º¬Ðß²ÝÉçÇø

The United Republic of Tanzania, located in East Africa and bordering the Indian Ocean, shares frontiers with eight countries including Kenya, Uganda and Rwanda, and covers about 945,000 square kilometres. As one of Africa¡¯s more politically stable nations, Tanzania is a core member of both the East African Community and the Southern African Development Community. It is renowned for its abundant mineral resources including gold, diamonds, tanzanite, nickel, copper, rare earths, graphite and lithium, which have long attracted the attention of global mining giants.

In recent years, a wave of resource nationalism has swept across the globe, prompting many African governments to tighten mining regulations and strengthen control over natural resources. Since 2017, Tanzania has gradually amended its mining laws to enhance state dominance and revenue in mineral resource development.

The Mining (State Participation) Regulations, 2022, further elaborate on the rules on state equity participation, comprehensively strengthening government intervention in the mining sector across equity allocation, profit sharing and corporate governance.

This article provides a brief analysis of the new regime¡¯s impact on international investors, focusing on policy background, scope of application, participation mechanisms, benefit distribution and corporate governance.

Policy background: Legislative progress of resource nationalisation. In June 2017, Tanzania amended its Mining Act, establishing for the first time the government¡¯s right to acquire a 16% free carried interest in mining companies.

In July of the same year, the government enacted the Natural Wealth and Resources (Permanent Sovereignty) Act and the Natural Wealth and Resources Contracts (Review and Re-negotiation of Unconscionable Terms) Act, granting the state the power to renegotiate mining contracts to maximise national interests.

In September 2023, the mining regulations formally came into effect, further detailing the rules for state participation and requiring mining companies to sign framework agreements with the government to ensure long-term national revenue.

The regulations adopt a ¡°main text + annexes¡± legislative model, comprising 13 principal provisions and four supporting schedules, covering key issues such as equity structure, corporate governance and benefit distribution. All schedules have the same legal effect as the principal provisions.

Scope of application: Mandatory state participation. The mining regulations apply to all entities holding a mining licence or special mining licence. The mining regulations stipulate that the government is entitled to a minimum 16% non-dilutable free carried interest, which is not conditional on any capital contribution or obligation by the state.

The government may further increase its equity interest through: (1) converting reversionary mineral rights value into equity interest; (2) conducting tax-for-equity swaps, where the government exchanges tax exemptions for shares, subject to a maximum equity cap of 50%; and (3) negotiating additional equity, with the allocation determined by mutual agreement.

Reversionary mining rights refer to mining rights that have legally expired and reverted to state ownership, which, after a specific evaluation process, can be converted into reversionary mining rights issuable to government shareholders.

The mining regulations explicitly include mineral beneficiation within the scope of state participation, meaning the government¡¯s equity requirements may extend to downstream processing, affecting the entire value chain of mining enterprises.

Timing of participation: Differentiated requirements for new and existing enterprises. (1) New enterprises. State participation is triggered by the acquisition of a mining licence or special mining licence. Companies at the exploration stage are not subject to mandatory state equity. Once a mining licence is obtained, the government¡¯s non-dilutable free carried interest is triggered.

(2) Existing enterprises. For companies holding a mining licence or special mining licence prior to the mining regulations¡¯ entry into force, a 90-day negotiation period is provided. In practice, compliance has been achieved through equity dilution or the establishment of new joint ventures to meet state participation requirements.

Benefit distribution: Balancing state and investor interests. According to the supporting schedules, the government profits not only through dividends but also via the equitable economic sharing principle, which provides for the allocation of economic benefits throughout the life of the mine via equity returns, taxes and shareholder loans.

For example, if a company provides an interest-bearing shareholder loan to a joint venture, the government is entitled to receive principal and interest in proportion to its shareholding, even if it did not actually provide the loan.

Corporate governance: State intervention in governance structures. Beyond economic interests, the government of Tanzania strengthens its control over mining projects through deep involvement in corporate governance of mining companies.

The mining regulations specify that in a joint venture, the board of directors shall comprise five members, with two appointed by the government and three by the investor. For senior management, the government is entitled to appoint one executive to each of two categories of key positions, such as chief financial officer or chief procurement officer.

In addition, the government shareholder and its board representatives hold veto rights over major corporate matters, which may constrain decision-making on financing, asset disposal and other critical issues.

The introduction of the mining regulations marks a significant step in the resource nationalisation of Tanzania, reflecting both the global trend of resource nationalism and the country¡¯s pursuit of long-term mineral revenue. However, while the new regime strengthens state interests, it may also lead to negotiation deadlocks and financing challenges.

For Chinese investors, the key lies in balancing government demands and commercial interests through flexible equity and governance arrangements within a compliant framework. As the policy is further implemented, Tanzania¡¯s mining investment environment is expected to become clearer through ongoing negotiation and adjustment.

Cheng Jun is an equity partner and Zhang Qiuguo is an associate at Zhong Lun Law Firm