By Silas Olan'g, RWI Tanzania Program Coordinator, and Patrick Heller, RWI Legal Analyst
This year, Tanzania's government is preparing new mining legislation 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.From January 21–23 Revenue Watch, in collaboration with the Policy Forum and Norwegian Church Aid, ran workshops both with the Parliamentary Standing Committee for Energy and Minerals and with Tanzanian civil society organizations and media to analyze the proposed changes to the current mining act. The analysis focused on strengths, loopholes and potential sources of vulnerability in the new mining bill, and was divided into two parts: fiscal terms and governance. In attendance were eighteen of 20 parliamentary committee members,30 civil society organizations, media delegates and one legislator (Hon. Zainab Gama, the Chairperson of African Parliamentarians Network Against Corruption, APNAC, Tanzania Chapter). The workshop built on the knowledge of fiscal tools, loopholes and sources of mining sector vulnerability that participants had gained at an October 2009 training workshop led by RWI.
The Session with the Parliamentary Standing Committee for Energy and Minerals
Directly after the October workshop, the committee shared with Revenue Watch a document prepared by the Ministry of Energy and Minerals containing proposed changes to be incorporated into the new mining act, and requested technical advice. The document had been twice presented before the committee in October 2009 and January 2010. After the analysis, RWI legal experts worked with the committee to assess the overarching reasons behind the proposed changes and their potential for achieving the intended objectives. After ministry officials twice presented their proposed changes, the analysis from RWI proved a crucial tool in helping committee members understand the proposal and scrutinize the rationale behind each alteration in relation to other available options.
The session bolstered committee members' ability to analyze issues related to mining in general and proposed changes in the legal and fiscal regimes in particular. Discussion about royalties is a good indication of this shift. Committee members acknowledge that before the session, the debate on royalties was more about raising the rate, hence increasing revenue in absolute terms. They came to understand that raising the rate represents one way to increase government revenue, but that changes to the method by which royalties are calculated may themselves have major revenue implications, and that reforms to the allowances permitted in income tax collection would also have a significant impact on the public take. "I agree with you entirely: royalty rates need to be looked at as part of a broader fiscal package [alongside] other economic contributions such as linkages with other sectors of the economy," commented Dr. Harrison Mwakyembe, Committee Vice Chairperson.
Three areas of further debate were mineral development agreements (MDAs), the formula for equitable distribution of royalty revenues and the composition and mandate of the Mineral Board.
Regarding MDAs, there are concerns about the powers of the Minister for Energy and Minerals to negotiate additional concessions. From the committee perspective, MDAs create loopholes that could enable corruption, as the proposed changes empower the minister to broker individual deals for specific investment projects, delineating additional rights and obligations on the part of the government and companies beyond what is provided for in the law. The current Mining Act allows for MDAs at the minister's discretion. Much of the debate around the possible changes has concerned the establishment of a minimum threshold for capital investment required for a project to qualify for an MDA. The proposals by the parliamentary committee, the Presidential Advisory Committee on the Management of the Mining Sector and the ministry vary widely. Respectively, the proposed minimums are US$ 600 million, US$ 200 million and US$ 100 million. Clearly, the committee's proposal is the most restrictive, underscoring members' view that the details of mining contracts should be spelled out in the law rather than in supplementary negotiations to the greatest extent possible.
Committee members were also concerned about the absence of rules for royalty revenue distribution to the sub-national level in the government’s proposals. The discussion emphasized that 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, insisted Hon. Dr. John Msekela.
To promote good governance in the sector, the parliamentary committee pointed 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. Other stakeholders should include individual experts, civil society and legislators.
Taking into account the numerous points for improvement in the proposed policy changes, Hon. Dr. Harrison Mwakyembe remarked that the training had been a boon to participants. "Today we are going to leave this room with much more knowledge than before," said Mwakyembe. “
The Way Forward
The actual bill is expected to be tabled to the Parliament in April 2010. The committee requested support from RWI in reviewing the bill and formulating the committee opinion paper to be presented in response. The draft bill will be shared with Revenue Watch once it is available for public consumption.
Civil Society and Media Session
The civil society and media session was aimed at supporting participants technically to scrutinize the mining act's proposed amendments in anticipation of its upcoming public hearing. RWI conducted an analysis of the proposed changes prior to the workshop and this study was used to guide the workshop discussion. The analysis was presented in two major parts covering fiscal and governance aspects and assessing potential strengths, weaknesses and loopholes in both the governments proposed amendments (submitted for consideration by the Ministry of Energy and Minerals) and the current Mining Act of 1998.
Both sessions generated active debate among participants applying technical arguments—particularly on fiscal issues—and connecting the concepts they learned in the October session with their real-world application in the current debate over the mining legal and fiscal regimes from 1998 and the proposed changes. Changes in royalty calculation from a "netback" to a gross basis, an increase in overall royalty rates, and the introduction of ring-fencing and thin capitalization rules to the tax system are the most likely sources of additional government revenue.
Some weakness were identified that would make it difficult to fully assess the effectiveness of the proposed changes. Chief among these were the unknown fiscal trade-offs due to the lack of government disclosure of comprehensive projections showing the likely revenue impact of the changes, as well as a general lack of clarity on the rationale behind some of the proposals. The justification for proposed government shareholding in mining ventures, for instance, appears to be increased control over mining companies and government revenue. However, these outcomes are far from guaranteed.
On governance issues, the participants noticed a conspicuous lack of transparency and rigid confidentiality clauses. These weaknesses in the current mining act do not appear to be slated for alteration. "This is potentially an obstacle to the EITI [Extractive Industry Transparency Initiative] processes where relevant information such as books of accounts, payments and values of minerals produced are considered confidential," said Steven Mshechu of civil society group Agenda Participation 2000.
During the workshop, civil society and media participants developed a strong statement of their position on the process and contents of the proposed bill. While acknowledging the positive aspects of the proposed revisions, participants expressed their concern about other clauses of the existing law that need to be reviewed, including confidentiality clauses and the legal and institutional frameworks for environmental impact assessments and environmental management plans and compensation. Other recommendations included 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.
"Despite the commitment to enhance transparency in the management of the extractive sector," the statement read in part, "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. We believe that transparency is a key element of good governance, and hence the integrity of the government."
The complete statement, signed by participants, was read on the last day of the workshop, and will be submitted to the Minister for Energy and Minerals and publicly disseminated through the media.
Going forward, participants will act on an action plan developed in the workshop composed of three strategic actions: disseminating the statement as a representation of civil society input to the proposed bill; engaging parliamentarians; and sensitizing local communities, particularly in mining areas, to actively engage in the review processes.
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