January 17, 2018

Briefing note: Local Content Regulations following amedments to the Tanzanian Mining Act, 2010

In this month's briefing, we provide the highlights of the Local Content Regulations (the Regulations) issued recently. The Regulations follow the amendments of the Mining Act, 2010 through the Written Laws (Misc. Amendments) Act, Act No. 7 of 2017 which introduced the local content requirements.

This briefing covers the following key provisions:

1. Establishment of a Local Content Committee

2. Adherence to the local content regulations

3. Ownership by an indigenous Tanzanian company

4. Provision of services by a Foreign Company

5. Submission of a plan

6. Setting up of a project office

7. Approval of a local content plan

8. Content of the local content plan

9. Minimum local content requirements and local content reporting

10. Bidding

11. Review and approval of contracts and submission of quarterly forecasts

12. Employment and training sub-plan and succession plan

13. Programme for research and research development sub-plan

14. Technology transfer programmes and reporting

15. Use of insurance, legal and financial services

16. Use of bank accounts

17. Common Qualification System

18. Monitoring, compliance and enforcement

19. Offences and penalties

20. Compliance with the regulations

1. Establishment of a Local Content Committee 

  • The Regulations establish a Local Content Committee (the Committee) which shall, among others, be responsible for overseeing compliance and implementation of the Regulations.
  • The Committee has powers to set the minimum standards of local content requirements, monitor and audit compliance of local content requirements and prepare guidelines to include targets and formats for the local content plans.

2. Adherence to the local content regulations    

  • The Regulations impose the obligation to ensure local content provisions are adhered to by the contractor, subcontractor, licensee, any other allied entity (the Contractor) and the Corporation.
  • The Corporation is defined in the Regulations as an entity to be established or designated as such for the purposes of holding control of the Government's mineral assets. We understand this includes Free Carried Interest (FCI) to be given to the Government by holders of mining and special mining licences.

3. Ownership by indigenous Tanzanian company

  • The Regulations provide that an indigenous Tanzanian company (Tanzanian Company) means a company incorporated under the Companies Act of Tanzania where at least 51% is owned by Tanzanian citizens, where Tanzanian citizens hold at least 80% of the executive and senior management positions and Tanzanians occupy 100% of non-managerial and other positions.
  • A Tanzanian Company shall be given first preference when mining licences are granted. Our understanding of this provision is that if there is a Tanzanian Company and a non-indigenous Tanzanian company (Foreign Company) competing, the mining licence shall be granted to the Tanzanian Company.
  • The Regulations further provide that at least 5% of the participating interest in a company applying for a mining licence shall be held by a Tanzanian Company. We are of the view that this seems to apply to companies applying for mining licences only, as opposed to those applying for a special mining licences. Furthermore it does not seem to apply retrospectively i.e. the existing mining companies may not be required to comply with this minimum shareholding requirement. It also presumes that the 5% shall be owned by a Tanzanian Company as opposed to a Tanzanian individual.
  • The 5% ownership by a Tanzanian Company is separate from the ownership by the Corporation. Therefore, a Tanzanian Company shall own not less than 5% of the equity in a mining company while the Corporation (meaning the Government controlled entity) shall own the agreed FCI which shall not be less than 16%.
  • The Minister is entitled to vary the percentage to be held by the indigenous Tanzanian Company if the latter cannot satisfy the requirement of 5% participation.
  • The Minister for Minerals shall determine the persons qualified to hold the 5% equity in the company applying for a mining licence. Although the Regulations are unclear on this aspect, we understand that the Minister has the authority to select or approve the persons who can hold the 5% equity.
  • The Regulations empower the Minister to vary the minimum shareholding requirement if the Tanzanian Company is unable to satisfy the requirement of 5% equity participation.
  • The Regulations provide that the interest of a Tanzanian Company shall not be transferable to a Foreign Company.

4. Provision of services by a Foreign Company

  • The Regulations provide that every Foreign Company which wishes to provide services to the Contractor shall incorporate a joint venture (JV) company in which Tanzanians hold not less than 25% of the equity.

5. Submission of a plan

  • The Contractor shall before commencing mining activities submit a plan to the Mining Commission (the Commission) specifying the role and responsibilities of Tanzanians, their equity participation and the strategy for transfer of technology and know-how to Tanzanians.
  • The Regulations define mining activities to mean an activity engaged within and outside Tanzania which relates to exploration, development and production of minerals, acquisition of data, mining and extraction of minerals, storage, transportation and decommissioning, and the planning, design, construction, installation, operation and use of any facility for the purpose of mining operations.

6. Setting up of a project office

  • The Regulations state that as far as practicable before carrying out any work, the Contractor shall set up a project office within the district where the mining project is located.
  • We are of the view that, the use of the words 'as far as practicable' brings a presumption that the Contractor may opt not to set up a project office if it considers that it is not practicable to do so. If it doesn't set up an office, the Commission may inquire on the reasons thereof.

7. Approval of a local content plan

  • The Contractor shall submit to the Commission their long-term local content plans which corresponds to the work programme, and an annual local content plan (the Plan).
  • The Commission shall within 7 working days acknowledge receipt of the Plan and submit it to the Committee for review and approval. The Regulations further state that, the Committee shall within 25 working days review and assess the Plan. It shall then send its recommendations to the Commission on whether or not the Plan complies with the Regulations and whether it should be approved or rejected.
  • If the Commission approves the Plan, it shall send its approval to the applicant within 7 working days from the date of receiving approval recommendations from the Committee. If the Commission fails to issue its response with the prescribed time, the Plan shall be deemed approved upon the lapse of 50 working days from the date of submission of the Plan.
  • If the Plan is rejected, the applicant shall within 14 days re-submit the amended Plan taking into account the recommendations by the Commission. 

8. Content of the local content plan

  • The Plan shall give preference to local services and goods manufactured in Tanzania provided that the same meet internationally acceptable standards or those set by the Tanzania Bureau of Standards. The Regulations state that Tanzanians shall be given first priority for employment and an adequate provision should be made for training of Tanzanians.
  • The Plan shall also include a provision relating to how the Contractor intends to guarantee the use of locally manufactured goods which meet the required specifications in the mining industry.
  • The local content plan must have the following sub-plans (a) employment and training, (b) research and development, (c) technology transfer, (d) legal services and (e) financial services.

9. Minimum local content requirements and local content reporting

  • The Regulations specify the local content levels which shall be observed by the Contractor. In addition to the local content levels stipulated in the 1st Schedule of the Regulations, the Commission has the discretion to determine the applicable local content levels to be achieved taking into consideration the work programme.
  • The Contractor shall within 45 days on commencement of each year submit to the Commission an Annual Local Content Performance Report (the Report) which shall cover its projects and activities for the year under review. The report shall be in a prescribed format and shall specify a category of expenditure of the local content on both current and cumulative cost basis and show the employment achievement in terms of hours worked by Tanzanians and foreigners, their job positions and remuneration.
  • The Commission shall review the Report to ensure compliance with the Regulations. The Commission shall have access to the Contractor's facilities, documents and information as may be required.
  • The Contractor shall also ensure that its local content policies, procedures and obligations are published on its website and that the same are communicated to the persons engaged by the Contractor in its mining activities.

10. Bidding

  • The Contractor shall set up a bidding process for acquisition of goods and services which gives preference to Tanzanians. The Contractors shall not award a contract based solely on the lowest bidder and a Tanzanian Company shall not be disqualified because it is not the lowest financial bidder.
  • If the total value of the bid by a qualified Tanzanian Company does not exceed the lowest bid by more than 10%, the contract shall be awarded to the Tanzanian Company. When evaluating the bids which are considered to be equal, the bid containing the highest level of local content shall be selected.
  • If a Foreign Company is required to provide goods and services to the Contractor, the former shall incorporate a company in Tanzania and shall, where practicable, provide the goods and services in association with a Tanzanian Company.
  • The Commission shall establish bid evaluation guidelines to ensure that there is an annual progression of the local content objectives.
  • Further to the foregoing, the Regulations list documents to be provided to the Commission before (a) issuing pre-qualification notification to the prospective bidders, (b) request for proposals or request for quotations and (c) before awarding of a contract or purchase order to the selected bidder.
  • Upon receiving the foregoing documents, the Commission shall, within 14 working days, inform the Contractor whether or not the documents submitted are satisfactory. If the Commission fails to respond within the prescribed time, the submission shall be deemed approved.

11. Review and approval of contracts and submission of quarterly forecasts

  • The Contractor shall apply for the Commission's approval on proposed contracts or purchase orders in excess of US$ 100,000, which are to be sole sourced or sourced competitively. The Commission shall communicate its decision to the Contractor within 10 working days and if it fails to do so within the prescribed time, the Commission shall be deemed to have issued its approval.
  • The Contractor shall submit to the Commission no later than the 1st day of each quarter, any contract or purchase orders to be sole sourced and those which are estimated to exceed US$ 100,000 and intended to be tendered for or executed in the next quarter.
  • The Commission shall in its discretion review the Contractor's contracts and it shall within 7 working days of commencement of a quarter of the year, advice the Contractor which of its contracts shall be reviewed by the Commission.

12. Employment and training sub-plan and succession plan

  • This sub-plan shall include a forecast of the hiring and training needs of the Contractor while specifying skills needed and skill shortages in the Tanzanian workforce, specific training requirements and anticipated expenditure to be incurred by the Contractor in employing and training Tanzanians.
  • The sub-plan shall also contain a timeframe within which the Contractor shall provide employment to Tanzanians for each phase of the mining activities and efforts made for accelerated training of Tanzanians.
  • The Contractor shall provide to the Commission quarterly reports in relation to employment and training activities, comparative analysis of the sub-plan and actual employment and training activities to monitor compliance and the number of Tanzanians employed during the respective quarter and their job descriptions.
  • If Tanzanians are not employed due to a lack of expertise, the Contractor shall ensure that every reasonable effort is made to provide training to Tanzanians in that field.
  • The Contractor shall submit to the Commission a succession plan for employment positions which are occupied by non-Tanzanians to ensure that the minimum local content levels specified in the Regulations are met. The succession plan shall provide for and require Tanzanians to understudy the requirements of the position held by non-Tanzanians for a period to be determined by the Commission and after the specified period, the position shall be assumed by a Tanzanian.
  • The Regulations require that all junior and middle positions e.g. foreman, supervisor shall be held by Tanzanians only.

13. Programme for research and research development sub-plan

  • Upon being granted a mining licence and before commencing mining activities, the Contractor shall submit a programme for research, development and budget to the Commission for promotion of education, practical attachments, trainings, research and development in relation to the overall work programme activities.
  • This sub-plan shall outline a revolving 3 to 5 year programme for mining relating to research and development initiatives, expected infrastructure for implementation of the sub-plan, public calls for proposals for research and development initiatives and criteria for selecting proposals which qualify for support
  • The Contractor is required to update this sub-plan annually and submit it to the Commission for review and approval.

14. Technology transfer programmes and reporting

  • The Commission shall, after consultation with the relevant Government departments, develop and publish the national policy for technology transfer applicable to the mining industry.
  • The Contractor shall support and carry out the programme in accordance to the national plan on technology transfer for the promotion of technology transfer to Tanzania.
  • The technology sub-plan shall include a programme of planned initiatives aimed at promoting the effective transfer of technologies from the Contractor to Tanzanian Companies or Tanzanians.
  • The Regulations further provide that the Contractor shall support and facilitate technology transfer by forming JVs, partnering of licensing arrangements between Tanzanians and Foreign Contractors, suppliers and service providers.
  • The Contractor shall submit annually to the Commission, a technology transfer report stating the technology transfer initiatives being pursued and the results in relation to the technology transfer sub-plan.

15. Use of insurance, legal and financial services

  • The Contractor shall comply with the local insurance laws. Insurable risks in the mining activities shall be insured through an indigenous brokerage firm or an indigenous reinsurance broker. Approval shall be required prior to a person obtaining offshore insurance services. The Insurance Commission shall ensure that local capacity has been fully exhausted prior to issuing the approval.
  • The Contractor shall retain a Tanzanian legal practitioner or a firm of Tanzanian legal practitioners whose principal office is located in Tanzania for offering legal services. The legal services sub-plan shall be submitted to the Commission and shall include a comprehensive report on legal services utilised in the preceding six months and relevant expenditure, forecast of legal services required during the ensuing six months, the projected expenditure for the services and annual legal services budget for the ensuing year.
  • The Contractor shall retain the services of a Tanzanian financial institution for providing financial services with respect to a mining activity and the Commission is empowered to approve use of a foreign financial institution. The Contractor shall prepare a financial services sub-plan which shall specify the financial services utilised and expenditure in the preceding six months, the forecast of financial services required in ensuing six months, the projected expenditure for the financial services and the list of financial services utilised in the preceding six months.

16. Use of bank accounts

  • The Contractor shall maintain a bank account with an indigenous Tanzanian bank and transact business through banks in Tanzania. An indigenous bank means a bank which is 100% owned by Tanzanians or a majority shareholding is made up of Tanzanians.
  • This may require Tanzanian banks which have foreigners as majority shareholders to re-structure their shareholding so they can retain mining companies as their clients.

17. Common Qualification System (the System)

  • The Commission shall set up the System with the objective of acting as a sole system for registration and pre-qualification of local content in the mining industry.
  • The System shall be used for verification of the contractors' capacities and capabilities, evaluation of application of local content, tracking and monitoring of performance and provision of feedback and ranking and categorisation of mining service companies.

18. Monitoring, compliance and enforcement

  • The Commission may issue guidelines allowing the reporting requirements as specified in the Regulations to be done electronically.
  • The Commission shall also establish review guidelines and procedures for effective implementation of the Regulations which shall include requirements and targets for growth of research and development of the mining industry, minimum standards, facilities, personnel and technology for training, investment in or setting up a facility, factory, production unit or other operation in Tanzania etc.
  • The Commission has the power to initiate an investigation into an activity by the Contractor for the purpose of monitoring the implementation of the Regulations within the framework of the national policy and local content. This includes the Commission's power to launch an investigation to ensure that the Tanzanian company principle is not diluted by the operation of a Front or bid rigging and canalisation are avoided in the procurement process.
  • 'Front' means to deceive or behave in a particular manner intended to conceal the fact that a company is not a Tanzanian company.

19. Offences and penalties

  • The Regulations provide that a person who submits a plan, return or report which is false commits an offence and upon conviction shall be fined between Tshs. 50 and 500 million and/or imprisonment of a term between 2 to 5 years.
  • A citizen who acts as a Front or connives with a foreign citizen or company to deceive the Commission as representing a Tanzanian company to achieve the local content requirements, commits an offence and can be fined between Tshs. 100 and 250 million and/or imprisonment between 1 to 5 years.
  • A person who fails to support and carry out a programme for technology transfer according to the national plan, support and facilitate technology transfer in terms of forming JVs or partnering of licensing agreements between Tanzanians and foreign contactors, service providers and suppliers, ensure that its partners report local content information, communicate local content policies, procedures and obligations is liable to pay the Commission a penalty of Tshs. 100 million in the first instance and a further penalty of 5% for each day during which the contravention continues.
  • A Contractor who fails to observe the local content requirement, fails to submit or satisfy the local content plan or fails to inform the Commission of each proposed contract or purchase order shall pay the Commission a penalty of 5% of the value of the proceedings from the mining activities or US$ 5 million, whichever is greater and further liable for cancellation of the contract in respect of the mining activity.
  • Failure to pay an imposed penalty shall be considered as a debt owed to the Republic and recoverable by the Commission under summary procedure.

20. Compliance with the Regulations

  • Within 3 months after coming into force of the Regulations, the Contractor engaged in the mining activity shall make arrangements and plan as necessary for complying with the Regulations.
  • It is worth noting that, apart from the Local Content Regulations, the following regulations have been enacted:
    • The Mining (Mineral Beneficiation) Regulations, 2018 which repeals the Mineral Beneficiation regulations of 2010.
    • The Mining (Audit and Inspection of Records) Regulations, 2018.
    • The Executive Agency (Geological Survey Agency) (Disestablishment) Order, 2018.
    • The Mining (Geological Survey) Regulations, 2018.
    • The Mining (Mineral Rights) Regulations, 2018 which repeals the Mineral Rights regulations of 2010.
    • The Mining (Radioactive Minerals) Regulations, 2018 which repeals the Radioactive Minerals Regulations of 2010.
    • The Executive Agency (Tanzania Mineral Audit Agency) (Disestablishment) Order, 2018.
    • The Mining (Minerals And Mineral Concentrates Trading) Regulations, 2018.