Fresh twist in mining sector
By Guardian on sunday team
2nd May 2010
Just days after Parliament passed the 2010 Mining Act, the Tanzania Chamber of Minerals and Energy is pushing to amend the Act before President Kikwete signs it into law, The Guardian on Sunday has learnt.
Tanzania one of Africas rich countries in terms of mineral reserves finally passed the much-awaited Mining Act, amid stiff opposition from investors and activists, paving the way for what President Kikwete called a win-win situation.
While the activists cried foul that the Bill was hurried to be tabled before the Parliament last week, without giving Tanzanians enough time to debate it thoroughly, some foreign investors see the new law as anti-growth that will kill the $3billion industry.
However, to the government, the just passed 2010 Mining Act is what millions of Tanzanians have been gunning for during the past decade.
But, the Chamber says the Act creates imbalances, uncertainty and instability for current and prospective investors. In a statement this week, the Chambers members said, if it is not amended, the Act will seriously damage the countrys image and could negatively affect foreign direct investment in the future.
The Chamber an umbrella organization for investors in the multibillion-dollar mining industry says the Act is a worrisome step backward to the days of state control over production, but the bill has otherwise been lauded as a long overdue revision of the 1998 law that allowed multinational firms to profit from the countrys rich natural resources without paying appropriate royalties.
The bill was tabled before Parliament last week, putting it on track to be signed into law before the countrys general election in October.
The Chamber is mainly irked by Section 10 of the Act, which gives the Minister of Energy and Minerals powers to have free-carried shares in any new mining project signing the Mineral Development Agreement (MDA).
Part of Section 10 reads, The Minister may, by regulations, prescribe the level of Government free-carried interest and public equity participation in any mining operations under a special mining license depending on the type of minerals and level of investment requirements.
Members of the Chamber are concerned that because the Act does not explicitly state the number of shares that the government may freely acquire, prospective investors may hesitate to invest in the country.
Apart from free-carried shares, this section also dictates strong public equity participation in mining as well as giving the government an option to finance any mining operation under a special mining licence.
Minister for Energy and Minerals William Ngeleja said the Act is aimed at shifting the ownership of mining firms from foreign investors and increasing local participation.
The minerals are godly given gifts to Tanzanians they should therefore participate not as spectators but as players and this is what the clause is aiming at, Ngeleja said.
We had a situation previously where foreign investors enjoyed 100 percent ownership while the locals got nothing, he said. The government will retain free-carried shares and then sell them to locals. We shall be very reasonable in deciding how many shares the government should retain we are not aiming to nationalise anything, but to give locals active participation.
Another contentious issue is the new clause that bars the minister from issuing mining licences to any foreign project below $100 million.
The Chambers concern is that this clause may discourage potential investors who want to invest in medium-scale mining projects before moving into larger-scale projects, but Ngeleja said it is meant to block petty foreign investors whose main intention is to enjoy incentives issued by the government.
At the public hearing in Dodoma last week, Bariadi MP Andrew John Chenge who drafted the 1998 Act when he was Attorney General argued that for the size of the country it would be unfair not to licence investments below $100million, but he was unsuccessful in persuading fellow MPs.
Foreign investors also point out at an unpredictable fiscal regime, which may deny the country potential investors in the minerals sector. Fiscal regime is vital in deciding whether to invest in a country or not especially for the multinationals.
Distorted as it is, the new Act only deals with half of the story, while leaving considerations for fiscal and regulatory regime, to further speculations and uncertainties, and therefore further eroding investors confidence in making long term investment decisions, a statement by the Chamber reads.
A perfectly timed Act?
Politically, the new Act will be a big boost for President Kikwete in his bid for re-election in October, particularly after top members of his party have criticized his regime for failing to take serious measures to tackle grand corruption.
One of the cornerstones of Kikwetes 2005 campaign was mining industry reform, which he described at the time as a win-win endeavour.
He finally made good on his campaign promise in October 2007 when he surprised even his own party by forming a Presidential Mining Review Committee that included a member of the opposition party, Zitto Kabwe.
The new Mining Act, which is a product of the Mineral Policy of 2008, has taken into consideration the recommendations of Judge Mark Bomanis committee, as well as the Kipokola Commission, Lawrence Mashas fiscal regime study and a comparative study of mining policies in Botswana, Namibia, Ghana, Angola, Canada and Australia.
The law seeks to formalise small-scale mining by ensuring that all small-scale miners are recognised and protected by the law.
Kikwete also promised to ensure that the tax structure is reformed in order to give Tanzania a fair chunk of revenues from minerals exports, a $1.2billion-a-year business.
In the new law, royalty calculations will be based on a gross value system instead of the current netback valuea move expected to double royalties. Royalties in gold will be adjusted to 4 percent of the gross value earning posted by any large-scale mine, up from 3 percent previously calculated based on netback value.
For tanzanite, diamond and uranium, the new royalties rate will be 5 percent, also up from 3 percent previously, while all other minerals will be taxed 3 percent.
According to the proposed Act, large-scale gemstone mining will be done in a 50/50 joint venture between local and foreign investors, and the export of rough or unprocessed gemstones will be banned altogether.
This portion of the Act is meant to keep more jobs in the processing of gemstones, particularly tanzanite, in the country. Currently, tanzanite is typically mined in Tanzania, where about 400 people work in the industry, but is then sent for processing in India, where the tanzanite industry alone employs more than 20,000 people.
The new Mining Act will impose three conditions on all transfers of mineral rights from one party to another. Local transfers will incur a 1 percent fee, and overseas deals will face a 2 percent transfer fee. All companies transferring ownership will have to obtain a tax clearance from the Tanzania Revenue Authority.
Over the past decade the mining sector has paid a total of $663million in taxes. Meanwhile total gold exports grew from $26.6million in 2000 to $1billion a year by the end of 2008.
SOURCE: GUARDIAN ON SUNDAY
By Guardian on sunday team
2nd May 2010
Just days after Parliament passed the 2010 Mining Act, the Tanzania Chamber of Minerals and Energy is pushing to amend the Act before President Kikwete signs it into law, The Guardian on Sunday has learnt.
Tanzania one of Africas rich countries in terms of mineral reserves finally passed the much-awaited Mining Act, amid stiff opposition from investors and activists, paving the way for what President Kikwete called a win-win situation.
While the activists cried foul that the Bill was hurried to be tabled before the Parliament last week, without giving Tanzanians enough time to debate it thoroughly, some foreign investors see the new law as anti-growth that will kill the $3billion industry.
However, to the government, the just passed 2010 Mining Act is what millions of Tanzanians have been gunning for during the past decade.
But, the Chamber says the Act creates imbalances, uncertainty and instability for current and prospective investors. In a statement this week, the Chambers members said, if it is not amended, the Act will seriously damage the countrys image and could negatively affect foreign direct investment in the future.
The Chamber an umbrella organization for investors in the multibillion-dollar mining industry says the Act is a worrisome step backward to the days of state control over production, but the bill has otherwise been lauded as a long overdue revision of the 1998 law that allowed multinational firms to profit from the countrys rich natural resources without paying appropriate royalties.
The bill was tabled before Parliament last week, putting it on track to be signed into law before the countrys general election in October.
The Chamber is mainly irked by Section 10 of the Act, which gives the Minister of Energy and Minerals powers to have free-carried shares in any new mining project signing the Mineral Development Agreement (MDA).
Part of Section 10 reads, The Minister may, by regulations, prescribe the level of Government free-carried interest and public equity participation in any mining operations under a special mining license depending on the type of minerals and level of investment requirements.
Members of the Chamber are concerned that because the Act does not explicitly state the number of shares that the government may freely acquire, prospective investors may hesitate to invest in the country.
Apart from free-carried shares, this section also dictates strong public equity participation in mining as well as giving the government an option to finance any mining operation under a special mining licence.
Minister for Energy and Minerals William Ngeleja said the Act is aimed at shifting the ownership of mining firms from foreign investors and increasing local participation.
The minerals are godly given gifts to Tanzanians they should therefore participate not as spectators but as players and this is what the clause is aiming at, Ngeleja said.
We had a situation previously where foreign investors enjoyed 100 percent ownership while the locals got nothing, he said. The government will retain free-carried shares and then sell them to locals. We shall be very reasonable in deciding how many shares the government should retain we are not aiming to nationalise anything, but to give locals active participation.
Another contentious issue is the new clause that bars the minister from issuing mining licences to any foreign project below $100 million.
The Chambers concern is that this clause may discourage potential investors who want to invest in medium-scale mining projects before moving into larger-scale projects, but Ngeleja said it is meant to block petty foreign investors whose main intention is to enjoy incentives issued by the government.
At the public hearing in Dodoma last week, Bariadi MP Andrew John Chenge who drafted the 1998 Act when he was Attorney General argued that for the size of the country it would be unfair not to licence investments below $100million, but he was unsuccessful in persuading fellow MPs.
Foreign investors also point out at an unpredictable fiscal regime, which may deny the country potential investors in the minerals sector. Fiscal regime is vital in deciding whether to invest in a country or not especially for the multinationals.
Distorted as it is, the new Act only deals with half of the story, while leaving considerations for fiscal and regulatory regime, to further speculations and uncertainties, and therefore further eroding investors confidence in making long term investment decisions, a statement by the Chamber reads.
A perfectly timed Act?
Politically, the new Act will be a big boost for President Kikwete in his bid for re-election in October, particularly after top members of his party have criticized his regime for failing to take serious measures to tackle grand corruption.
One of the cornerstones of Kikwetes 2005 campaign was mining industry reform, which he described at the time as a win-win endeavour.
He finally made good on his campaign promise in October 2007 when he surprised even his own party by forming a Presidential Mining Review Committee that included a member of the opposition party, Zitto Kabwe.
The new Mining Act, which is a product of the Mineral Policy of 2008, has taken into consideration the recommendations of Judge Mark Bomanis committee, as well as the Kipokola Commission, Lawrence Mashas fiscal regime study and a comparative study of mining policies in Botswana, Namibia, Ghana, Angola, Canada and Australia.
The law seeks to formalise small-scale mining by ensuring that all small-scale miners are recognised and protected by the law.
Kikwete also promised to ensure that the tax structure is reformed in order to give Tanzania a fair chunk of revenues from minerals exports, a $1.2billion-a-year business.
In the new law, royalty calculations will be based on a gross value system instead of the current netback valuea move expected to double royalties. Royalties in gold will be adjusted to 4 percent of the gross value earning posted by any large-scale mine, up from 3 percent previously calculated based on netback value.
For tanzanite, diamond and uranium, the new royalties rate will be 5 percent, also up from 3 percent previously, while all other minerals will be taxed 3 percent.
According to the proposed Act, large-scale gemstone mining will be done in a 50/50 joint venture between local and foreign investors, and the export of rough or unprocessed gemstones will be banned altogether.
This portion of the Act is meant to keep more jobs in the processing of gemstones, particularly tanzanite, in the country. Currently, tanzanite is typically mined in Tanzania, where about 400 people work in the industry, but is then sent for processing in India, where the tanzanite industry alone employs more than 20,000 people.
The new Mining Act will impose three conditions on all transfers of mineral rights from one party to another. Local transfers will incur a 1 percent fee, and overseas deals will face a 2 percent transfer fee. All companies transferring ownership will have to obtain a tax clearance from the Tanzania Revenue Authority.
Over the past decade the mining sector has paid a total of $663million in taxes. Meanwhile total gold exports grew from $26.6million in 2000 to $1billion a year by the end of 2008.
SOURCE: GUARDIAN ON SUNDAY