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Introduction of the Natural Wealth and Resources Regulations in Tanzania

  • Market Insight 17 February 2020 17 February 2020
  • Africa

Tanzania recently released the Natural Wealth and Resources Regulations. In this article, we set out the procedures relevant to the re-negotiation of agreements and arrangements relating to natural wealth and resources as well as the Code of Conduct that investors in this sector must comply with.

Introduction of the Natural Wealth and Resources Regulations in Tanzania

Regulations:

  • The Natural Wealth and Resources Contracts (Review and Re-Negotiation of Unconscionable Terms) Regulations, 2020 (the Unconscionable Terms Regulations) made under section 8 of the Natural Wealth and Resources Contracts (Review and Re-negotiation of Unconscionable Terms) Act, CAP. 450 of 2017 (the Unconscionable Terms Act)
  • The Natural Wealth and Resources (Permanent Sovereignty) (Code of Conduct for Investors in Natural Wealth and Resources) Regulations, 2020 (the Code of Conduct) made under section 13(2)(a) of the Natural Wealth and Resources (Permanent Sovereignty) Act, CAP. 449 of 2017 (the Permanent Sovereignty Act)

Together, the Natural Wealth and Resources Regulations.

Background

The Unconscionable Terms Act and the Permanent Sovereignty Act (together, the Natural Wealth Acts) introduced the term "natural wealth and resources" which means all materials or substances occurring in nature such as soil, subsoil, gaseous and water resources, mineral resources, petroleum resources, fauna and flora, genetic resources, aquatic resources, micro-organisms, air space, rivers, lakes and maritime space, including Tanzania's territorial sea and the continental shelf, living and non-living resources in the Exclusive Economic Zone which can be extracted, exploited or acquired and used for economic gain whether processed or not. This definition has been drafted quite widely to ensure that all such resources are protected by the Government of Tanzania having permanent sovereignty over them.

Some key highlights of the Natural Wealth Acts are as follows:

The Unconscionable Terms Act

  1. The National Assembly may review any arrangements or agreement made by the Government relating to natural wealth and resources
  2. Should there be any unconscionable terms, the National Assembly may advise the Government to initiate re-negotiation of the arrangement or agreement with a view to rectifying the terms
  3. While the definition of "unconscionable terms" appears vague, section 6(2) of the Unconscionable Terms Act provides information which, if contained in an agreement, would be deemed to be unconscionable
  4. If the private party fails to renegotiate unconscionable terms, or no agreement is reached, the unconscionable terms shall cease to have effect and shall be treated as having been expunged

The Permanent Sovereignty Act

  1. Natural wealth and resources are inalienable, they are to remain the property of the People and the United Republic of Tanzania, and they shall be held in trust by the President
  2. No raw resources shall be exported for beneficiation outside Tanzania
  3. Any arrangement for extraction, exploitation or acquisition and use of natural wealth and resources shall require that earnings from disposal or dealings be retained in the banks and financial institutions established in Tanzania
  4. There shall not be proceedings in any foreign court or tribunal in relation to permanent sovereignty over natural wealth and resources

Unconscionable Terms Regulations

The Unconscionable Terms Regulations provide the procedure for re-negotiations of unconscionable terms in all agreements and arrangements that involve natural wealth and resources.

Review of Arrangements or Agreements

The National Assembly is responsible for determining unconscionable terms in the said arrangements or agreements which will be subject to re-negotiation.

As mentioned above, the President remains the trustee of the natural wealth and resources of Tanzania on behalf of the people. His power is to coordinate, monitor and manage all contracts in accordance with the applicable laws. This power is delegated to the Minister responsible for Constitutional Affairs (the Minister).

The Unconscionable Terms Regulations provide for a register at the Ministry responsible for Constitutional Affairs (the Ministry) that shall contain information related to natural wealth and resources arrangements and agreements. The Registrar of Natural Wealth and Resources Arrangements is tasked with keeping the register and with registration of all natural wealth and resources agreements and arrangements.

This information is to be completed in a table form and it should contain the following key information, among others:

  1. subject matter of arrangement or agreement
  2. title
  3. duration
  4. consideration / value
  5. adherence to corporate social responsibility
  6. adherence to local content
  7. royalty in percentage
  8. category of licence

The persons responsible for the registration of the relevant agreements is the responsible person on behalf of ministries, Government departments, and agencies or any other public or private institution dealing with natural wealth and resources that enters into a natural wealth and resource arrangement or agreement (Applicant) by submitting an application in a prescribed form which is contained in the schedule to the Unconscionable Terms Regulations.

Such submission shall be made:

  • 60 days from 31 January 2020 for arrangements and agreements formed before the said date
  • no later than 30 days from the date of execution for arrangements and agreements made after 31 January 2020

The Applicant shall be issued with a registration number that will be used in all correspondence. It is worth noting that private entities which have entered into such contracts/agreements are obligated to submit those agreements for registration.

Procedure for Re-Negotiation:

  1. a ministry responsible for entry into any natural wealth and resource arrangement or agreement, whether by itself or through an institution under it (Responsible Ministry), shall upon the directives of the Ministry, prepare a report and submit to the Minister
  2. the prepared report shall be reviewed by the Minister and later submitted to the Cabinet for its review and decision
  3. the Minister on the directive of the Cabinet shall submit the Cabinet resolution before the National Assembly for its determination
  4. the Minister shall within 7 days of receiving the National Assembly resolution inform the Responsible Ministry to re-negotiate
  5. the Responsible Ministry will issue a notice of re-negotiation to the other party
  6. after consulting the Attorney General, the Responsible Ministry will appoint a re-negotiating team (the Team)
  7. the Team will provide a 90-day re-negotiation schedule and will share it with the party(ies). The 90-day period may be extended for up to 30 additional days by mutual consent and an approval from the Minister
  8. after completion of re-negotiation process the parties shall sign a re-negotiation summary in the prescribed form. The cost for this process shall be borne by the Responsible Ministry

Review by National Assembly

  1. the Team is required to submit a draft report to the Permanent Secretary of the Ministry (the Permanent Secretary), who will arrange for a discussion with stakeholders to discuss the draft
  2. after the meeting, the Permanent Secretary will then submit the report to the minister of the Responsible Ministry (the Key Minister) for concurrence
  3. after drawing a final report the Key Minister shall submit it to the Minister
  4. if the Minister concurs with the report, the Minister shall submit it to the Cabinet
  5. the Cabinet will have to carry out its procedures and issue a President's Certificate
  6. the Minister will report the outcome of the re-negotiation to the National Assembly not later than 30 days from the date of signing of the report

It is important to note that Regulation 13 of the Unconscionable Terms Regulations provides that all contract re-negotiation arrangements which are in existence on the date of coming into operation of these regulations shall continue and be concluded as if these Regulations had not been made.

Code of Conduct Regulations

The Code of Conduct Regulations aim to ensure that all business related to natural wealth and resources are conducted in a manner that is consistent with the highest ethical principles at all times. These regulations apply to an entity, consultant, supplier, contractor, investor, partner and agent, including any of their employees thereto (Investor).

Code of Conduct

  • An Investor is required to comply with all applicable policies, laws and regulations and to operate in good faith, with transparency and in the best interests of the people of Tanzania
  • An Investor is restricted from:
    • engaging in corruption, bribery or in any form of economic and organised crimes
    • violating basic rights, whether directly or indirectly
    • violating child rights including child labour
    • environmental pollution
    • discriminating any person in form of gender, age, disability, sex, tribal, religion, marital status, union membership or political belief and affiliation
    • breaching applicable competition laws and regulations
  • Another requirement is to submit periodic reviews to ensure the investment operates in the intended manner
  • The Government is mandated to audit and monitor any Investor governed by the Code of Conduct

In addition to the restrictions listed above, every Investor is required to sign an Integrity Pledge in the prescribed form set out in the schedule to the Code of Conduct Regulations to abide by ethical business practices in order to support the national campaign against corruption. The Code of Conduct is also considered implied in every arrangement or agreement on natural wealth and resources and the Code of Conduct Regulations even provide an honesty and integrity self-test to ensure that Investors are able to state their position in terms of compliance as accurately as possible.

From the above provisions of the Natural Wealth and Resources Regulations, it is evident that the Government intends to monitor investment in Tanzania quite closely by ensuring that there are no terms which are unconscionable and do not protect the natural wealth and resources of Tanzania. Furthermore the Code of Conduct Regulations provide for reporting requirements which would enable the Government to keep a close eye on investment to ensure compliance.

While the Code of Conduct Regulations provide the minimum standards to be met by Investors, they also allow time for compliance as Regulation 19(2) of the Code of Conduct Regulations specifically provides that "the Government is aware of the fact that some requirements may not be met immediately, but these are to be settled by open dialogue and corrective actions by those involved". Nevertheless, as expected, failure to comply with the Code of Conduct Regulations within a reasonable timeframe following serious of repeated violations may result in the Government terminating its business relationship with the Investor.

End

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