Revealed: Details of the new Mining Act By Staff writer 20th December 2009 Email Print Comments Abolition of 100 percent foreign ownership Recommends 50-50 ownership in gemstones It wants the State to have 10pc free carried share Introduces ring-fencing system Minimum foreign investor to be $100m Wants Tanzanians to own shares through DSE or overseas bourses It bans export of uncut gemstones It also wants mining firms to procure goods and services locally It seeks to formalise small-scale mining It wants the State to own 20pc through acquisition of equity President Jakaya Kikwete Tanzania one of Africas richest countries in terms of rich mineral reserves is finally putting a deal on the table by introducing a new Mining Act, ending a decade of public outcry that dominated the billion-dollar industry during that period. Before July next year, Tanzanians will finally have a new mining law, which has thoroughly addressed about 26 key areas contained in the previous Act. Politically, it will be a big boost to President Kikwete, whose regime has been recently criticised by some top members of his CCM party for failure to take serious and bold measures to save the dwindling image of the government and the nation as well. During the 2005 campaigns, the then CCM candidate Kikwete who subsequently scored a landslide victory, promised to overhaul the mining industry, to bring what he described as a win-win situation. He finally started his mission in October 2007 when he surprised even his own party by forming a Presidential Mining Review Committee, one of whose members was the firebrand opposition politician Zitto Kabwe, who was considered a thorn in the flesh by not only the ruling party, but mining industry stakeholders. The 11-member committee headed by Judge Mark Bomani was tasked to review all existing mining contracts to gauge their efficacy in generating government revenue. Last year, the committee floated recommendations for a new mining policy that would increase royalties across the board, and most of which have been included in a new law. That mission finally reached its peak leading the government to introduce the new Mining Act of 2010 the year when Tanzania will hold its fourth general election under a multi-party system. To some foreign investors, it spells death to the booming mining industry by a thousand cuts while to the majority of Tanzanians and the government, its a resounding response to a shrill public outcry that has dominated the country during the past decade. The concern of the former is that if it sails through without major amendments, it might kill the already booming industry as well as blocking new investors from investing in the country. The move comes as former President Benjamin Mkapa, whose regime is accused of introducing a bad Mining Act in 1998, yesterday defended the existing mineral policy, saying it was intended to benefit both the investors and the country. The proposed Mining Act which is a product of the recently endorsed Mineral Policy of 2008 has taken into consideration the recommendations by Judge Mark Bomanis committee, Kipokola Commission, Lawrence Mashas fiscal regime study and comparative studies from countries like Botswana, Namibia, Ghana, Angola, Canada and Australia. The Mineral Policy of 2009 was formulated as a result of an evaluation conducted during the ten years of implementation of the Mineral Policy of 1997, Mining Act of 1998 and lessons drawn from its implementation. If passed by the Parliament early in April next year, the new Mining Act will abolish the hundred percent ownership of large scale mining by foreign companies. It paves the way for the government to automatically retain between 10 percent in a large scale mine through free carried share. It also allows the government to acquire a maximum of 20 percent shares by investing in selected projects. The new law, which seeks to end the winner takes it all system also allows state-owned corporations to acquire up to 15 percent equity in a corporate parent company abroad under the negotiations and promotional purposes. But at a stakeholders meeting to discuss the proposed Mining Act held in Arusha this week, it was recommended that after acquiring the 10 percent shares, once the concerned mine starts posting profits, the government should sell all its shares to Tanzanians to allow locals to participate effectively in large-scale mining. Defending this move, the Minister for Energy and Minerals, William Ngeleja said, Its is unfair to allow a hundred percent ownership by foreign companies the fact that the minerals are in our land gives qualifications to the government to have at least 10 percent free carried share. It should be fully noted that Tanzania is not aiming at nationalising any foreign-owned mine, but our intention is to create a level playing field or a win-win situation, the Minister clarified in Arusha on Friday, after the proposal drew negative reactions from foreign investors who attended the meeting. All stakeholders in the mining industry gathered in Arusha city for three days from Wednesday to Friday this week in closed-door meetings to discuss the new Mining Act as part of the preparations before the draft Bill is tabled in parliament early next year. The meeting organized by the ministry of energy and minerals was chaired by the Permanent Secretary, David Jairo. Another key area that will fully be affected by the new law is fiscal regime or tax structure, whereby the Act among other things, proposes drastic changes of royalty calculations by introducing gross value system instead of the current netback value. Under the new law, royalties in gold will be adjusted to 4 percent of the gross value earning posted by any large scale mine up from previous 3 percent, which was being calculated basing on netback value a situation the government says was denying Tanzanians enough revenues. For Tanzanite, Diamond and Uranium, the new royalties rate will be 5 percent up from the previous 3 percent while other minerals will be taxed 3 percent. According to the proposed New Mining Act, large scale gemstone mining will be done in a 50/50 joint venture between locals and foreign investors, contrary to the current situation where the winners, mainly foreign firms, take it all. Presenting the Draft of the Mining Act of 2009, the Commissioner for Minerals, Dr Peter Kafumu, said, Our intention is not to kick out any foreign investors, but to ensure that Tanzanians also benefits more from the huge mineral reserves. We are facing two major challenges the investors and political challenges but our intention is to attract as well as retain all foreign investors in ways that will enable Tanzania as a country to accrue more benefits from the multibillion-dollar industry, Dr. Kafumu said on Friday while defending the proposed Mining Act. The new Mining Act also wants Tanzanians to participate actively in large-scale mining by acquiring shares through Dar es Salaam Stock Exchange or in capital markets abroad where most of these foreign companies are listed. But under the current draconian law from the Central Bank of Tanzania, it will be a daydream for locals to buy shares abroad because it is currently prohibited under the grounds that the move could cause capital flights. To ensure that there are increased benefits from large scale mining, the proposed new Mining Law will require all foreign-based companies to procure goods and services locally except in those sophisticated capital goods such as machineries and equipments. During the discussions, stakeholders recommended that at least the law should set a 30 percent benchmark of locally procured goods and services in a bid aimed at forcing the mining firms to buy domestically produced goods. The proposed Act also sets a minimum capital requirement of $100million for a foreign firm to qualify for Mineral Development Agreement (MDA) in a move aimed at curbing petty foreign investors whose main intention is to secure incentives from Tanzania Investment Centre for their personal gains. Under the proposed Act, the government will ban any exports of rough or unprocessed gemstones in order to encourage value added products in the country. The basis for this move is the current situation where Tanzanite is mined in Tanzania, but employs only 400 people in the value addition industry while in India the same gemstone has created employment for over 20,000 people. Alarmed by the buyout system done by foreign investors, the New Mining Act will impose three key conditions that should be met in order to transfer mineral rights from one party to another. First is for the transfer to be done locally, then a 1 percent fee of the total transactions will be paid before sealing the deal while if its done abroad, a 2 percent transfer fees will apply. But, above all, the company transferring its ownership will have to obtain a tax clearance from Tanzania Revenue Authority. The new law also seeks to formalise small-scale mining by ensuring that all small-scale miners are recognised and protected by the law. No foreign firms would be allowed to participate in small and medium scale mining according to the new law. The proposed Act made available to The Guardian on Sunday has also considered the active inclusion of women in the small, medium and large scale mining in the country by ensuring that women are empowered to acquire mining areas or shares in the sector. The Act will also introduce ring-fencing in order to curb cheating and tax evasions by some foreign investors who have been taking the advantage of the current loopholes to delay paying taxes. However discussing the proposed Act members of Tanzania Chamber of Minerals and Energy cautioned the government to tread carefully saying any drastic changes would reduce the countrys competitiveness as well as scaring potential new investors. I would like to stay in Tanzania for a while and I would like to stay longer but please dont kick me out with draconian law and policies, David Spencer from Tanzania Chamber of Minerals and Energy, urged the government. Discussing the proposed Act, Spencer said, Tanzania is not an isolated island Its part of the global family and therefore it should not act contrary to the global trend especially at the time when the world is weathering the credit crunch. The mining sector has been adversely hit by the global credit crisis forcing some mines to close down their operations as others suspend exploration pending the ease of the crunch. Kabanga Nickel has come to a standstill with the $70m feasibility study needed before it can begin operations, and more than 450 people have already been laid off from the company, according to the Chamber of Minerals and Energy. The Mkuju River Uranium project has also effectively halted exploration, it said, with plans to cut expenditure by 60 percent over the next six months, by reducing 65 percent of its personnel. TanzaniteOne has already cut working costs by 40 percent by reducing expatriate salaries by 37 percent and employing 33 percent fewer experts, and it is still mulling a 28 percent cut in local staff. The Geita Gold Mines Tax Manager Godvictor Lyimo said, Let us look at the issue of tax in totality not in an isolation way where the majority of people are mainly focusing on corporate tax and royalties. During the past decade, the mining sector has paid a total of $663million in various forms of taxes with total gold exports growing from $26.6million in 2000 to $1billion a year by the end of 2008.The total gold exports during the past decade are estimated at $3billion. Lyimo added, The government should remain as a regulator instead of becoming a player in the mining industry. But the Minister was quick to clear the governments move by saying, let me underline here that the government is not intending in any way to abdicate from its responsibility as a regulator and facilitator of the mineral sector the effort the Government is putting in this exercise aims at making sure that we promote further private sector investment in the mineral sector. However where deemed necessary the government will participate strategically in mining projects, the minister said in his closing speech on Friday. According to Barrick Tanzanias General Manager, Deo Mwanyika, for every ounce of gold produced and sold Tanzania gets 15 percent in terms of taxes and loyalty, 10 percent goes to loan repayment, 57 percent to operations and production costs, 11 percent to share holders as dividend, 6 percent goes to recapitalization while 1 percent goes to community development. Though in principal the foreign investors agree with the Mining Act, their main concern is at the fiscal regime where they strongly believe the government has acted on wrong and misleading information. Their plea is, Yes we are ready for these changes but tread carefully otherwise we shall close down businesses or die a natural death because of thousand cuts.