The Tanzanian government yesterday paid $30 million to Winshear Gold Corp to settle an investment dispute with the Canadian company out of court.
Winshear had filed a suit at the International Centre for Settlement of Investment Disputes (ICSID), seeking close to $100 million in damages from the Tanzanian government following the cancelation of its mining retention licence.
By settling out of court, the Tanzanian government sought to minimise tarnishing the country’s reputation as an investment destination and avoided a waste of time and large sums of money that would be incurred if the case dragged on until its conclusion.
On the other hand, Winshear said in a statement that after deducting it’s own legal costs, it has received a windfall of a net amount of $18.5 million from the $30m paid by the Tanzanian government.
How It Started
Tanzanian President John Magufuli declared an economic war against “imperialistic foreign investors” during his rule (November 2015 to March 2021) and publicly accused them of looting the country’s natural resources.
Under a nationalist fervor, he ordered an overhaul of the country’s mining laws and his government passed drastic retrospective legislation in 2017, which among other things, cancelled mining retention licences.
The revocation of mining licences violated Bilateral Investment Treaties (BITs) that Tanzania signed with several foreign countries, which protect investors from those countries by specifically prohibiting expropriation of their rights and assets, including the mining retention licences
The BITs clearly stipulate that when a dispute occurs, foreign investors can sue Tanzania in international arbitration tribunals like ICSID, whose decisions are final and binding.
After the abrupt cancellation of their mining licences, several foreign investors invoked the BITs and sued Tanzania at ICSID. Tanzania will most likely lose ALL these cases and pay hefty fines and fees.
Prof. Abdulkarim Mruma, one of Magufuli’s trusted lieutenants in the economic war against foreign mining companies, appeared as an expert witness for the government at ICSID and came under brutal cross-examination by Winshear’s lawyers.
The cancellation of mining licences without taking into consideration pre-existing BITs was a costly mistake by Tanzania.
Several similar cases filed by foreign mining companies are still pending at ICSID, which the Tanzania government will probably lose despite spending huge sums of money on legal fees and other expenses.
The best course of action is for the Tanzanian government to cut it’s losses and settle out of court with the claimants to quickly resolve the disputes.
Magufuli’s successor, President Samia Suluhu Hassan, has abandoned her predecessor’s confrontational style and has instead adopted a business-friendly approach to woo foreign investors back to Tanzania.
While Magufuli’s intentions to seek more benefits for Tanzania from its mining wealth may have been good, the execution of this vision was all wrong.