalf of the People. This inalienability means that, even after minerals are processed and exported, they will effectively belong to Tanzania.

This goes beyond the original Mining Act 2010 which stated that ownership and control over minerals on, in or under Tanzanian land vested in Tanzania, but gave licence holders effective ownership and control of minerals once royalties were paid, and under which “minerals” once processed generally escaped the Mining Act’s ambit. The principles in the Permanent Sovereignty Act will result in significant amendments to the Mining Act 2010, and limited amendments to the Petroleum Act 2015, and are likely to bring amendments to other regimes also.

Key changes under the Act in relation to extraction, exploitation, acquisition and use of “natural wealth and resources” include that:

  • licences and other authorisations must give the Government an equitable stake, and Tanzanian citizens may also acquire stakes;
  • disputes may only be adjudicated in Tanzania and in accordance with Tanzanian laws, and not before foreign bodies or under foreign laws;
  • contracts must require that earnings from disposals or dealings be retained in banks and financial institutions in Tanzania and it is illegal to keep such earnings in banks or financial institutions abroad except where distributed profits are repatriated to shareholders; and
  • contracts must ensure that no raw (unprocessed) resources are exported for beneficiation (processing) outside Tanzania, and must commit to establishing beneficiation facilities within Tanzania; and
  • there must be guaranteed returns to the Tanzanian economy from the earnings accrued or derived from such activities.

Expected Regulations

Regulations under the Permanent Sovereignty Act are expected, and likely to set out a code of conduct for investors and minimum guidelines for inspection and evaluation of investments in natural wealth and resources.

Regulations and standing orders are also expected for the Unconscionable Terms Act.

Other Developments

A third Act of Parliament, the Miscellaneous Amendments Act (No. 2) of 2017, was passed at the same time as, and builds on the principles from, the above-mentioned new Acts, and makes major changes to the Tanzanian Mining Act, as well as changes to the Petroleum Act, Insurance Act and taxes acts. These changes are highlighted in separate Alerts by ATZ Law Chambers.

There are reported to be various stakeholders lobbying the Government over the new Acts, and potential challenges mounted via international arbitration under existing investor contracts. It also remains to be seen whether the retrospective effects of the new Acts will survive constitutional challenge. The natural resources industries in Tanzania waits with baited breath.

If you have any questions regarding this legal alert or require more information on the impact of these new laws, please contact Sonal Sejpal or  Shamiza Ratansi

ATZ will also be hosting a seminar on the above this month.  For inquires on the seminar, please email Events at EventsTeam@africalegalnetwork.com.

For more information about ATZ Law Chambers, please visit our website.

Sonal Sejpal
Director
ss@africalegalnetwork.com
 
Shamiza Ratansi
Managing Partner
snr@tz.africalegalnetwork.com

The content of this alert is intended to be of general use only and should not be relied upon without seeking specific legal advice on any matter.

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