Investors Move To Secure Positions In Light Of Tanzania Natural Resources Reforms

Investors move to secure positions in light of Tanzania natural resources reforms

Recent measures introduced in the Tanzanian natural resources and mining sectors could have far-reaching implications for the value of investments in the country. As a result of legislation, approved by the National Assembly in early July, companies face the prospect of having to grant a 16 per cent free carried interest to the government, acquisition of up to 50 per cent of the company, increased royalties and forced renegotiation of certain terms.

The reforms are the latest in a campaign to exercise greater control over the extractives sectors. This has already given rise to two new claims by foreign investors since the beginning of July. Those with interests in the country's mining, oil and gas industries will be closely observing developments, reviewing their contractual investment treaty protections and taking steps to protect their assets and any future claims.

The key provisions of significance to foreign investors are as follows:

Natural Wealth and Resources Contracts (Review and Re-negotiation of Unconscionable Terms) Act 2017

This Act grants the government far-reaching powers to renegotiate contracts relating to any natural resources where they contain what are considered by the National Assembly to be “unconscionable terms”. This power of review extends to contracts predating the Act. Terms that are deemed to be unconscionable include those which:

are aimed at restricting the state's right to exercise sovereignty over its wealth, natural resources and economic activity; restrict the state's right to exercise authority over foreign investment within the country; areinequitable and onerous to the State; grantpreferential treatment designed to create aseparate legal regime to be applied discriminatorily for the benefit of a particular investor; deprive the Tanzanian people of the economic benefits derived from natural resources; empower transnational corporations to intervene in Tanzania's internal affairs; subject the state to the jurisdiction of foreign tribunals or laws. What might be an unconscionable term is extremely broad - indeed, most recent contracts in which foreign entities are (even indirectly) involved are likely to contain provisions that would be caught. This again evidences the progressive change in policy towards foreign investment, going directly against many of the protections in Tanzania's 11 bilateral investment treaties (BITs)...