THE UNITED REPUBLIC OF TANZANIA REPORT OF THE PRESIDENTIAL MINING REVIEW COMMITTEE TO ADVISE THE GOVERNMENT ON OVERSIGHT OF THE MINING SECTOR1 VOLUME 2 April, 2008 1 This is a translated version of the Report by Paperworks Associates Tanzania on behalf of Policy Forum. For the authoritative and official version of the Report, please refer to the Kiswahili version of this Report. 1.2 Terms of Reference (ToR) The Committee was given the following Terms of Reference:- i. To go through mining contracts and other documents related to big mines; ii. To analyze the taxation system used in the mining sector; iii. To go through the government‟s oversight system in large mining activities; iv. To identify and analyze rights and responsibilities of the investor and the government; v. To meet the Tanzania Chamber of Minerals and Energy and other stakeholders so as to get their opinions; and vi. To give a report with recommendations. The Committee went through the ToR and requested an addition of the following Terms:- vii. To go through other reports drawn by previous committees on the mining sector;- viii. To invite any person with expertise in the mining sector to give his views; and ix. To advise on any other issues related to the mining sector as may be deemed important. 1.3 Implementation of the Committee activities The Committee officially started its job on 28th November, 2007 by laying down the implementation plan. In the implementation process, the Committee did the following:- a) To go through and analyze different documents on oversight in the mining sector in the country; b) To meet leaders of Government Departments and Institutions directly responsible for the running and oversight of the mining sector, including the following:- i. Ministry of Energy and Minerals ii. Bank of Tanzania; iii. Tanzania Revenue Authority; iv. Tanzania Investment Center; v. State Mining corporation; vi. Geological survey of Tanzania; vii. Mining Advisory Committee; viii. Gemstones Board; ix. Dodoma Madini Institute; x. Ministry of Land; xi. National Development Corporation; xii. Tanzania Civil Aviation Authority; and xiii. Treasury Registrar. ( c ) To meet with different stakeholders and institutions dealing with exploration, mining and trading minerals including Tanzania chamber of Minerals and Energy and to meet with different citizens who showed up to give their views on the mineral sector and others who submitted their views by writing as seen in Annex 1 and 2. (d) To visit foreign countries so as to get more experience on oversight systems in the mining sector. Those countries are:- i. South Africa; ii. Australia; iii. Botswana; iv. Ghana; v. Japan; vi. Canada; vii. Thailand; and viii. Zambia; (e) To visit large and minor mines in Tanzania, plus mining projects still in different development stages. Visited mines and projects are:- i. Bulyanhulu Gold mine in Kahama ii. Buzwagi Gold mine in Kahama; iii. North Mara mine in Tarime; iv. Geita Gold mine in Geita; v. Golden Pride in Nzega; vi. Buhemba Gold mine in Musoma; vii. Kiwira Coal Mine at the border of Rungwe, Kyela and Ileje districts; viii. Liganga Iron Ore project in Ludewa district; ix. Mwadui diamond in Kishapu; x. El Hilal Minerals diamond mine in Kishapu; xi. Tanzanite One mine in Mirerani; xii. Kilimanjaro mines mine in Mirerani; xiii. Small gold miners in Rwamgasa; diamond miners in Maganzo and tanzanite miners in Mererani. (f) To conduct public meetings with citizens living around the mines so as to get their views on the mining sector. Public meetings were held at Karimjee (Dar es Salaam); Maganzo, Kakola, Buzwagi, (Shinyanga); Geita, nyakabale, Rwamgasa and in Mwanza City (Mwanza), Nyamongo and Buhemba (Mara), Mererani (Manyara), Kiwira (Mbeya), and Mundindi (Iringa). Also, the Committee met with political, government and community leaders in regions and districts with mines and got to hear their views on the problems facing the mining sector. 1.4 Structure of the Report This report has six chapters. The first one is on introduction. The second shows the real situation in the mining sector; the third presents different stakeholders‟ views; chapter four is on other countries experiences in managing mining activities; the fifth chapter gives the analysis, opinions and recommendations of the Committee and chapter six gives the conclusion. CHAPTER TWO 2 THE REAL SITUATION OF THE MINING SECTOR 2.1 Mineral Resource and its contribution to National Development According to a database available at the Ministry of Energy and Minerals, Tanzania is one the countries blessed with a huge reserve of mineral resources. According to that database, minerals that can be found in Tanzania are classified into five groups as follows:- a) Metallic minerals group – this includes gold, iron ore, nickel, copper, cobalt and silver; b) Gemstone groups – this includes diamond, tanzanite, ruby, garnets; etc c) Industrial minerals group - limestone, soda ash, gypsum, salt and phosphate; d) Energy-generating minerals like coal and uranium; and e) Construction minerals like gravel, sand and dimension stones. Division of the mineral reserves confirmed to be available in the country is shown in Table 1. Also, map 1 shows where these minerals are in the country (final annex of the report). Table 1: CONFIRMED MINERAL RESEVE TYPE AMOUNT Gold 2,222 tones Nickel 209 million tones Copper 13.65 million tones Iron Ore 103.0 million tones Diamond 50.9 million ounces Tanzanite 12.60 tones Limestone 313.0 million tones Soda ash 109 million tones Gypsum 3.0 million tones Phosphate 577.04 million tones Coal 911.0 million tones Despite the presence of such a huge amount of mineral reserves, the contribution of this sector to the national economy and community development seems not to be meeting citizens‟ expectations compared to other sectors of the economy. There are several reasons to explain this. In the period since independence in 1961 to early 1990s, the mining sector did not attract huge and modern investment compared to other sectors. Due to this fact, the mines that were operational at that time were the ones initiated by colonialists and ran by the government. Most of those mines include the diamond mine in Mwadui and Buckreef and Geita gold mines in Geita and Buhemba in Musoma. Also, in that period, there was a tin mine in Karagwe district. Apart from those mines, there were also small gold miners in Lupa (Chunya), Mpanda and other areas in the Lake Victoria zone. During 1980s and 1990s, the government made huge policy changes and recognized a huge contribution that can come from the private sector to the economic and social development. Hence, many policies were reviewed so as to provide room for the private sector to give its full contribution especially through investments in the production activities. This policy direction also focused on installing a modern management system so as to attract modern technology investment na bring in needed capital for investment in the economic sectors, including the mineral sector. 2.2 Mineral Sector Review Following the government‟s decision on economic changes and by recognizing the opportunity and importance of the mining sector to contribute fully in the economic development, the government passed the Mining Policy (1997). This policy provides the direction of the mining sector in 25 to 30 years and it has become the vision to lead and direct the development of minerals activities in the country. The objectives of this policy include promotion of exploration and development of mining activities, to improve small scale mining, reduce poverty, to enhance social and economic infrastructure, to increase foreign currency and government revenue, to develop Tanzania into Africa‟s Gemstone center and encourage environmental safety and protection. From this aim, the policy set out the following key objectives:- i. To promote exploration and development of mining activities; ii. To modify and improve small scale mining; iii. To make sure the riches coming from mining help in creating sustainable economic and social development; iv. To reduce or eradicate the negative social and environmental impacts of mining development; v. To develop successful plans for trading minerals and their products; vi. To develop and enhance Tanzania as Africa‟s gemstone center; and vii. To reduce poverty, especially among small scale miners 2.3 Implementation of the Mining Policy As a first step in implementing this policy, the government made different amendments to different financial Laws in 1997 (The Financial Laws (Miscellaneous Amendments) Act, 1997). These amendments were intended to attract foreign private sector investment in the mining sector. In 1998, the government enacted a mining law and made changes to the Foreign Exchange Act (1992) so as to meet the needs of the mining sector in accordance to the Mining Policy (1997) too. So as to implement this policy, current taxation laws provide the following incentives:- 2.3.1 Income Tax The Income Tax Act (2004) which is currently used on the income tax has special sections related to taxation in the mining sector as follows: (a) Section 15(3) which allows for a mining company to redeem provisional funds dedicated to environmental protection in implementing written conditions set out by the Income Tax Commissioner; (b) Section 83(1) (a) that requires mining companies to deduct withholding tax from the payments made for management and technical services provided by resident companies. The amount of tax on such services is stated in paragraph 4(c) of the first table of the Act which is 5%. Deductions for services provided by non- resident companies are done according to section 83(1)(b) which is 15%; and (c) The depreciation rate for exploration and mining equipments is 20%2. However, some sections which were in the repealed Income Tax (1973) are still being used in estimating income tax amounts for foreign mining companies.