Extractive Industry broadly means mining and hydrocarbon industries. It is one of the most complicated industries, comprising of all three fundamental facets of natural resources which are mineral, oil and gas. Of all complicities, extractive industry provides employments to all careers and act as an engine to boost other traditional economic sectors regardless of its resource curse and Dutch disease scenarios.
Re-investing revenues from extractive industry into other economic sectors to make them robust is the best practice ever. This is because, the extractive industry last for a solid years only and is over. Though the industry generates colossal of revenues to the country if managed responsibly, its life period has to be transferred into immortal sectors by re-investing those revenues. Prof.Muhongo has been always insisting this by saying extractive industry is an engine of other sectors and country’s economy.
The quotes from Eng.Gilay Shamika articles signify this practice:
Extractive Industry is not sustainable by itself, therefore cannot bring sustainable development by itself as well, and unless the revenues derived from it are re-invested (integrated) into other traditional economic sector to make them robust. That’s the optimal contribution the extractive industries can do; and
Extractive Industry is a ‘temporary assembly’ where all careers convene to work together to produce single line product at a specific solid years. This temporary assembly needs to be properly organised so that everybody becomes beneficiary before the assembly disperses.
The sensitivity, vulnerability and massive risks to the country and investors from the extractive industry, cause hesitations for the countries to make decision of investments.
On the other hand, the citizens become alarmed with higher expectations for the industry and keep questioning the authorities on prosperities of the industry. Pertinent issues associated with extractive industry, have been researched and lectured in a bid of getting the proper modality of win-win situation between the country and investors.
Though the MDAs for Mining Industry and PSAs for Hydrocarbons seem to be proper mechanisms for mutual benefit between governments and investors, predicaments and dissatisfactions are still viral from extractive industry worldwide.
Thanks to our Minister for Energy and Minerals with other higher profile officials in the ministry for managing extractive industry responsibly to the extent of closing a deal of oil pipe from Uganda to Tanga. The deal has raised a buzz worldwide and most people assimilate the strength of Tanzania in East African Community to be like that of Russia in European Union.
Russia is the main supplier of gases in the European Union member states. The strength of economic diplomacy between Russia and other European countries is a central topic whenever the European countries convene for union proceedings.
Tanzania has to use its boom of the extractive industry as a bargaining chip to create economic diplomacy with other countries and stride from poor country to the developed country.
Through my experience, extractive industry is governed by what I call PRIMA, which is the abbreviation of Policy, Regulation, Investment, MDAs/PSAs and Act. Nothing is associated with extractive industry which is out of PRIMA. To this effect, these are the foundation blocks of extractive industry according to my experience in the industry. The concept of PRIMA came into being after trying to see what else is associated in the industry, wherever you search study cases and literature reviews, the totality of all fall into PRIMA – Policy, Regulation, Investment, MDAs/PSAs and Act.
It is envisaged that proper linkage of PRIMA will facilitate maximization of the Government revenues derived from the extractive industry and also help adherence of international treaties related to extractive industry like EITI.
This is what the Government through Ministry of Energy and Minerals has been doing to streamline PRIMA in a way to manage the industry responsibly. The enactment of Mining Act 2010 with a lot of amendments is one among the efforts done by the Ministry. The current establishment of PURA is similarly the alignment of foundation blocks of extractive industry.
In essence what are real meanings of Policy, Regulation, Investment, MDAs/PSAs and Act when articulated in Extractive industry?
Policy Concept
Policy is like architectural drawing showing the whole structure of the house needed either by owner or tenant. If is for owner’s residence, the drawing will base on the wants and needs of the owner at a pace but for renting, the drawing may need some time to be adjusted to allure and encompass the renters’ needs and wants, which were not specifically according to the owner pre-requisites. The owner is compelled to change the drawing to satisfy the tenants otherwise the tenants will turn down the deal.
Like architectural drawing, Mineral policy is the guidance showing the roadmap of the specific country towards the demand, supply and allocation of both minerals and the revenues collected from extractive industry. The extractive industry policies evolve in response to geological resources, politics circles, economics events and advancements in technology. All these in totality are dictated by the wants and needs of the investors.
Like tenants, the investors’ wants and needs may compel the country to adjust the policy as a threshold action for the influx of investors in the country.
Even if the country is endowed with abundant minerals, if is not internally industrial-consumer of its natural resources, it will be swayed by investors and therefore it will not withstand its resources expectations and intent, to the extent that, a ‘stand-alone mineral police’ will not be possible rather it will confer its minerals policy based on FDI, ‘investors-oriented documented policy’.
The solution to this is to be focused in changing our economy into industrialized economy; increase industries internally to use the available minerals. The United States, Canada and Australia are all major mineral-producing countries with good to excellent geological prospective. Their dream is to turn into net consumer and importer of minerals for their industries instead of exporters.
China has already managed this, Brazil is on the track. The minister and president persuade Tanzanians to invest into industries for value addition and value for money. If we utilize what we extract, is possible to deal with the market price and regulate market forces.
Investment Concept
The investment issue has become a global central point of all mineral policies regardless of the level of the economy of the country – developed, developing and transition economies. Investment and government extractive industry policy are closely linked. Even the most highly geologically prospective nations will have difficulty in attracting foreign investment without adequate national policy, regulatory and fiscal systems.
Over the past years in Tanzania, especially from 1990s the level of mineral sector investment has increased in real terms, and those nations that have put into place regulatory systems which reduce or allow a company to manage risks at an acceptable level have, for the most part, enjoyed increased levels of investor interest.
The most difficult thing is to balance the will of the government vis-à-vis the common wananchi/citizens perceptions on the incentives given to investors. The governments call incentives while wananchi/citizens call it loopholes and become vocal and enraged with those incentives. To spur investments and at the same time having policy which pleasing wananchi, needs time as a bargaining tool. For instance Mtwara northern part of Tanzania’s saga after educating them the situation is calm.
Academically, there are two schools of thought aired internationally. Which one should start in country policy: economic democracy (China model) or political democracy (Western model)? And who should decide which one to start, the country itself or the international arena? The masterminds of these thoughts among others from Africa are Ngozi Okonjo Iweala and Dambisa Moyo the author of DEAD AIDS TO AFRICA, WINNER TAKES ALL and HOW THE WEST WAS LOST.
The aforementioned statements elaborate the importance of investment vis-à-vis the readiness of wananchi within the investment vicinity and competitions with other countries having similar resources. The incentives are inevitable; otherwise the investors disperse and find resources into other countries.
However, what type of incentives needs to be granted? This is an open ended question for the country to decide and make restructuring of incentives whenever deemed necessary. Conformity of this is normally based on signing investment contract with short time to effect restructuring frequently as a need be due to economic dynamics.
Extractive Industry Regulation
Regulations are like house decorations. The decorations are done to perfect the appearance of the house (Policy/Acts). Some of the decorations are needed to widen the relaxation of the dwellers (like regulators- officials vested power) and make life worthwhile without confronting terms and conditions of the rent fees and also with no changes to the erected house (Extractive industry Act so to say).
Decorations like painting can be done by tenants at any time whenever there is a need without prior consent of the owner or with just informing the owner. That means there is flexibility in doing decoration to easy and smoothing the recurring deeds.
In real sense basing on the above assimilation, extractive industry act is supplemented with extractive industry regulations, rules, administrative orders, administrative guidelines and other regulatory devices. Such regulations, rules and administrative orders normally derive directly from a power granted in the extractive industry act to a specific government officer.
Typically, the Minister for Energy and Minerals and, or Commissioner for Minerals, is granted the authority to issue such regulations/rules/orders to easy and smoothing the responsibilities needed with limited time for decisions. To replace or amend an extractive industry act is a politicized, complicated and time- consuming process. Typically, an amendment to an extractive industry act will take long time; more commonly it will take many years so to say.
Regulations, on the other hand, can often be changed very quickly and with limited political input. That’s why, lawmakers are wise to consider which subject matter should be in the extractive industry act and which topics are better placed in regulations. Many extractive industry acts lay out only the fundamental framework of the mineral-sector regulatory system. The details are provided in the regulations. Now you can see the correlation of regulations logic with decorations logic above.
In light of the above, it is mostly advised pertinent issues to be stipulated into Act in summary and perplex phrases so as to provide a room to be widely explained into regulations for actions from the authorized officers.
The power vested to the officers in regulations, help to act in the sense of urgency whenever the situation is worse for the benefit of the country. In a broad note, regulations are hands-on power while Acts are shared power.
Hands-on power in a sense that, the vested officials have a direct power to decide and implement action using regulations. But Acts are shared power in a sense that, the officials need judiciary translations for action to be justified.
Mining Development Agreement (MDA) and Production Sharing Agreement (PSA)
Mining Development Agreement (MDA) is like a single tenant’s special agreement with landlord in a house with other tenants. You might have a large house with different tenants in that house. But one tenant has some exceptions with regards to others. May be, he has rent three rooms and he promised to pay annually while the rest have single rooms and pay after six or three months.
The one occupied three rooms, asks to be considered by landlord not to do general hygiene of the surroundings because of the aforementioned reasons (occupied 3 rooms and pay annually), the agreement is reached with landlord and communicated to other tenants…. ! The agreement or favoritism so to say is based on the financial capability of the tenant and the beneficiation of the landlord – its two ways traffic.
MDAs are of no exceptional compared to the above digestion; MDAs are part of extractive industry regulations of its own kind. MDAs are agreements reached between large projects investors and the government on specific areas particularly fiscal terms.
The administrative officers granted power, discretionary upon their satisfaction, reach that agreement coupled with vast privileges to investor and the country.
However, governments use MDAs to help regulate large mines but handle smaller operations under specific provisions in the general extractive industry Act. In many instances, even when an agreement is in place, some or all of the extractive industry provisions may still apply to the operation.
In most cases what agreed are on the fiscal regime perspectives (like waive of taxes and exemptions on imports tariffs) but other operations still apply to the Mining industry Act. Additionally, there is trend in some jurisdictions for mine, oil or gas project to enter into agreements with local communities, landowners, land-users or indigenous people by the guidance of the authorities within the country ( Local Content Policy).
The logic behind MDAs as seen above is to have separate agreement for assurance between the country and large investors. Due to complicities and risks involved into mining, the MDAs cover all these factors and ultimately the win-win situation is reached between parties. If you leave the large mining investors to be governed by only mining Act and regulations, other cross-cut issues will be difficult to be solved or regulated. Thus all those matters are put into discussions and roadmap (MDA) designed and put into action while the rest fall into Mining Act and regulations.
For hydrocarbons Industry (Oil & Gas), there is Production Sharing Agreement (PSA) while in Mining there is MDA. The logic of having PSA in oil and gas is the same as that of MDA in mining.
To sum up, though there is an Extractive Industry Acts, but presence of MDA and PSA are paramount to accommodate the issues which are not captured well or given relaxation privilege in the Act. Is like having the supreme law of the Land (Constitution) and by-laws to accommodate councils, municipalities, wards and villages day to day endeavors.
Extractive Industry Act
Extractive industry Act is like a physical permanent erected house. The building passes different stages, from architectural and engineering drawing to setting, building foundation and walls, and ultimately finishing.
Since this operations entails time and resources consuming, the needs and wants to build the house requires comprehensive and thoroughly considerations before starting that exercise.
Similarly, the intention has to be clear if the house is for owner’s residence or for renting. If the intention changes on the course or short time after building, the whole processes are futile and it will take time and cost to demolish the permanent structure and seek other building permit from relevant authorities of which the concrete reasons had to be scrutinized.
Extractive industry Act needs time and resources to be enacted and is permanent for a solid period of time. Like house, the needs and wants of the Act, have to be lectured, scrutinized, sensitized and ultimately well linked with policy and regulations for smooth implementation. Thus, as a general observation, important policy matters are addressed in the extractive industry Act while administrative details are embodied in regulations.
Since laws are more difficult to change than are regulations, the subject matters addressed in the law are usually considered as more stable than those found in the regulations. There are some mineral sector regulatory topics where enhanced stability is perceived by most governments as useful. These are placed into the regulations but accompanied with balance and checks stipulated into the Act.
Act being like our permanent house, needs a strong foundation and well detailed architectural and engineering drawings. This is to say, the policy, regulations, investments, MDAs/PSAs have to be well linked to bridge all loopholes for the extractive industry to yield required revenues to the country and reach 10% of GDP on 2025.
The experience shows that non-linkage of PRIMA is the source of resource curse or Dutch disease. That means the Extractive industry sector need comprehensive approach which links all PRIMA and make it like cobweb where any loopholes whether deliberately or incidental created will be captured………… PRIMA COBWEB!!
The figurative assimilation of PRIMA and the processes used to build the house fit each other. PRIMA are our build materials to have strong and state-of – art house (managed responsibly extractive industry)
The ministerial management under Prof.Muhongo and the rest are battling around the clock to build strong foundation of extractive industry. As we are aware, the energy sector and mining sector have dramatically improved and strengthened by linking all five foundation blocks effectively and sufficiently.
Together lets discuss in a good faith and build the foundation by using those five blocks – PRIMA. You can prepare and fabricate any block among those five and submit to the general public for continual construction of the industry.
Eng.Gilay Shamika is an Engineer and Gemologist from Tanzania Minerals Audit Agency (TMAA). Email: gilayshammy@gmail.com
Disclaimer: The views and opinions expressed in this article are those of the author and do not reflect the position of any institution/Employer.