The new Natural Wealth and Resources Contracts (Review and Re-Negotiation of Unconscionable Terms) Regulations, 2020 (the Unconscionable Terms Regulations) and the Natural Wealth and Resources (Permanent Sovereignty) (Code of Conduct for Investors in Natural Wealth and Resources) Regulations, 2020 (the Code of Conduct Regulations) were published in Government Notices No. 57 and 58 on 31 January 2020 pursuant to section 8 of the Natural Wealth and Resources Contracts (Review and Re-negotiation of Unconscionable Terms) Act, 2017 (the Unconscionable Terms Act) and section 13(2)(a) of the Natural Wealth and Resources (Permanent Sovereignty) Act, 2017 (the Permanent Sovereignty Act) respectively.
In this newsflash, we focus on certain key elements of the new regulations and the potential consequences for stakeholders in the Tanzanian extractives sector.
The amendments to Tanzania’s Mining Act in 2017, as well as changes introduced by the Unconscionable Terms Act and the Permanent Sovereignty Act, ushered in a significantly altered regime for the regulation of mining and oil and gas operations in Tanzania.
Among other things, the Unconscionable Terms Act mandates the Government of Tanzania to interrogate and, where deemed appropriate, renegotiate the terms of existing investor-state agreements where Parliament considers those agreements, or aspects of them, “unconscionable”.
In terms of the Unconscionable Terms Act, a provision of an investor-State agreement is unconscionable where it:
- restricts government authority over foreign investment;
- is inequitable to and onerous on the State;
- secures preferential treatment of, or creates a separate legal regime to be applied to, the investor;
- deprives Tanzanian citizens of economic benefits arising from beneficiation in Tanzania; and
- subjects the State to the laws of foreign jurisdictions.
Further, the Permanent Sovereignty Act requires, among other things, Parliamentary approval for all investor-State agreements, which must fully secure the interests of Tanzanian citizens.
Moreover, the Act restricts the export of raw minerals, the repatriation of proceeds arising from extraction activities and changes the permissible approach to international dispute resolution for disputes arising in relation to Tanzanian natural resources*.
The Unconscionable Terms Regulations and the Code of Conduct Regulations are intended to provide greater detail and certainty in relation to certain of the requirements introduced in the earlier legislative amendments and reform.
Some of the key aspects of this are discussed below.
The Unconscionable Terms Regulations
The Unconscionable Terms Regulations, among other things:
- establish general principles that will be used by both parties to guide the conclusion of all arrangements and agreements pertaining to natural wealth and resources in Tanzania. These principles include fair dealing, honesty, and utmost good faith;
- mandate the Minister of Constitutional and Legal Affairs (the Minister) to coordinate, monitor and manage all such contracts and to report to the President in accordance with the applicable laws and procedures;
- give the Minister the power to establish and maintain an observation system to enable effective consultation, coordination and cooperation with other Ministries, Government Departments, and Agencies or any other public or private institutions or body established pursuant to any written law dealing with natural wealth and resources;
- establish a Register within the Ministry of Constitutional and Legal Affairs (the Ministry), where information relating to natural wealth and resources arrangements or agreements shall be maintained;
- stipulate that the Director responsible for natural wealth observation activities in the Ministry shall be designated as the Registrar of natural wealth and resources agreements and shall, among other things:
- provides a mechanism where the responsible person on behalf of Ministries, Government Departments and Ministries, and Agencies or any other public or private institutions dealing with natural wealth and resource arrangements or agreements shall submit an application for registration of such an agreement to the Registrar. Submission of an arrangement or agreement shall:
- requires the Registrar to register an arrangement or agreement submitted to him and assign a registration number to it, which shall identify of the arrangement or agreement so registered, to be used in all transactions and correspondences related to such arrangement or agreement.
The Unconscionable Terms Regulations also elaborate on the procedure for the review of arrangements or agreements with investors by the National Assembly and set out the process for re-negotiation of existing investor-State agreements, where required. We can provide more information on these processes, if required.
In terms of the Unconscionable Terms Regulations, any re-negotiations commenced prior to the publication of the Unconscionable Terms Regulations remain unaffected by these Regulations.
The Code of Conduct Regulations
The objective of the Code of Conduct Regulations is to ensure that arrangements or agreements on natural wealth and related or connected business or activities are conducted in a manner consistent with the highest ethical principles at all times, and within the requirements of the Constitution of the United Republic of Tanzania, 1977 (the Constitution) and all applicable national policies and laws.
The Code of Conduct Regulations are applicable to an entity, consultant, supplier, contractor, investor, partner and agent, including their employees, involved in any arrangement or agreement on natural wealth and resources. This makes the potential scope of application very broad.
Regulation 5 of the Code of Conduct Regulations states that an investor who enters into any arrangement, agreement, business or activity in natural wealth and resources shall at all times comply with all applicable policies, laws, regulations and other binding instruments and decisions based upon such instruments.
Regulation 6 of the Code of Conduct Regulations effectively requires every entity, consultant, supplier, contractor, investor, partner and agent governed by the Code of Conduct Regulations (including their employees) to operate in good faith, transparently and in the general interest and welfare of the people of the United Republic of Tanzania, to whom the natural wealth and resources belong.
Such persons are further required to report to the Government any conduct that is likely to deny the people of Tanzania any benefits accruing from the prospecting, exploration, or utilization of these natural wealth and resources. However, it is unclear how this report should be made and to whom in the Government it should be addressed.
Among other things that will be of particular interest to investors in the extractive sector in Tanzania is that the Code of Conduct Regulations provide new compliance requirements for investors in the sector.
- to include the Code of Conduct Regulations in all employment contracts and in the company’s policies and procedures from 31 January 2020 and create procedures for adherence to the Code of Conduct Regulations. In practice this can be adhered to by investors by incorporating the Code of Conduct Regulations by reference in all the employment contracts and in the company’s policies and procedures;
- the signing and submission of the integrity pledge prescribed in the Schedule to the Code of Conduct Regulations to, among other things, confirm compliance with ethical business practices in order to support the national campaign against corruption. The integrity pledge is to be signed by the chief executive officer and director of the company and submitted to the sectoral Ministry as well as displayed at the investors place of business;
- investors are obliged at all times be conscious of possible conflicts of interest and to address such matters in good faith and transparently and exercise care and diligence to prevent a conflict of interest from arising. Further, a failure to address a conflict of interest is a breach of the Code of Conduct Regulations. It is unclear how this will work in practice, however, Regulation 5(3) of the Code of Conduct Regulations requires an investor to seek guidance from the Attorney General if the provisions of any legislation, the requirements of the Code of Conduct Regulations or other instruments related to natural wealth and resources are, or become, ambiguous or unclear or otherwise cause uncertainty;
- not engage in any activities amounting to corruption, bribery, trading in influence, the making of facilitation payments as well as other form of economic and organised crimes;
- respect and uphold basic rights as set out in the Constitution;
- not in the course of implementing any activity, discriminate against any person on the basis of gender, age, disability, sex, tribe, religion, marital status, union membership or political belief and affiliation;
- observe workers’ rights and child rights protection;
- ensure that all activities are consistent with environmental best practice; and
- avoid any breach of applicable competition laws and regulations.
It is therefore very important for the investors in the extractive sector to review the Code of Conduct Regulations and to engage the Government on areas that cannot be complied with immediately, as a breach of the Code of Conduct Regulations can lead to termination of the relevant investor-State agreement.
The Government is entitled to audit and monitor any investor bound by the Code of Conduct Regulations in order to verify compliance. Where an investor commits serious or repeated violations of the Code of Conduct Regulations, and appropriate corrective actions have not been taken within a reasonable time frame, the Government may terminate its business relationship with the investor without that investor being entitled to compensation or other remedies.
For further information, please contact Chris Green, Aisha Sinda or your relationship partner in Tanzania.
* The Arbitration Act, 2020 (the Act) was passed by Parliament on 7 February 2020, and repealed and replaced the Arbitration Act, 1931 Cap. 15 [R.E. 2002]. The Act is aimed at creating an investor-friendly regime which will encourage alternative dispute resolution together with establishing a more conducive framework for enforcement of arbitral awards. The Act also made amendments to the Permanent Sovereignty Act to remove the word “established” in subsections (2) and (3) of section 11 of the Permanent Sovereignty Act. The consequences of the amendments to the Permanent Sovereignty Act is that the Permanent Sovereignty Act now allows investors to access international arbitration, save that the law applicable to, and seat of the arbitration, must to be that of Tanzania. In our view, even in a case where certain terms of the arbitration clause in an investor-state agreement are held to be invalid solely by the reason of them being inconsistent with the Permanent Sovereignty Act such terms will remain valid as against the Government to the extent that a legal opinion of the Attorney General of Tanzania has been procured and that respective authorised Government officials have signed. In addition, there is a case law to support the proposition that in circumstances where the parties had implemented the terms of the agreement which was held to be wholly invalid, the agreement remained valid inter partes.