Dar es Salaam. Modernisation and commercialization of the mining sector in Tanzania had unintended consequences with ripples felt beyond the African continent while rekindling the then dormant debate about the plunder of African resources.
The debate had partly fuelled the independence movements and also influenced nationalization and the restriction of international corporations in the mining sector.
When it became widely known in the early 2000s that the mining contracts were a rip-off with the government getting peanut in terms of revenue the public was incensed.
The ensuing public outcry which became a readymade political capital was more than what the government could handle. The same government that oversaw the unprecedented inflows of mining investments in the late 1990s and early 2000s had to undertake mining reforms that bent towards the resource nationalism.
How we got here
Commercial large-scale mining started in the late 1980s after President Ali Hassan Mwinyi replaced the architect of socialism and self-reliance policy, Mwalimu Julius Nyerere.
The Nyerere government had nationalised the few mining companies that existed then and handled them to the State Mining Company (Stamico), with exception of the Williamson Diamond Mine. The Tanzanian government acquired shares to co-own the mine with De Beers, says Rugemeleza Nshala, executive director of the Lawyers Environment Action Team (Leat).
Stamico succeeded in reviving the mining sites it inherited from private operators but could not establish new mines due to due to lack of capital and technology.
“The 1970s and 1980s saw a dramatic decline in commercial large-scale mining, although small-scale mining continued. By the early 1980s there were about a million small-scale miners in Tanzania,” says Nshala.
Low mineral prices in the world market in the 1960s and 1970s could also not encourage risky investments in mining by Stamico at a time when the young nation had other pressing needs.
Brian Cooksey, a researcher, says in a study on the Tanzania mining sector that he published in 2011 that the price of gold was controlled and had been set at a cap of $35/ounce between 1940 and 1970 when it was liberalized.
When President Mwinyi opened up the mining sector to foreign investors it was the junior exploration entities that came to function as scouts for the big players.
The mining licences then started to change hands and culminated with the entry of large, experienced companies, according to Nshala. “During this time we see KahamaMining Corporation Limited that was owned by Sutton Resources of Canada.
Then comes Ashanti Goldfields from South Africa that forms the Geita Gold and then we have Resolute from Australia and Samax Resources from Britain,” Nshala notes.
There was also Afrika Mashariki acquires North Mara mining site, which was eventually acquired by Placer Dome in Mara, Nshala adds.
Conflicts with small-scale miners started soon enough during the acquisition of mining concessions and started stocking public concerns over large-scale mining in the country.
In 1994, Sutton Resources acquired the Butobela concession in Shinyanga Region, but the company said the coordinates read Bulyanhulu, another concession area some kilometres from Butobela which at the time was occupied by thousands of small-scale miners, according to Nshala.
Sutton failed to prove in the courts of law that it was the legal owner of the Bulyanhulu. “Violent evictions of small miners at Bulyanhulu took place in 1996. Evictions also took place inNzega in the concession acquired by Resolute,” Nshalanotes.
Three years later Sutton sold the Kahama Mining to Barrick Gold. Barrick also acquired North Mara from Placer Dome and, later, in 2007 it acquired the Buzwagi and Tulawaka mining sites fromPangea.
While the Williamson Diamond Mine continued operation, in Tanzanite a company called AFGEM acquired a concession area but later changed to TanzaniteOne, says Amani Mustapha Muhinda from the HakiRasilmali organisation.
In order to attract as many foreign mining investors as possible the government made the mistake of giving in to too much concessions in fiscal incentives all that under the astute advice of the World Bank.
To be continued tomorrow ...
When the mining giants arrived in the country and found out that mining sites were deep in the interior in places with no proper roads, running water or electricity they demanded for even more incentives in terms of tax holidays in fuel and other imports.
While the government was happy to comply it came to regret later when the revenue from the mining companies were less than expected.
“The enactment of the Investment Act, 1997, the Mining Act, 1998 and the Written Laws Financial (Miscellaneous) Amendments Act of 1998, with lots of incentives made investors comfortable enough to bring in their hundreds of millions of dollars,” Nshalasays.
In the laws the government allowed total ownership of the mining companies to the foreign companies, says Muhinda.
“The government probably saw no need to force the partnership with locals and foreigners in the large scale mining in thecountry,” says Muhinda.
If the context of time and space can help explain the government’s giving away of too many incentives in the enacted laws, no context can probably help explain the rationale behind the Minerals Development Agreements (MDAs).
“The mining Act, 1998 allowed the establishment of the Minerals Development Agreements for holders of special mining licences which were large scale mining companies, of course,” says Stephen Msechu, an expert in Extractive Industry Conference from LH Consult.
By allowing that the law probably set a dangerous trajectory that put Tanzanians in a collision course with the foreign mining companies.
“The made it possible for MDAs to include some clauses that violated other laws. For example investors were allowed not to pay some requisite fees and charged; there was a clause in the MDAs that prohibited any changes to be made to the contract for the whole of the duration of the mine site life. If there were changes in tax laws the mining company would not be affected,” adds Msechu.
He argued that in fact the MDAs gave investors more room to demand other incentives to disregard things like labour laws.
What made matters more complicated, according to Nshala, was the fact that the MDAs had started being signed in 1994 for the case of Kahama Mining’s Bulyanhulu way before the Mining Act 1998 was enacted.
The government started paying attention to concerns in the mining sector after local and international non-governmental organisations as well as opposition politicians started raising the issues in local and international media and in Parliament.
What shocked the public about the disclosures was the fact that the large mining firms were not paying taxes and might not pay for the duration of the mining activities.
“It’s true that there were allegations of transfer pricing which denied the government revenue. There were also allegations of inflating the cost of production, which meant that the country was getting little benefits from large-scale mining,” Nshala noted.
Fearing that the issue would cost it votes in the voter rich Lake Zone golden belt the government instituted a series of reforms that culminated with the Mining Act 2010.
The Mining Act 2010 sought to address the public criticism over the mining regime. It raised the gold royalty from 3 per cent to 5. It provided for the participation of the state in any mining operations under special mining licenses through free carried interest.
The Mining Act 2010 also removed the dogmatic sanctity of the MDAs by saying that MDAs “would be subjected to periodic performance reviews by the parties after every five years.”
Despite addressing the shortcomings of the previous laws the criticism remained that the new Act applied only to mining companies whose MDAs would be signed after the law was passed. The law was not backdated and so the old MDAs remained intact with their sovereignty clauses.
After the enactment of the Mining Act 201, however, inflows of new large scale mining investments declined dramatically.
“The mining Act 2010 was amended extensively in 2015 and further amended in 2017,” Nshala notes. The 2017 amendments provided for the Tanzania Mining Commission (TMC).
The Commission took overover all operational functions that were being performed by Minerals Division under Ministry of Energy and Minerals and all functions that were being performed by Tanzania Minerals Audit Agency (TMAA) and Tanzania Diamond Sorting Organization (TANSORT).
The responsibility of the Minerals Division remained to advise the Minister on all matters related to the mining sector. The aim of the Commission is to enhance management of the Mining Sector and to ensure that the Government is benefiting from the income generated in a sustainable manner.
Mining reforms were further continued when President John Magufuli came to power.
Parliament enacted the Natural Wealth and Resources (Permanent Sovereignty) Act of 2017 and the Natural Wealth and Resources Contracts (Review and Renegotiation of Unconscionable Terms) Act, of 2017.
Despite the colonialists’ appetite of natural resources, Tanganyika gained independence in 1961 with its commercial large-scale mining sector still underdeveloped.
The colonial government had established the Department of Geological Survey (DGS) in the 1920s almost a decade after the first commercial large-scale mining operation began at the Sekenke Mine in 1909.
DGS started mapping the territory’s mineral resources for the first time. A decade later some large-scale miners from South Africa and Britain opened mines in Lake Victoria gold zone. But the World War II that erupted in 1939 put a stop to large-scale mining activities.
After independence in 1961 the remaining large companies closed. A mining company called Geita Gold Mine was one of the last companies to close shop in 1966, leaving behind only a couple, including theWilliamson Diamond Mine.
The socialism policy that was adopted in 1967 discouraged foreign, large-scale mining activities.In 1972 the government established the State Mining Corporation (Stamico) to run the Tanzanian mining sector.
Stamico never opened a new commercial large-scale mine. It took over the mines established during colonialism.
One of the mining companies that Stamico took over and tried to revive was the Buckreef mine.
The exception was the Williamson Mine which was run in a joint venture with the foreign investors. From the late 1960s to the late 1980s Tanzania’s commercial, large-scale mining remained dormant.
The liberalization of gold prices that took place in 1975 led to high prices and resulted in in the emergence of new mining technologies, production process and new trends in regulation.
These led to the booming of the global gold mining sector bringing in windfall revenue to governments and mine owners the world over.
But Tanzania remained effectively on the sidelines, still reluctant to open up its mining sector. Gold prices were controlled internationally and had been set at $35/ounce till 1969 when liberalization started.