Tanzania National Payment Systems Act amendments
The Mining (State Participation) Regulations of 2022
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Legal Development 03 October 2022 03 October 2022
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Africa
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Energy & Natural Resources
The Government of Tanzania recently issued the Mining (State Participation) Regulations Government Notice Number 574 of 2022 (the SPR 2022) which directly impact every mining company or person holding a Mining Licence (ML) or Special Mining Licence (SML) in Tanzania. The SPR 2022 revoke the previous regulations of 2020 (the SPR 2020) on this topic. In this article, we provide an overview of the SPR 2022 and the implications to consider.
Please see below key highlights of the SPR 2022:
- Requiring ML or SML holders to, within 90 days from the date of publication of the SPR 2022 i.e. 23 September 2022 give notice to the Mining Commission to initiate negotiations to enable the Government to acquire a shareholding in the project venture.
- The joint venture (JV) arrangement with the Government must be governed by a Framework Agreement substantially in the form set out in the First Schedule of the SPR 2022.
- The Government equity interest must comprise of:
- the mandated 16% and above non-dilutable free carried interest (FCI) shares;
- shares acquired by the Government through contributing its reversionary mineral rights;
- shares acquired through quantification of tax expenditures enjoyed by the mining entity; and
- shares mutually negotiated and agreed upon between the Government and the mining company.
- The FCI shares are now expressly regarded as preferred shares which entitle the Government to dividend.
- The mining company has an obligation (under certain prescribed circumstances) to issue loan notes, to the Government, representing a percentage of FCI shares.
- In negotiating the percentage of FCI shares to be issued to the Government over and above 16% consideration must be given to the extent of Government development of the public infrastructure servicing the mining venture.
Comparison of the SPR 2022 against the SPR 2020
S/N |
The SPR 2022 |
The SPR 2020 |
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Acquisition of Equity Interest (Regulation 6) The Government is now allowed to participate in mining activities through holding equity interests in any mining venture including mineral beneficiation. The SPR 2022 require ML or SML holders, to, within 90 days from the date of publication of the Regulations, give notice to the Mining Commission to initiate negotiations to enable the Government to acquire a shareholding in the venture. The JV arrangement must be governed by a Framework Agreement substantially in the form set out in the First Schedule. Accordingly, the Government equity interest must comprise of or a combination of:
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In the SPR 2020, other than the FCI shares, the Government could only acquire in total up to 50% of the shares in a mining company or any other person holding a ML or SML commensurate with the total tax expenditures incurred by the Government in favour of a mining company or any other person holding ML or SML. |
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FCI Shares (Regulation 7) In negotiating the percentage of FCI shares to be issued by the Government over and above 16%, the following must be taken into consideration:
Further, the FCI shares now entitle the Government to the following rights:
The above rights come with no obligation on the part of the Government to provide financial contribution on account of its shares even where there is an increase in share capital. In addition, the Government’s FCI shares shall not be diluted on the basis of increase of shareholders or on account of the borrower. |
The rights of the holder of FCI shares included:
The new regulation in the SPR 2022 provides additional clarity on the entitlement to the FCI shares and how these can be increased as well as other rights granted to the Government Shareholder. |
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Framework Agreement, Shareholders Agreement & Articles of Association (First, Second and Third Schedules) The new regulations have detailed the three documents which are substantially supposed to be adopted by the parties, subject to amendments as maybe negotiated and agreed between the parties. |
This is a new concept. |
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Reversionary Mineral Rights (Regulation 4) The Government can acquire an equity interest in a JV arrangement by contributing its reversionary mineral rights with a surrender value. |
This is a new concept. |
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Loan Notes (Regulation 8) The mining company has an obligation to issue loan notes, to the Government, representing a percentage of FCI shares for:
However, there is no obligation to issue loan notes to the Government for:
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In the SPR 2020, the Government was entitled to receive a proportionate share from any repayment of either equity, shareholding loan or third-party loan but did not provide for a mechanism to do so. However, the SPR 2022 provide for a mechanism for the Government to receive its proportionate share through loan notes. |
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Preferential Shares (Regulation 9) The FCI shares are now expressly regarded as preferred shares which entitle the Government to dividend, paid at a rate equal to the percentage of FCI, immediately once a distributable profit is recognised by a mining company. |
The SPR 2020 treated the FCI shares as a special class of shares with the entitlement to payment of dividend of a fixed amount in priority of another class or classes of shares. |
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Principle of Mining JV Arrangements (Regulation 11) The SPR 2022 provide for the underlying principles of any mining JV arrangement with the Government Shareholder which include:
Further to the above, the SPR 2022 allow the Government to opt for another modality of state participation in any mining JV other than by the above-mentioned principles by:
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This is a new concept. |
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Management of Mining JV Entities (Regulation 12) The day-to-day running of the JV entity must be governed by the Articles of Association in the form set out in the Third Schedule. |
This is a new concept. |
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Surrender Value and Conversion of Reversionary Mineral Rights (Regulation 5) The main thing to note here is that:
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This is a new concept. |
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New Definitions (Regulation 2) “Government Shareholder” means the Treasury Registrar or a company established or designated as such to hold Government shares in accordance with these Regulations; “Mineral rights” means prospecting licences, retention licences, mining licence and special mining licence; “Mineral resource estimation” means quantification of grades and tonnes of mineral deposits present in a given area; “mining interest” means any entity carrying on mining activities under a mining licence or special mining licence; “mining joint venture arrangement” means a joint venture arrangement between the Government and a mining company or investor for carrying out any mining activity or mineral refining or processing; “level of investment” means the investment level determined by the Mining Commission pursuant to the provisions of regulation 10; “prospecting licence” has the same meaning ascribed to it by the [Mining] Act [RE 2019]; “public infrastructure” means infrastructure facilities, systems, and structures that are developed, owned, and operated by the Government, including all infrastructure facilities that are open to the general public use; “retention licence” means a licence that ceased to exist by operation of regulation 21 of the Mining (Mineral Rights) Regulations; “reversionary mineral rights” means mineral right which revert to the Government upon cessation by operation of law and includes Prospecting Licence, Retention Licence, Mining Licence or Special Mining Licence; “reversionary certificate” means certificate granted under regulation 4(2) to the Government Shareholder in respect of reversionary mineral rights; “surrender value” means the value of reversionary mineral rights to be determined pursuant to these Regulations for the purpose of determination of the Government’s equity contribution to a mining joint venture arrangement or any other arrangement; “top executive management” means top management officials responsible for executive matters relating to management of company’s affairs; |
These were not provided in the revoked SPR 2020. |
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