MINING LAW UPDATE: UNPACKING THE MINING (LOCAL CONTENT) REGULATIONS, 2018 AND THE MINING (LOCAL CONTENT) (AMENDMENTS) REGULATIONS, 2019.

• Salient Features of the Mining (Local Content) Regulations, 2018 and the key changes brought forth by the Mining (Local Content) (Amendments) Regulations, 2019.
• Analysis and implications of the requirement for indigenous equity participation in mining activities as well as in the local content requirements in staffing of mining related entities.
• Know the minimum equity thresholds for various types of mining issues and their implications, including penalties for non-adherence to the Regulations
• How service providers, including legal, insurance and financial sector working with mining entities in the mining industry are affected by the local content requirements.

1.0      Introduction:

The Mining (Local Content) Regulations, 2018 (hereinafter referred to as “the Regulations”) imposes the local content requirements which were introduced for the first time by the Written Laws (Miscellaneous Amendments) Act No. 7 of 2017 which amended the Mining Act, 2010.

However, on 08^th February, 2019, the Ministry of Minerals published the Mining (Local Content) (Amendments) Regulations, 2019 (hereinafter referred to as “the Mining Local Content Amendments Regulations”) which revised the Regulations.

In this mining update, Breakthrough Attorneys through the mining, oil and gas and investment department provide a highlight on the Regulations together with its amendments.

2.0.     Exploring Salient Features of the Mining Local Content Regulations and it amendments:

The Regulations aim at developing local skills in order to build a workforce that is skilled and a competitive supplier force in the mining sector. This being the case, the Regulations under Regulation 7 requires all contractors, subcontractors, licensees, or other allied entity carrying out a mining activity to comply with local content requirements.

The following is a summary of the main features of the Mining Local Content Regulations:-

2.1  Establishment of the Local Content Committee (Regulation 5of the Mining Local Content Regulations)

The Regulations have established the Local Content Committee which is amongst other things, responsible for overseeing its implementation and ensuring measurable and continuous growth in local content in all mining activities.

2.2 Involvement of indigenous and ownership of a company by Indigenous Tanzanians (Regulation 3 of the Mining Local Content Regulations read together with Regulation 2 of the Mining Local Content Amendments Regulations)

The Regulations as amended by the Mining Local Content Amendments Regulations define an indigenous company to mean a company incorporated under the Companies Act No. 12 RE. 2002 and has at least 20% of shares owned by Tanzanians and has at least 81% of Tanzanians in the executive and senior level position and 100% of Tanzanians in non-managerial and other positions.

According to Regulation 8 (1) of the Regulations, preference in the grant of a mining license shall be granted to Tanzanians. Our interpretation of this provision is that, where there is a competition between an indigenous Tanzanian company and a non-indigenous company, first preference shall be given to a local Tanzanian company.

2.2.1. Other Companies Leeway

Furthermore, the Regulations under Regulation 8 (2) provide that, for any company other than an indigenous Tanzania company to be qualified for grant of a mining license there shall be at least 5% equity participation held by an indigenous Tanzanian Company. The regulation actually suggests that the Minister may, in his discretion, from time to time determine the equity participation ratio hereto in a case-to-case basis.

This can be seen as the window to avoid the stringent and strict rules under Regulation 8(1) but the same is subject to the determination and discretion of the Minister and on good cause to be shown.

The Regulations have clearly stipulated only on grant of the Mining License. This means that local Tanzanians may not be prioritized when it comes to applications of Special Mining License.

2.3  Provision of Services to mining companies and related mining entities (Regulation 8 (6) of the Mining Local Content Regulations)

For a non-indigenous company to provide goods or services to a contractor or licensee in Tanzania it will be required to form a joint venture company with an indigenous Tanzanian company after affording such company an equity participation of at least 20%.

In essence, this Regulation completely forbids provision of any type of services by an international service provider to mining setups in Tanzania if the same does not feature at least a 20% equity stake owned by Tanzanians. The Regulation does not limit applicability to certain types of services; and essentially, it applies to all types and sizes of services across the industry.

2.4  Submission and approval of the Local Content Plan (Regulation 10 of the Mining Local Content Regulations)

The Regulations require a contractor or licensee to submit the Local Content Plan for approval by the Mining Commission. Local Content Plan shall be submitted at the time of making an application to undertake mining activities in Tanzania.

After receiving the Local Content Plan, the Mining Commission shall within seven (7) days acknowledge receipt and send the same to the Local Content Committee who shall review it and revert to the Mining Commission within sixty (60) days.  The Mining Commission may either approve or disapprove the application based on the recommendations from the Local Content Committee. However, if the Mining Commission approves an application it shall communicate its decision to the applicant within thirty (30) working days of approval. If the Mining Commission rejects an application, it shall communicate its decision with reasons to the applicant within thirty (30) working days of its decision. This is provided under Regulation 11 of the Regulations read together with Regulation 3 of the Mining Local Content Amendments Regulations.

The local content plan must have the following sub-plans:

1. employment and training;
2. research and development;
3. technology transfer;
4. legal services and
5. financial services.

The aim of submitting the Local Content Plan is to make sure that a contractor or licensee is willing and able to involve indigenous Tanzanians throughout its mining operations.

2.5  Bidding Process and evaluation (Regulation 15 of the Mining Local Content Regulations)

The Regulations further require contractors or licensees to set up a bidding process for procurement of goods and services that gives priority to Tanzania. Furthermore, contractors are required not to award a contract based solely on the principle of the lowest bidder. That is to say, an indigenous Tanzania company shall not be disqualified exclusively on the basis that it is not the lowest financial bidder.

2.6  Submission of Employment and Training sub-plan and succession plan (Regulations 20 and 21 of the Mining Local Content Regulations)

A contractor or licensee is required to submit Employment and Training Sub-plan to the Mining Commission with respect of the mining activity. This sub-plan shall contain the following:-

1. hiring and training needs of the of the contractor;
2. a specification of the skills needed;
3. the anticipated skills shortage in the Tanzanian workshop;
4. the specific training requirements; and
5. the anticipated expenditure that will be incurred by the contractor.

The Contractor has to provide (quarterly) to the Mining Commission 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.

A contractor shall also submit to the Mining Commission a succession plan for any employment position that is occupied by a foreigner to make sure that the minimum local content requirements are met.

2.7  Programme for research and research development sub-plan (Regulation 23 of the Mining Local Content Regulations)

After grant of the mining license and before commencement of mining activities, a contractor is required to submit a program for research, development and budget to the Mining Commission. A research and development sub-plan shall:-

1. outline a revolving three to five year programme for Mining related research and Mining (Local Content) development initiatives to be undertaken in the country;
2. provide details of the expected expenditure that will be made in implementing the Research and Development Sub-Plan;
3. provide for public calls for proposals for research and development initiatives associated with the activities of the contractor, subcontractor, licensee or other allied entity and criteria for selecting proposals which qualify for support.

2.8   Technology transfer programs and reports (Regulation 26 of the Mining Local Content Regulations)

A contractor is required to support the Mining Commission in carrying out the technology transfer program in accordance with the national plan on technology transfer for the promotion of technology transfer to Tanzania specifically in the Mining Industry.

Furthermore, a contractor is required to submit a technology transfer report annually to the Commission stating the technology transfer initiatives being pursued and the current results in relation to the Technology Transfer Sub-Plan.

2.9  Use of local insurance, legal and financial services (Regulations 30, 32 and 34 of the Mining Local Content Regulations)

Further to item 2.3 above highlighting the import of Regulation 8(6) regarding general local content requirements when it comes to sourcing services, contractors engaging in mining activities are required to specifically comply with the Insurance Act of Tanzania and shall be insured through a local insurance company.

Likewise, whenever such a contractor requires legal services in the country it is required to retain only the services of a Tanzanian legal practitioner or a firm of Tanzanian legal practitioners whose principal office is located in Tanzania.

A contractor that requires financial services with respect to a mining activity shall retain only the services of a Tanzanian financial institution or organization. However, with the approval of the Mining Commission a contractor may engage the services of a foreign financial institution or organization. Meaning of a Tanzania financial institution and a foreign financial institution shall be as such described in the Banking and Financial Institutions Act of Tanzania. This is according to Regulation 34 of the Regulations read together with Regulation 5 of the Mining Local Content Amendment Regulations.

2.10  Local Content performance reporting (Regulation 37 of the Mining Local Content Regulations)

The Regulations create a duty to Contractor to submit an annual local content Performance Report. This is required to be done within forty-five (45) days of the beginning of each year after commencement of mining activities. The report must cover all its (contractor’s) projects and activities for the year under review. The Local Content Performance Report has to have a category of expenditures and employment achievements.

The Mining Commission is obligated to assess and review the Local Content Performance Report to ensure compliance with these Regulations, within fifty (50) working days after receipt of the Local Content Performance Report.

2.11  Establishment of a common qualification system (Regulation 40 of the Mining Local Content Regulations)

For purposes of better carrying the functions of the Mining Commission, it is required to schedule consultations with stakeholders in the mining industry, so as to establish a Common Qualification System. The Common Qualification System is intended to achieve the following goals:

1. verification of contractors’ capacities and capabilities;
2. evaluation of application of local content submitted by a contractor, subcontractor, licensee or other allied entity;
3. the tracking and monitoring of performance and provision of feedback; and
4. ranking and categorization of mining service companies based on capabilities and local content.

 2.12  Monitoring compliance and enforcement (Regulation of the Mining Local Content Regulations)

As has been the issue with previous mining laws and enforceability thereafter, compliance and enforcement is at the foremost of the 5^th phase Government. In so ensuring, the following are the measures highlighted in the Regulations, towards enforcement of the rules and ensuring optimum compliance;-

1. Ability of the Commission to issue guidelines to provide for a system requiring documents under these Regulations to be filed in electronic form.
2. Plan for the Commission to establish and constantly review guidelines and procedures for the effective implementation of these Regulations.
3. Power and tasking the Commission to monitor and investigate the activities of each contractor, to ensure the achievement of the purpose of these Regulations within the framework of the national policy on local content.
4. the Mining Commission may, for the purposes of enforcing the Mining Local Content Regulations may initiate an investigation into an activity of a contractor.

2.13  Offences and penalties (Regulation 49 of the Mining Local Content Regulations)

The Regulations establishes various offences and penalties which ranges from fines between Tshs. 5,000,000/= to USD 5,000,000 and interests on occassions; as well as imprisonment of minimum of 1 years to maximum of 5 years. These ranges are varying depending on offence and severity thereof.

Proceedings to recover unpaid penalties and fines are deemed a debt to the state and are recoverable under Summary Procedure before the High Court of Tanzania. Summary Procedure (provided under Order XXXV the Civil Procedure Code, Cap 33) presupposes a one sided claim by the State with the Defendant having no right to appear and defend, unless granted a leave by the Court to appear and defend.

3.0.     Key Changes and implications of the Mining (Local Content) (Amendments) Regulations, 2019:

3.1 Indigenous Tanzanian companies face less stringent local ownership requirements

The Mining Local Content Amendments Regulations emphasizes for local Tanzania companies to be given first priority in the grant of mining license.

The Mining Local Content Amendment Regulations now require that a minimum of 20% of a company’s shares must be held by Tanzanian citizens for that company to qualify as an indigenous Tanzanian company. This has been significantly reduced from the previous 51% minimum requirement under the Local Content Regulations prior to the amendment.

3.2  Contractors in the mining activities to use Tanzanian banks and financial institutions

The Mining Local Content Regulations require a Stakeholder wanting financial services with respect to a mining activity to only retain the services of a Tanzanian financial institution or organisation, unless the Mining Commission approves the use of a foreign financial institution or organisation. The Mining Local Content Amendments Regulations have clarified the meaning of ‘Tanzanian’ and ‘foreign’ for these purposes, by reference to the definitions in Tanzania’s main banking legislation (the Banking and Financial Institutions Act, 2006).

The Mining Local Content Regulations required a Stakeholder to also maintain a bank account with an ‘indigenous Tanzanian bank’ which was majority Tanzanian owned. The Mining Local Content Amendments Regulations now require Stakeholders to maintain bank accounts with a Tanzanian bank that has at least 20% Tanzanian shareholding.

3.3  Changes in the timeframes for approval of local content plans

The Mining Local Content Regulations set deadlines for the Mining Commission and Local Content Committee to acknowledge receipt of, review and communicate decisions on local content plans, and the Mining Local Content Amendments Regulations have extended these timeframes.

These amendments are likely driven by the fact that the Mining Commission and the Local Content Committee sit periodically and comprise both full-time and part-time members and thus lack the capacity to deal with the volume of local content plans submitted to them.

The Mining Local Content Amendments Regulations also remove a provision in the Mining Local Content Regulations that provided for ‘deemed’ approval of a local content plan after fifty (50) days where the Mining Commission failed to notify a Stakeholder of an outcome in that period of time. As a result, there is now uncertainty regarding the repercussions if the Commission fails to act within the prescribed timeframes to either approve or reject a local content plan.

Also the Mining Local Content Amendments Regulations has extended time for the Mining Commission to communication its decision to the applicants from seven (7) days to thirty (30) days.

3.4  Stakeholder engagement on minimum local content levels

The First Schedule to the Mining Local Content Regulations sets out minimum local content thresholds that Stakeholders should achieve in hiring Tanzanian citizens and for local procurement spend on supplies of goods and services.

The Mining Local Content Regulations empower the Minister of Minerals, in consultation with the Mining Commission, to prescribe further minimum local content levels to supplement those in the First Schedule of the Local Content Regulations. However, the Mining Local Content Amendments Regulations add that the Minister of Minerals should, when doing so, consult to ensure that the views of Stakeholders have been sought.

4.0. Conclusion:

While uncertainties with respect to the implementation of the local content regime remain, the Mining Commission, the Local Content Committee and the Ministry of Minerals have been seeking, and accommodating, Stakeholder engagement in this regard and, in our view, the Mining Local Content Amendments Regulations represent a positive development in the Tanzanian mining space arising from such engagement and ensuring several things at once;-

1. Indigenous people’s equity participation in mining activities
2. Capacity building in the local workforce through staffing and management cadre requirements
3. Guaranteed knowledge and technology transfer
4. Capacity building to indigenous service providers, both unskilled and technical
5. Closer regulatory system which ensures and guarantees stakeholders engagement by law

Subsequently, it is our experts’ belief that the rules will bear fruits akin to the targeted objectives, as long as the enforcement remains key and to the timelines and standards set and expected to be adhered.

 

Important Notice:

This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, Breakthrough Attorneys, its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.