Investment Framework and Incentives: A Snapshot of the Extractive Industry in Tanzania

Studies indicate that natural resources and wealth, in particular, the minerals, oil and gas, present a gargantuan source of wealth to countries endowed with such resources. To translate such natural endowments into development trajectories, these countries devise mechanisms, both legal and contractual, to attract huge investment projects. These mechanisms include fiscal incentives in the form of tax exemptions and stabilized fiscal regime on the one hand and non-fiscal incentives, including immigration quota and serviced land, on the other. These incentives are triggered by the investors’ need of a favourable investment environment to invest in the natural resources countries.

Investments legal regime in Tanzania is mainly governed by the Tanzania Investment Act, Act No. 10 of 2022 (the Act) and the regulator being the Tanzania Investment Centre (TIC). Under the Act, both new and existing investors can apply for certificates of incentives from the TIC. While fiscal incentives certificates expire after five years of their issuance (subject to renewal), non-fiscal incentives certificates are available throughout the life of the investment projects. The certificate cannot be transferred or amended without TIC’s approval. Besides, the certificate can be cancelled if:

  • It was obtained by fraud or false information;
  • the holder breaches the conditions of the certificate;
  • the holder transfers the certificate to another investor or investment without prior consent of the Centre;
  • the holder fails to commence operations within the first two years of issuance of a certificate without satisfactory reasons; or
  • fails to submit annual performance reports of the project for two consecutive years.

For investments in special economic zones (SEZs), a specific legal regime exists (Special Economic Zones Act) under the mandate of Export Processing Zones Authority (EPZA). Investors in these special sites also enjoy a number of fiscal and non-fiscal incentives. However, it should be noted that the Government plans to merge the EPZA with the TIC for efficiency purposes.

Despite these laws regulating investments in the country, investments in the extractive industry have a separate regime. In terms of section 2 of the Act, the Act does not apply to prospecting or mining investment projects under the Mining Act and reconnaissance, exploration, production, construction or operation of a pipeline under the Petroleum Act.

In the oil and gas sector, investors engage in the negotiations with the Government of Tanzania for investment purposes. These negotiations culminate into various agreements that provide for various investment incentives. In the petroleum sector, for example, such incentives are granted mostly under the Production Sharing Agreements (PSAs) and Host Government Agreements (HGAs). This is in respect of both fiscal and non-fiscal incentives.

With the mining sector, prior to 2017, the investment incentives were granted through Mines Development Agreements (MDAs) signed by the investor and the Minister for Energy and Minerals (as it was called then). Currently, Tanzania’s mining sector is only accessed through the licensing system. MDAs are no longer the route especially for new investors. However, the Government can still grant the incentives to the mining investors. For example, the Mining Act allows the use of Stabilisation Arrangements (SAs) which may involve fiscal incentives to the investors.

  • Should such SAs involve tax expenditures/incentives given by the Government to the Mining Company, the SA should provide for quantification of the value of such expenditures and how the Mining Company should recompense the government for the foregone revenues corresponding to such expenditure.
  • Alternatively, the Government has a right to convert the quantified expenditures into equity holdings in the Mining Company’s capital as part of state participation under the Mining (State Participation) Regulations, 2020.

It is critical that you, as a prospective investor in Tanzania’s extractive sector, should look for a proper legal guidance from the available legal professionals. ECRA Attorneys is the home of these qualified legal hulks.