Commentary by Shikana Group
Article 1 – Definitions and Interpretation
- (a) Definition of Terms
“Project Company” shall mean DPW or a company registered in Tanzania (being an Affiliate of DPW) which has entered into a Project Agreement to under Project Activities. “
Recommendation: The Project Company should be a company registered in Tanzania only and this can be in the form of a subsidiary of DPW or any other structure that is appropriate for DPW but registration in Tanzania is key for several things. First, the Project Company needs to get licensed and most of the regulatory requirements for business licensing require that the company has a Tax identification Number in Tanzania. Secondly where the Project Company will be hiring employees, the taxes imposed for employers ie PAYE along with other statutory requirements such as NSSF require that the employer is a legal entity that is registered in Tanzania.
See also in the definition under “HGA” where it provides for DPW to enter into host agreement and then subsequently transfer the rights and obligations to the Project Company when it is formed. This is adding a layer of bureaucracy and a loophole for irregularities by adding a procedure of transfer of rights and obligations to another entity. Recommendation would be that the Project Company be registered in Tanzania in order to enter into the HGA with the Government of Tanzania. If the concern is that DPW may not fund the project entirely and that other investors may come in, this can be provided for already in the structuring of the legal entity i.e. limited company at the registration point of the company by providing for an unallotted share capital that will be allotted to a future investor should the need arise.
“Investor” shall mean (i) Project Company (and any branch or subsidiary of a Project Company registered to undertake a Project on behalf of a Project Company; (iii) any person directly holding any form of equity or other ownership interest in a Project Company.”
Recommendation: Remove this definition as it is confusing. Investor is defined as Project Company which already has its definition and also any entity or person holding equity in the Project Company is part of the Project Company. The Agreement goes on to use this new Term but it is redundant in my opinion since it is established that the Investor is the Project Company. Recommendation to remove the reference of “Investor” throughout the Agreement in line with above reasoning.
- Commitment to enter into HGA
- “(b) If the Project Company is not incorporated at the time of signing the relevant HGS, an HGA may be signed by Tanzania and DPW or an Affiliate (with such signatory having the right to assign or novate such HGA to the relevant Project Company once established).”
- Recommendation: This whole paragraph should be removed. The HGA is an important instrument and should be signed with the Project Company that is registered in Tanzania. Remove the possibilities of transfer and assignment at this stage.
Article 4 – Scope of Co-Operation and Implementing Entities
(2) “Tanzania will inform Dubai of any other opportunities relating to ports and freezones…”
Recommendation: Remove the word “will” and replace with “may” so Tanzania may inform Dubai. The fact that Dubai is pursuing one opportunity does not mean that Tanzania must enable Dubai to pursue future investment projects, at the cost of other prospective investors. Furthermore, Tanzania must observe the principle of non-discrimination when it comes to investors generally. This can be seen as favouring Dubai more than others.
(4) “The Emirate of Dubai nominates DPW…”
Recommendation: To remove the word “nominates” and replace with the word “Affirm” so as to be in line with the language in paragraph (3) where Tanzania affirms TPA. Furthermore, the process of nomination is final once there is a confirmation or affirmation.
Article 5 – Rights to Develop, Manage or Operate
- The State Parties agree that DPW shall have the exclusive rights to develop, manage and/or operate the Projects as specified in Appendix 1 Phase 1, directly or through its Affiliates under the Agreement as shall be further prescribed in the relevant Project Agreements and relevant HGAs”
- Recommendation: To amend to include “DPW through the Project Company subject to terms and conditions to be agreed in subsequent binding Project Agreements, shall have exclusive rights to develop, manage, …
It is important to ensure that if exclusive rights are granted, then they are granted to the Project Company registered in Tanzania and not a foreign entity. Furthermore, it is premature to give DPW exclusive rights to develop the Project prior to any specific terms and conditions being negotiated in subsequent binding Project agreements. Subsequent Agreements will also outline where the rights to TPA and DPW begin and end, which are unclear at this stage. It is dangerous to just give a blanket right at this stage.
(4) “The Government of Tanzania shall ensure that TPA does not consider any other proposals for any Phase 1 Projects as from as from the Signature Date until such dates as discussions between DPW and TPA for the phase 1 Projects have been terminated or at the expiry of a period of 12 months from the Signature Date of this Agreement, whichever is the earlier”
Nota Bene: This provision needs to be read with Article 23 which provides for the mechanism of Termination and essentially provides that the Agreement cannot be terminated. Therefore, the phrase “expiry of a period of 12 months from the Signature Date of this Agreement” is not possible by virtue of Article 23.
Recommendation: At the stage where none of the Project Agreements have been signed, it is premature and unreasonable that the government of Tanzania commits to not considering any other proposals especially since the Agreement at Article 4 (5) provides that DPW is raising funding for the Project Company and fundraising is sometimes unpredictable and may take time. It is unreasonable that where the Project Agreements have not been signed and
funding has not been allocated to this project that the Government of Tanzania is locked in. Development of the port is strategic to the Government of Tanzania and key to its development. The development of Tanzania cannot be at the mercy of anybody.
Article 6 -Relevant Government Consent and Approvals
- “The Government of Tanzania shall ensure that the relevant Project Company is granted with all relevant governmental approvals, consents…”
- Recommendation: To remove the word “shall ensure” and use the word “use its best endeavours to assist the relevant Project Company”. The Project Company still needs to comply to the laws in Tanzania therefore the proposed language of “shall ensure” implies that the Project Company may not comply, but the Government still has to give licenses, and rights etc.
- “At the request of DPW or the relevant Project Company, the Government of Tanzania shall assist to prevent and/or stop any illegal or unauthorised interference in the procurement or implementation of the relevant Projects…”
- Recommendation: To add “use its best endeavours and where reasonably shall assist to prevent…”
- This is to avoid the Government of Tanzania to be warped in battles that put it at a disadvantage and or that put the Government at risk of damaging its other legitimate relationships.
Article 7- Project Authorisations
- “The Government of Tanzania shall, in a timely fashion, issue, grant, maintain or renew (or cause to be issued, granted, maintained or renewed) all the authorisations required…”
- Recommendation: The Project company and TPA both must comply with the laws in Tanzania regarding all relevant authorisations. The provision here implies that the Government shall issue, grant, maintain irrespective of whether the parties have complied with the relevant laws or not. Therefore, recommendation to provide language to the effect that “The Government shall use its best endeavours to assist, in a timely manner, that all authorisations required are issued, granted, maintained or renewed” and remove “or cause to be issued, granted, maintained, or renewed”)
- “The government of Tanzania acknowledges and agrees that issuing, granting, maintaining, or renewing such authorisations, in a timely fashion, is critical to the successful and timely implementation of the approved proposals and shall ensure that the competent state authorities or agencies will facilitate and expedite, upon receipt of an application or request from DPW, TPA or the relevant project company…”
- Recommendation: This provision means that the Government of Tanzania can interfere in the powers of other institutions to do their job. It is best practice to add language that the Government of Tanzania will use its best endeavours to assist in the applications etc which ensures that DPW, TPA and Project Company will
- still be observing the rules and regulations in place and not receiving special treatment at the detriment of
- adhering to the rule of law.
- “Once issued or granted, no authorisation granted in relation to the any Project shall be revoked, altered, modified or fail to be renewed or extended by the Government of Tanzania or the relevant state authority or agency without prior consultation with the PCFC representing the Emirate of Dubai if such revocation, alteration, modification or failure to renew or extend would have material adverse effect on the Projects (or any one of them)”
- Recommendation: This provision implies again that DPW, Project Company may omit to comply and yet revocation or alternation will not be possible. Therefore, the interests of DPW and the Emirate of Dubai are secured but not the Government of Tanzania’s. Revocation, modification alteration and renewal of authorisations must be in accordance with applicable laws and regulations in Tanzania. Furthermore, in contemplating the revocation, medication, etc of authorisations, it would be best practice if the PCFC representing the Emirate of Dubai is notified and not consulted since this denies the powers of the institutions who are responsible for the said authorisations. The PCFC can be notified and given an opportunity within a specific deadline to rectify the situation so as to avoid revocation, medication, etc of authorisation.
Article 8 – Land Rights
- “The Government of Tanzania shall take all the necessary actions to ensure the acquisition and grant of rights to DPW or the relevant Project Company…”
- Recommendation: “The Government of Tanznaia shall use its best endeavours to assist the Project Company in acquiring land rights…”
- Nota Bene: In accordance to the land laws in Tanzania, a foreign entity like DPW cannot own any land rights. Only the Project Company registered in Tanzania can own land rights.
Article 10 – Confidentiality
The confidentiality clause should be revised given that this Agreement and subsequent agreements may be revised by the parliament and all hearings at the parliament are public.
Article 20 – Dispute Settlement
- Nota Bene: The Agreement provides for international arbitration with its seat in South Africa. While the project involves the construction and development of the port which does not fall under the definition of “natural wealth and resources” as provided by section 3 of the The Natural Wealth and Resources (Permanent Sovereignty) Act No. 5 of 2017, the part of the project that does fall under this Act is the
- “land rights”. Therefore, where the dispute relates to land rights, section 11 of the The Natural Wealth and Resources (Permanent Sovereignty) Act No. 5 of 2017 therefore that aspect if disputed may not be subjected to international arbitration as provided for by the Agreement as it would be contrary to the
- law. Article 20 (2) of the Agreement should capture this nuance.
Article 21 – Governing Law
Recommendation: To harmonise the applicable law across board therefore agree to either Tanzania Law for this Agreement or English law for all Agreements since they are read together.
Article 23 – Duration and Termination
- (ii) the expiration of all the HGAs and all the Project Agreements…and the definite resolution of disputes, if any, thereunder…”
Recommendation: To replace the word “expiration” with the words “termination”. Furthermore, best practice is that specific clauses be agreed that will still be valid even after termination to cater for any disputes that are ongoing and or other winding up processes of the Project. Therefore, Article 23 (2) should be amended to reflect the provisions that will not be affected upon termination instead of providing that all provisions are valid despite termination since this is unreasonable.
( 4) The State Parties shall not be entitled to denounce, withdraw from, suspend or terminate this Agreement in any circumstances, including in the event of material breach, fundamental change of circumstances, severance of diplomatic or consular relations, or any other causes recognised under international law. Notwithstanding the forgoing, any dispute between State Parties in respect of such circumstances shall be dealt with in accordance with the requirements of Article 20 of this Agreement”
Recommendation: This provision should be removed completely. It is unreasonable that an agreement should prevail even after material breach by a Party for example or if diplomatic ties are severed. Furthermore, this provision renders null all other provisions under Article 23.
It is noted that there is no provision related to Force Majeure in the Agreement.
Recommendation: To add an Article for Force Majeure so that where an event that is out of control of the parties such as, inter alia, a war, earthquake, civil strike, etc occurs the parties may be exempt from certain obligations which cannot be performed due to the occurrence of the event.
Shikana Group Limited