FINANCE AND MINING LAW UPDATE: BANKING AND FINANCIAL SERVICES IN THE MINING SECTOR IN TANZANIA: UNDER THE SPOTLIGHT OF THE MINING (LOCAL CONTENT) REGULATIONS, 2018.

• Salient provisions of the Mining (Local Content) Regulations, 2018 regarding procurement of banking and financial services by stakeholders in the Tanzanian mining sector
• Requirement to submit financial services sub-plan to the Tanzania Mining Commission
• The practical aspect of engaging foreign banks by mining stakeholders in Tanzania
• Mining stakeholders approach to the financial services requirements under the Mining (Local Content) Regulations, 2018
• How service providers in the financial sector working with mining entities in the mining industry in Tanzania are affected by the mining local requirement

1.0  Introduction

 

1. In 2017, the Government of Tanzania enacted the Written Laws (Miscellaneous Amendment) Act No. 07 of 2017, which amended the Mining Act, 2010 to introduce local content requirements in the mining sector. Following such amendments, Ministry of Minerals issued the Mining (Local Content) Regulations, 2018 hereinafter referred to as the Mining Local Content Regulations, which requires involvement and active participation of locals in different aspects of the mining operations including locals participation in services supplied to mining operators of different levels in the mining chain.
2. This mining and finance update general legal update, highlights the provisions of the Mining Local Content Regulations which relate to provision of banking and financial services. We will make a brief analysis and applicability of the said provisions as well as the approach taken by various mining entities to comply with the said provisions.

2.0 Salient provisions of the Mining Local Content Regulations regarding procurement of banking and financial services by stakeholders in the mining sector

 

1. Retaining services of Tanzanians financial institutions (Regulation 34) 
   1. The Mining Local Content Regulations requires stakeholders to retain services of Tanzanians financial institutions only. Foreign financial institutions may be engaged only when there is an approval from the Tanzania Mining Commission.
   2. Stakeholders refer to all contractors, subcontractors and allied entities carrying out mining activities in Tanzania. In the context of complying with the Mining (Local Content) Regulations, the meaning of stakeholders extends to persons engaged by a contractor, subcontractor or other allied entity to perform an aspect of mining activity.
   3. One may be wondering who is a contractor and subcontractor in this precept. The Mining (Local Content) Regulation defines a contractor as a person who entered into a mining agreement with the Government of Tanzania to undertake mining exploration and production activities under the Mining Act. Additionally, subcontractor is defined to mean a third party to whom the corporation or contractor has entered into a mining contract for the provision of services for mining operations.
   4. The meaning of Tanzanian or foreign financial institutions is the one ascribed by the Banking and Financial Institutions Act, 2006. However, the Banking and Financial Institutions Act, 2006 does not expressly provide for the meaning of “Tanzanian financial institution” and “foreign financial institution”. Instead, the Banking and Financial Institutions Act, 2006 under Section 3 defines: –
      
      “financial institution” means an entity engaged in the business of banking, but limited as to size, locations served, or permitted activities, as prescribed by the Bank or required by the terms and conditions of its licence; and“banking business” means the business of receiving funds from the general public through the acceptance of deposits payable upon demand or after a fixed period or after notice, or any similar operation through the frequent sale or placement of bonds, certificates, notes or other securities, and to use such funds, in whole or in part, for loans or investments for the account of and at the risk of the person doing such business.”
   5. From the above definition of “financial institution”, it is our understanding that, all stakeholders in the mining sector should engage Tanzanian banks and Tanzanian financial institutions for financial services. Financial services are regarded as professional services involving the investment, lending, and management of money and assets (see)
   6. Furthermore, stakeholders should be cautious of whether the bank or financial institution acts within parameters of its license’s conditions in provision of financial services. Banks and Financial services have an obligation to operate in accordance with the terms and conditions stipulated in their licenses issued by the Bank of Tanzania. Where the bank does not operate within the limits of its license’s conditions, there are risks of being penalized or pressured by the Bank of Tanzania to stop its operations.The practical aspect of engaging foreign banks by mining stakeholders
   7. Where a stakeholder needs to engage a foreign bank for any financial service, the Mining (Local Content) Regulations requires them to obtain approval from the Mining Commission. However, stakeholders who intend to transact with foreign banks must obtain approval from the Bank of Tanzania before reporting such transaction to the Mining Commission. All transactions, which involve foreign banks, must be done through the Bank of Tanzania.
2. Submission of the financial services sub-plan to the Mining Commission and the contents thereto (Regulation 35)Financial services sub-plans submitted to the Mining Commission by stakeholders must contain: –
   1. The financial services utilized in the preceding 6 months by expenditure;
   2. A forecast financial services required in the ensuing 6 months and the projected expenditure for the financial services; and
   3. A list of financial services utilized in the preceding six months, the nature of financial services provided and the expenditure for the financial services made by the stakeholder.

    

3. Maintaining a bank account with a Tanzanian bank (Regulation 36(1))
   Stakeholders are required to maintain a bank account with an indigenous Tanzania Bank and transact business through banks in Tanzania. Indigenous Tanzanian bank is defined under Regulation 36(2) of the Mining Local Content Regulations as amended by Regulation 6 of the Mining (Local Content) (Amendments) Regulations, 2016 to mean a bank that has not less than 20% Tanzanian equity shareholding.

3.0  Applicability of Salient provisions of the Mining (Local Content) Regulations, 2018 regarding procurement of banking and financial services by stakeholders in the mining sector

 

1. Regulations 34, 35 and 36 of the Mining Local Content Regulations are applicable to a to contractors, subcontractors, licensees, corporations and any other allied entities carrying out mining activities in Tanzania. In essence, all stakeholders in the mining sector in Tanzania are required to uphold and comply with local content requirements.
2. Applicability of the Mining Local Content Regulations extends further to third parties who work (directly or indirectly) with stakeholders who operate in the mining sector in Tanzania.
3. Any stakeholder who acts contrary to provisions of the Mining Local Content Regulations commits an offence and shall be liable to administrative penalty.

4.0  How service providers in the financial sector working with mining entities in the mining industry are affected by the mining local requirement

 

1. For a bank or financial institution to provide services to stakeholders in the mining sector, it will be required to be Tanzanian in eyes of the Mining Local Content Regulations. This means a bank must have its equity of at least 20% held under Tanzanian shareholding in order to provide banking and financial services in the mining sector.
2. The Banking and Financial Institutions Act, 2004 under Section 17 requires a bank to have minimum capital of at least Tanzania Shillings Five Billion (TZS 1,000,000,000/=) in order to commence banking business in Tanzania.

5.0  Conclusion

 

1. Enactment of the Mining Local Content Regulations is a mechanism to increase participation of Tanzanians and improve procurement of locally produced goods and services in the mining sector. Through the Mining Local Content Regulations, the country can see how mineral resources contribute to economic development of the indigenous Tanzanians.
2. In essence, the Mining Local Content Regulations enhance Tanzanian financial institutions and their services. However, the practice of locals’ involvement and inclusivity in equity ownership of banks and financial institutions may be tricky and challenging. This is due the fact that, 20% of commencement core capital of banks is extremely high for majority of the locals to own (See paragraphs 4.1 and 4.2 above).

 

 

 

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