Tanzania Mining Windfall Tax: In Development Plan, but Not in Budget?
Thursday, 09 June 2011
Chris Melville, Senior Associate with Menas Associates, questions how serious President Jakaya Kikwete is, and cautions that such a ‘super profit tax’ would contravene the stabilisation clause in existing mining agreements.

On 7 June 2011, President Jakaya Kikwete launched his five-year development plan, which – according to media reports – outlined the government’s view that it is “optimal to introduce a super profit tax on the windfall earnings from the mining sector”.  Although the measure was not included in the annual budget announced the following day, reports of the tax led to a slide in the share price of Tanzania’s largest producer, African Barrick Gold (ABG). Market moves prompted the company to insist that its Mineral Development Agreement protects its tax position and could not be amended without ABG’s agreement. AngloGold Ashanti echoed ABG’s stance.

If the government is serious about the windfall tax, it can have no other targets than the producing mines operated by the big players. There few new mines coming onstream and exploration investment has been low relative to the potential – regulatory uncertainty and the high cost of doing business has put paid to that. To be of any use to the five-year plan, the tax would have to be applied to producing assets.

Trying to push it through, however, would cause an almighty stink with the majors given the stabilisation clauses in their development agreements. The government surely has no stomach for such a stink and may rather hope that unsettling announcements will be enough to encourage the companies to renegotiate voluntarily.

That said, it’s equally possible that this is all smoke and mirrors. Last year’s fuss over a new mining code was closely linked to the ruling party’s election campaign; now that the election is won, there seems very little desire to push it through. Likewise, talk of a windfall tax may be a quick-fix way for President Kikwete to reconnect with the left in his party amid growing dissent within the CCM and his own falling popularity.

Regardless, this is no way to revive investor interest in Tanzania – donors are again cutting assistance over corruption concerns and the government cannot afford to kill the goose.

For more information, contact
Christopher Melville
Senior Associate, Menas Associates
This e-mail address is being protected from spam bots, you need JavaScript enabled to view it
Phone: +44 (0)20 7745 7195

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