MINING LAW UPDATE: THE NEW MINING REGULATIONS PERTAINING NON-DILUTABLE FREE CARRIED INTEREST GRANTED TO THE GOVERNMENT BY COMPANIES OR PERSONS HOLDING A MINING LICENSE OR SPECIAL MINING LICENSE IN TANZANIA

• The Government shall obtain not less than 16% non-dilutable free carried interest shares from a mining company/person holding a mining license or special mining license.
• The Government may acquire up to 50% of shares in a mining company/person holding a mining license or special mining license equal with the total tax expenditures incurred by the Government in favour of such mining company.
• The non-dilutable free carried interest shares encapsulate the same rights stipulated under the Companies Act Cap 212.
• The Treasury Registrar shall acquire, manage and control the non-dilutable free carried interest shares on behalf of the Government.
• The Mining Commission (along with other Governing bodies) has been given the role to administer the type of minerals and level of investment that is needed for the Government acquire shares in a mining company.

1.0  INTRODUCTION

On 21^st October, 2020 the Minister of Minerals made the Mining (State Participation) Regulations, 2020 (hereinafter referred to as “the Mining (State Participation) Regulations”) which registers state participation in the mining sector. On 30^th October, 2020 the Mining (State Participation) Regulations were published under the Government Notice No. 939.

Basically, the Mining (State Participation) Regulations applies towards the Government of the United Republic of Tanzania (herein after referred to as “the Government”) obtaining 16% non-dilutable free carried interest shares derived from a company/person holding a mining license or special mining license and the right to own up to 50% of equity interest in mining companies equivalent to tax expenditures incurred by the Government in favour of such mining companies.

Breakthrough Attorneys’ Extractives Law department has prepared this update to summarize key highlights to the Mining (State Participation) Regulations.

2.0  KEY FEATURES TO THE MINING REGULATIONS

1. Acquisition, management and control of the non-dilutable free carried interest shares.
   Regulation 5 of the Mining (State Participation) Regulations authorizes the Treasury Registrar to acquire at least 16% non-dilutable free carried interest shares in a company or person holding a mining license or a special mining license on behalf of the Government. The Government is eligible to increase its stake up to 50% dependable on the tax expenditures incurred in favour of the company or person holding a mining license or special mining license.

   The nature of the non-dilutable free carried interest shares shall be fully paid up shares during the time of allotment as per Regulation 13 of the Mining (State Participation) Regulations. The Regulation continues to explain that the main reason for allotting the shares to the Government is to allow the state to participate in mining operations.

   Regulation 7 of the Mining (State Participation) Regulations explains that the Treasury Registrar is responsible for managing and controlling the shares acquired by the Government in a company or person holding a mining license or special mining license.

2. Rights of holder of non-dilutable free carried interest shares
   Regulation 10 of the Mining (State Participation) Regulations states that the Government shall be allowed to exercise the rights of shares provided within the Companies Act Cap 212. The Regulation also provides for an exhaustive list of other rights, which may be enjoyed by the Government when holding 16% of non-dilutable free carried interest shares or more shares in a mining company.
3. Role of the Mining Commission as per the new Mining Regulations.
   The Mining (State Participation) Regulations touch upon the increased duties held by the Mining Commission (herein after referred to as “the Commission”) with regards to the mining sector. Regulation 6 and 8 of the Mining (State Participation) Regulations explains that, the Commission shall disclose relevant information to the Office of the Treasury Registrar pertaining to the type of minerals and level of investment of mining operations in which the Government will be eligible of acquiring the non-dilutable free carried interest shares in the respective company.

   In determining the level of investment criteria, together with the Office of the Treasury Registrar and the Tanzania Revenue Authority, the Commission will look at the following;

   1. Capital invested;
   2. Mining technology involved;
   3. Profit; and
   4. Total value of tax expenditures enjoyed by the mining company.

   
   

4. Mode of payment of interest on the shares held by the Government.
   Regulation 9 of the Mining (State Participation) Regulations claims that the Treasury Registrar will configure the mode of payment concerning the profit from the non-dilutable free carried interest shares held by the Government. Once the Treasury Registrar has done so, they would then notify the company or person holding the mining license or special mining license in writing.

3.0 OUR COMMENTS

The new Mining Regulations focuses primarily on state participation within the mining sector. It is now mandatory for the Government to acquire shares within a company or person holding a mining license or special mining license.

The Regulations provide for process of acquiring the non-dilutable free carried interest shares within a company or person holding a mining license or special mining license. It also explains about the additional roles the Commission along with the Treasury Registrar would obtain due to the enactment of the new law.

An area for concern would be that the Government obtains stakeholder position within the mining sector through the means of acquiring shares. In a situation where a holder of a mining license or special mining license is a sole proprietor or a company limited by guarantee, the issuance of shares would be non-existent and in turn this new piece of legislation would not affect the said holder stated above.

Nonetheless, mining companies limited by shares must make sure that the Government owns at least 16% of their equity interest. Failure of that may render the company accountable.

 

 

Important Notice:

This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, Breakthrough Attorneys, its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.