On October 30 2020, the Minister of Minerals promulgated the Mining (State participation) Regulation Government Notice No. 939 of 2020 which essentially sought to give effect to section 4 and 10 of the Mining Act CAP 123 R.E 2019 which provides for the state participation in mining operations.

The Regulation provides for the 16% of non-dilutable free carried interest shares that the Government of Tanzania shall have in any mining operations under a mining license or special mining license and the government has the right to acquire more shares up to 50% of the share capital of a mining company

Regulation 4 provides for the nature of non-dilutable free carried interest shares which is defined under section 4 of the Mining Act to mean the "interest derived from holding shares of which the holder enjoys all the rights of a shareholder but has no obligation to subscribe or contribute equity capital for the shares." These shares shall be treated as a special class of shares and the shareholder shall be entitled to dividend and the shares shall not decrease in value or percentage of ownership.

In accordance to Regulation 5(1), the Government through the Treasury Registrar shall acquire not less than 16% of the non-dilutable free carried interest shares in the capital of a mining company or any person holding a mining license or special mining license. Furthermore, Regulation 5(2) provides that the government can acquire up to 50% of shares in a mining company. The acquisition of the 50% shares shall be determined by the total value of the tax expenditures enjoyed by the mining company or a person holding mining license or special mining license through tax exemptions and reliefs.

The Government is vested with an obligation to review tax expenditures enjoyed by the mining company in every two years after the commencement of the Regulation so as to determine the number of shares to be acquired by the Government. This provision is quite puzzling as one wonders what the point of providing tax incentives is if those same tax incentives provided can be transformed into actual shares in the Company. So by virtue of regulation 5 (2) one can say that there are in fact no tax incentives in the mining sector.

 

Regulation 6 stipulates that the Mining Commission, the office of the Treasury Registrar together with Tanzania Revenue Authority shall deliberate and determine the level of investment made by the mining company on which the Government shall be entitled to acquire the 16% or more of the non-dilutable free carried interest shares.

Regulation 6(2) sets the determinant factors for the level of investment of a mining company to include;

  • capital invested;
  • mining technology;
  • profit; and
  • total value of tax expenditures enjoyed by the mining company.

Regulation 7 provides for that all the shares of the Government in mining operations shall be managed and controlled by the Treasury Registrar with the assistance of the Mining Commission, Ministry of Finance and Planning, Ministry of Minerals, Bank of Tanzania and Tanzania Revenue Authority.

Regulation 8 imposes a duty to the mining company to disclose information pertaining to expenditure, production, revenue and profit to the Commission.

The rights of the Government as a shareholder of 16% or more shares in a mining company are covered under Regulation 10. The government shall enjoy the rights of shareholder as provided under the Companies Act which include;

  • Right to be issued with shares certificate as evidence of title over a number of shares held in a mining company and have actual ownership of the no-dilutable free carried interest shares from the start;
  • Shall be registered in members' register of the company which shall be kept at the registered office of the company within Tanzania;
  • To participate in company's statutory meetings, including annual general meetings and other meetings and its right to vote;
  • To participate in the governance of the company by appointing a director to represent Government interest and participating in the removal of a director;
  • To have access to company's reports relating to company's accounts, director's and auditor's reports;
  • To receive dividends;
  • Right to automatic allotment to it of shares of a mining company without direct financial contribution by cash or otherwise for the value of shares;
  • To receive a proportionate share from any repayment of either equity, shareholding loan or third-party loan

The government by holding 16% or more non – dilutable free carried interest shares in the capital of the mining company under Regulation 11, shall have no obligation to subscribe for shares neither to show any commitment to take up shares or stock by actually subscribing to the Memorandum and Articles of Association. Also, it shall not be obligated to contribute any equity capital, repayment of shareholder loan or third-party loan.

Regulation 13 provides further on the nature and the life span of the free carried interest shares acquired by the Government, whereby the shares shall be deemed to be fully paid-up shares at the time of its allotment or issuance and shall exist throughout the life time of the mineral right of a mining operation.

By enforcing this regulation, the Government of Tanzania gets to enjoy and reaps all the benefits of being a shareholder in a mining company throughout the duration of the mining license of a company without subscribing to the share capital or making any contributions.

This may discourage investors in the mining sector as they seem to carry all the financial burden of running the company and share the benefits with the Government; and the same Government may acquire more shares from the tax exemptions granted to the investors under the umbrella of tax incentives which clearly is non-existent.

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