Avoiding ‘Voidness’ Risk in the 16% Free Carried Interest Arrangements Between the State and Mining Companies: The Option for Tanzania

Many mineral resources-rich developing countries have adopted special measures leading to state participation in mining sector, Tanzania alike. The most common recent approach has been via free carried interest (FCI) where the state is assigned 16% equity interest in the capital of all mineral rights licensed to a mining company. While the mining laws and regulations requires the state not to pay any consideration for such shares, contractual laws, declares contracts without consideration void. This paper is an attempt to ascertain as to whether there is a risk of the 16% FCI being declared void. To answer this question, the paper adopted a qualitative desk review of both primary (legislation and cases) and secondary (books and journal articles etc) sources of data. Primarily the paper focuses in Tanzania, however, reference is made to other African countries with the view not to compare but to offer the basis for the arguments of the possible risks to be encountered. It is found that the legal framework upon which the FCI is premised, renders it vulnerable to court interpretations owing to absence of clear legal provision offering exception to the general rule that agreements without consideration are void. The paper offers two ways forward, firstly to review the laws to accommodate exceptional to the above noted general rule as a means to avoid potential risk of loss by the state, where Kenya saves an example. Secondly, to place reliance on common law practice of precedents on similar cases.