Thursday, April 29, 2010


The mineral policies in Tanzania once called "new" are new no longer, and many of their objectives remain unattained. A decade ago, Tanzania embarked on mining sector reform, formulating a policy in 1997 and passing corresponding legislation 1998. The reform's main objective was to create an enabling environment for private investors in an industry that was previously state-controlled. Unfortunately, the goal of increasing the sector's contribution to national growth and poverty reduction has proven to be far-fetched. New reforms are underway, but the question remains, what really went wrong?

Tanzania's government has been preparing new mining legislation and the Draft Bill is now tabled (April 2010) for introduction in Parliament that would establish a new fiscal regime and legal framework to enhance the contribution of the country's mining sector. For the past ten years of implementation of the mining policy and law, the contributions of the mineral sector to the GDP reached only 2.7% despite becoming a top export earner.

The discrepancy has caused mounting public concern for policy, fiscal and legal reforms to increase the sector’s contribution to the national economy. In light of these ongoing reforms in the Tanzanian mining sector, the nation’s Parliament, civil society organizations and members of the media sought expert support from the Revenue Watch Institute to increase their capacity to effectively scrutinize and deliberate on the proposed legislation.

The current Tanzanian fiscal regime creates loopholes that might hinder the maximization of tax revenue from mineral extraction. The primary loopholes are through the practices of "ring fencing" and royalties. Ring-fencing is the practice of limiting cost recovery for an extractive project to the revenues generated by that same project. Tanzanian income Tax Law has no provision for ring-fencing on a mine-by-mine basis, leaving companies with the option of siphoning one mine's revenues to offset another's losses. Tanzania, for example from the case of Tulawaka and Buzwagi Mines, both owned by Barrick Gold. In 2006 the cost of developing the Buzwagi Mine was included as part of Barrick's operational costs, thereby reducing the taxable income of Tulawaka to the point where it effectively took a loss.

A question of royalty systems emphasized that oversight bodies as well as government regulatory agencies need access to accurate price and quantity data to be able to check that companies are indeed paying their royalty dues. Tanzania's leaders can make great progress in providing the public with assurances of company accountability by ensuring that credible checks on company data are in place. The Parliament of Tanzania has a role to play in verifying the strength of systems meant to check these data. (Tanzania uses the "net back value" method to calculate royalty payments.)

The issue of transfer pricing, is a challenge for many resource rich countries, including Tanzania. Transfers take place beyond the jurisdiction of a specific country's tax regime, limiting the ability of single governments to address the issue. "The government has limited powers when transfers are done outside the country with support of giant international financial institutions.

Regarding the issue of ownership and government participation in the mining sector, such as free equity, carried interest and full government participation. The government should take it with maximum caution when considering the options, and the trade-offs, that can come in foregone tax revenues as well as conflicts of interest on the part of the government due to its regulatory role.

Losing Added Value by Exporting Employment, The issue of securing added value from mining, there is a need to increase employment and benefits for local residents in regions hosting the gemstone industries. This underlines the important role of legislators approving and implementing training policies and other measures that can create additional employment, generate cash flow, help reduce poverty and improve local livelihoods. Sensible employment policies can also go a long way to defuse conflicts between companies and local residents.

Taking an example Tanzanite as a case study, though this unique gemstone can only be found in Tanzania, the country nevertheless ranks between 4th and 5th as exporter of the gemstone, trailing South Africa, Kenya and India. In fact, at least 80% of raw Tanzanite is produced by a South African Company and processed in Jaipur, India, where it creates thousands of jobs and macroeconomic benefits. Several participants expressed outrage when they learned that many leading advisors on Tanzanite to their government and to industry were researchers trained at South Africa's University of Stellenbosch, which has developed considerable expertise on the economic geology of Tanzanite.

Meanwhile, there is no a single university in Tanzania that can provide expertise on the physical and economic geology of Tanzanite. The Parliament has a responsibility to do more to ensure that the country extracts greater value from mineral resources before more opportunity is lost.

Sustainable Environmental Management is a question of implementation. Despite the fact that Tanzania has a well-defined policy and legal framework for environmental management, environmental performance has been poor, especially in the mining sector. All companies are required by law to produce an Environmental Impact Assessment and Implementation Plan before commencing operations. Major weaknesses that hinder good environmental practices, include:

Lack of coordination among regulatory agencies and weak enforcement of existing laws. The Civil society should strengthen advocacy on environmental management.
Lack of standards for corporate social responsibility.
Lack of clear roles for local government and community groups in environmental monitoring.
I therefore call upon both the Government and the Parliament of Tanzania to ensure the following:

To promote good governance in the sector, the parliamentary committee should point out the need to diversify the composition of the Mining Advisory Committee (MAC) to include stakeholders beyond the executive branch, and to mandate the MAC to play a stronger-role in decision-making. This will enhance transparency in the management of the extractive sector, EITI [Extractive Industry Transparency Initiative] in particular. Other stakeholders should include individual experts, civil society and legislators.

I believe that transparency is a key element of good governance, hence, the integrity of the government. A conspicuous lack of transparency and rigid confidentiality clauses in the existing law need to be reviewed. These weaknesses in the current mining act do not appear to be slated for alteration. "This is potentially an obstacle to the EITI processes where relevant information such as books of accounts, payments and values of minerals produced are considered confidential."

Despite the commitment to enhance transparency in the management of the extractive sector, the statement read in part that, the confidentiality clauses in both the current Act and proposed changes do not embrace the spirit and principles of transparency and at times contradict rather than support the commitment, thus undermining the efforts to bring about transparency in the sector, and EITI in particular. A wider and more meaningful public consultation around the bill and refraining from rushing the process through expedited submission under the "certificate of urgency" process.

Broader consultation with stakeholders and provide reasonably ample time for wider consultations after the bill has been presented to the parliament for the first reading. The proposed timeline for tabling of the bill does not allow for broader consultation in the future and may lead to submission of the bill under Certificate of Urgency!

Provide Political/civic implications of mining operations at the local government level in terms of involving the local community in decision-making and planning their development.

Orienting the local people so that they can cope with the new mining science and technology which may create unexpected demands on the people

International standards/criteria used to assess the environment should be contextualised in terms of the prevailing hygienic immunity levels and provide contextually appropriate treatment.

Undertaking of scientific and integrated mining closure after the expiry of the life of the mines

Legal requirement for mining companies to deposit in NEMC and to the Minister responsible for Environment’s office mining closure plans before they start mining operations.

Gender considerations should be included in mining operations. This need to be incorporated in the Mining policy and legal provisions should be included in the proposed Bill to give women a role in mining.

Legal provisions to mandate NEMC (as an authority in charge for environment issues) to suspend mining operations for a couple of years until land and environment is reclaimed. This suspension should be issued in the event that, there is a grave environmental degradation in the mining areas, as was the case with the North Mara.

The rules for royalty revenue distribution to the sub-national level in the government’s proposals should be included in the new Mining Act. That is with any sub-national distribution, the creation of effective decentralized management systems is necessary if the revenue is to have the desired pro-development impact. The local community in producing regions must have the major share as they are the most affected by mining operations.

Other clauses of the existing law those need to be reviewed, including the legal and institutional frameworks for environmental impact assessments and environmental management plans and compensation.

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