Recent reporting in the Kenyan media points to a disturbing trend in the nascent mining industry. Kenya has repeatedly been ranked at the bottom of the list of attractive destinations to invest in mining ventures by The Frasier Institute and if recent reporting is anything to go by, this trend is not improving but worsening.
Alleged political interference and intimidation in the counties is a new and potentially lethal addition to the mix. We highlight the cases of Karebe Gold Mining in Nandi County and Tata Magadi in Kajiado where county governments are causing problems for large investors in the sector:
KAREBE GOLD MINING
Despite paying billions in royalties and operating a popular and well funded CSR, Karebe Gold Mining finds itself the target of the Nandi County administration.
MEDIA MAX NETWORK – http://www.mediamaxnetwork.co.ke/390092/gold-miner-appeals-state-protection/
If these allegations are true, and the evidence certainly point this way, then Governor Sang and his administration are not doing his county or its people any favours. Karebe provides jobs, opportunity and an excellent, popular CSR program. It also pays huge taxes and royalties to the Treasury.
This sort of politically motivated harassment belongs in Kenya’s past, not its future.
Unreasonable and unrealistic arbitrary land rate hikes in Kajiado county threaten to shut down the operations of one of Kenya’s oldest mining investors, Tata Magadi:
When counties implement policies which have the effect of disrupting legally operating businesses in a destructive and unreasonable manner, the entire country loses.
INEFFICIENT TAX REGIME CAUSE FRUSTRATION AND OPERATING CAPITAL ISSUES FOR LARGE INVESTORS IN THE MINING SECTOR
Mining is a capital intensive sector and profits often are not realized for many years in some larger operations. Hence, a tax regime which stifles operating capital is anathema to investors in this sector.
The recent case of the largest mining investor in Kenya, Base Titanium serves to highlight the ongoing frustrations of an inefficient tax regime in Kenya. KRA owes over 2.4 billion in VAT refunds to the Australian investor :
As most operators in the sector are exporters, the ongoing issue of KRA VAT refunds is one that affects the entire industry.
The Mining Sector has the potential to transform lives and communities at the grassroots level like very few other sectors. Large investors like Karebe, Tata and Base Titanium who invest heavily, employ widely, pay huge remittances to the state coffers and operate transformative CRS programs in their local communites need to be supported not harassed and frustrated.
If President Kenyatta’s Big 4 Agenda is to have any success, much will depend on the investment and operational climate for businesses who fund the state with their taxes.
Explosives Bill 2018
Ministry of Defense posted an advert in the Nation Daily on 19th November 2018, requesting for comments on the Explosives Bill 2018 to be submitted not later than 26th November 2018. The Bill canbe read in full here THE FULL EXPLOSIVES BILL 2018
It is therefore in this respect KCM made a position and presented the same to the Ministry of Defense on behalf of the affected members as follows :
1. Responsibility to Administer Commercial Explosives in Kenya
Commercial Explosives are mainly used to cause rock fragmentation during the mineral extraction or mineral processing phases of mineral development. Hence, explosives are used as enablers in the mineral development value chain. In this respect therefore, it is in order to state that the administration of the use of explosives should be premised in the Ministry or Government agency charged with the responsibility to facilitate and promote mineral development in Kenya.
By examining the Executive Order No. 1 of 2018, one realizes that such a responsibility lies with the Ministry of Petroleum and Mining through the Stated Department for Mining.
KCM is of the considered opinion that it is in order for the Ministry of Petroleum and Mining to continue administering the Explosives Act Cap 115 of the Laws of Kenya and continue doing the same after the Explosive Bill 2018 is assented into Law.
Again since most of the mineral developments are not undertaken by armed or uniformed players, taking this essential service of acquisition of explosives to armed and uniformed personnel could scare away majority of the service seekers to the detriment of mineral development, which could lead to reduced contribution towards achievement of the Presidential Agendas, the Big Four.
This is truly not a desirable situation for it has negative impact to our economic stability.
2. Objective to Regulate the Manufacture, Transportation, Storage, Handling and Use of Explosive
Due to the potential misuse of explosives to the detriment of the public safety, there is considered need to protect the public from unsafe and unsecure exposure to explosive in the manner they are handled at various points.
This is achieved by requiring the parties involved in the manufacture, importation, dealership, storage, distribution, transportation, receive, or use explosives be authorized to do the same by way of licensing and permitting. This requirement is sufficiently regulated under Explosives Act Cap 115 of the Laws of Kenya. KCM fails to understand why such safeguards are being lowered through Sections 14 and 15 of the Bill.
14. No person shall erect an explosives magazine or use a building as an explosives magazine unless he is the holder of a licence issued under this Act.
15. Any person who establishes, erects, maintains or uses an explosives magazine for the storage of explosives, otherwise than in accordance with a valid licence issued under this Act, commits an offence and shall on conviction be liable to a fine not exceeding fifty million shillings or to imprisonment for a term not exceeding ten years or to both.
The two Sections appear to allow a person to be licensed as an explosives dealer before he has a licensed explosives magazine.
Under Explosives Act Cap 115, explosives magazines are items that require licensing to erect, maintain or establish.
3. Regulatory, Administration and Supervision of the Use of Explosives
Under Section 20(1)(l) of the Mining Act 2016, the responsibility of exercising regulatory, administration and supervision over the use of commercial explosives in accordance with the Explosives Act is with the Director of Mines.
Without amending the Mining Act, which requires the Director of Mines to be responsible to Cabinet Secretary for mineral, it would create a lacuna if the same responsibility is transferred to the Cabinet Secretary responsible for Internal Security. The Director would then be under two-parallel chains of command.
KCM trust that this is not what is envisaged in the Explosives Bill 2018.
4. Proposed Explosives Licensing Committee
The Explosives Bill 2018, under Section 4 establishes the Explosives Licensing Committee.
Section 5 of the Bill outlines the functions of the Committee.
5. The Committee shall— (a) issue, vary or terminate, any license or permit, issued under this Act; (b) maintain a register of all manufacturers and dealers of explosives under this Act; (c) establish, maintain and monitor a centralized record management system under this Act; and (d) perform any other function conferred on it by this Act or any other written law.
Section 5(a ) requires the Committee to issue or vary among others permits.
Noting that permits as opposed to licenses are required on day to day bases and allow mainly the transportation, receive or use explosives, it would be very difficult to be issued with a permit given that the Committee has to hold a sitting for a permit to be issued. This would in a major manner impact negatively on the development of mineral in Kenya.
As it is provided for in the Explosives Act 115 of the Laws of Kenya, KCM is of considered opinion that permits should continue being issued by the Inspectors of Explosives. The current system has not proved to be inefficient.
Sufficient justification may be necessary to change such an efficient system.
5. The Process Employed in the Repealing of the Explosives Act 115 of the Laws of Kenya
The process of repealing the Explosives Act Cap 115 of the Laws of Kenya contravened the Statutory Instruments Act No. 23 of 2013 since it did not involve stakeholders who are directly or indirectly impacted during the repeal process.
Also the justification that necessitated the repealing of Explosives Act cap 115 is not provided and therefore not clear to the general stakeholders why the Act is being repealed.
KCM wish to request for a fresh repealing process that endeavor to satisfy the requirement of the Statutory Instrument Act No. 23 of 2013.
KCM will be having a meeting with the affected players in the first week of January for further engagement on the same.
Following is the full speech given by Hon. John Munyes, CS of Ministry of Petroleum & Mining during the conference in Kwale. It contains some very important clarifications on the constitution and the govrenment’s stand on vital issues pertaining to the Ministry :
MINISTRY OF PETROLEUM AND MINING
STATEMENT BY HON. JOHN MUNYES KIYONG’A, EGH, CABINET SECRETARY, MINISTRY OF PETROLEUM AND MINING,DURING THE CONFERENCE ON MAINSTREAMING MINERAL RESOURCES ACTIVITIES IN THE COUNTY INTEGRATED DEVELOPMENT PLAN FOR THE BENEFIT OF THE PEOPLE OF KWALE COUNTY, UKUNDA, MONDAY 14TH MAY 2018 FROM 10.00AM
This statement aims at clarifying some of critical areas with regard to development of mineral resources.
1. Devolution and Access to Services
The Constitution of Kenya, 2010 under Article 6 provides that the governments at the national and county levels are distinct and inter-dependent and shall conduct their mutual relations on the basis of consultation and cooperation. This is a cardinal principle of our nationhood. This principle underscores the reason as to why, as Ministry of Petroleum and Mining of the National Government, we are at this Conference to work with County Government of Kwale.
The Constitution under the same article also provides that a national State organ shall ensure reasonable access to its services in all parts of the Republic, so far as it is appropriate to do so having regard to the nature of the service. We are therefore here to ensure that.
2. Mineral Resources as Public Land
The Constitution under article 62(1) (f) provides that all minerals and mineral oils as defined by law are public land. In this regard, the Constitution further under Article 62 (3) provides that public land of this type shall vest in and be held by the national government in trust for the people of Kenya. This provision of our Constitution therefore leaves no doubt as to which, of the two levels of government, national and county, should manage minerals and other natural resources. Clearly, the role belongs to the National Government.
Under the provision, and within the current structure of National Government, this role of overseeing the management of minerals is being exercised through the Ministry of Petroleum and Mining, and specifically under the State Department of Mining. In this, the Ministry works closely with the National Land Commission. To bring about the necessary positive change for spurring desired growth of the Mining sector in Kwale County, the Ministry wants to work very closely with the County Government of Kwale as well as with all the other relevant stakeholders.
3. Interpretation of Natural Resources
Article 260 of the Constitution, provides Natural resources means among other rocks, minerals, fossil fuels and other sources of energy. Therefore, there should be no doubt that the ownership of mineral resources is vested in the National Government. There should also be no doubt that National Government will work closely with owners of land so as to encourage them to support mining activities. There should also be no doubt that National Government will take all necessary measures within the Constitution and law to ensure that mining is not interrupted or interfered with.
The County Governments and local communities in the areas where mining activities are taking place also do have a great stake in ensuring that mining activities are not interrupted or interfered with, since the County Governments and local communities are beneficiaries from Royalties to be paid from the Mining. I therefore call upon the County Government of Kwale and the local communities where mining is taking place to stand firmly behind the investors and support National Government in its endeavour to improve mining in the county.
4. Obligations in Respect of the Environment and Natural Resources
Critical role in development of mineral and other natural resources is provided for under Article 69 of the Constitution. This Section provides that the State shall –
a) Ensure sustainable exploitation, utilisation, management and conservation of the environment and natural resources, and ensure the equitable sharing of the accruing benefits;
b) Encourage public participation in the management, protection and conservation of the environment;
c) Establish systems of environmental impact assessment, environmental audit and monitoring of the environment;
d) Eliminate processes and activities that are likely to endanger the environment; and
e) Utilise the environment and natural resources for the benefit of the people of Kenya.
This section underpins the constitutional role of County Governments in ensuring benefits from development of mineral and other natural resources in their jurisdiction are shared equitably [NOT EQUALLY] for benefit of the people of the counties; and that public participation takes place to ensure balanced considerations in development of the resources. This section therefore secures the natural resources against poor development practices, in addition to providing clear guidance on how benefits accruing from development of natural resources ought to be shared. I therefore call upon the County Government of Kwale to play its rightful role in this regard.
5. Public Participation
As to public participation, Section 34 of the Mining Act, 2016 provides that Cabinet Secretary on receipt of an application to give notices to Land owners or lawful occupiers of the land, the community, the relevant county government and publish the pending application in the Kenya Gazette and newspaper for wide circulation, allowing 21 days in case of a Prospecting Licence and 42 days in case of a Mining Licence for any objections to the grant of Licence. This is ensured by this Ministry.
For example, on Saturday, 12th May 2018, as Cabinet Secretary for Petroleum & Mining, I spent time to listen to the people of Magaoni in Msambweni Sub-County, as well as the people of Tsuini in Lungalunga Sub-County in regard to petitions filed to me by the respective local communities through their leaders in the Senate and National Assembly of Parliament. There is also a petition that was filed by workers of Base Titanium. We have started engagements on how to help resolve these two matters.
6. Local Content
Further, the law also provides that Mineral Right holders adhere to approved plans for procurement of local goods and services, employment and training of Kenyans and to off-load at least 20% of equity at local stock exchange for participation of Kenyans/locals. This provision is important for enabling Kenyans to gain commensurately from their own resources.
I therefore appeal to the leadership of Kwale County to consider seriously the importance of this provision and help prepare and align the people and communities of Kwale to be in such a manner as to gain as much as possible from these provisions.
The Mining Act Section 183 provides that Royalties are to be shared to the National Government, County Government and the Community where mining operation occur at the ratio of 70%, 20% and 10% respectively. To effect this, the Ministry of Petroleum and Mining in conjunction with the National Treasury is developing Mineral Royalty Fund for ease of disbursement. We have appealed to the other parties in the National Government involved in the matter for completion of this task in the shortest time possible in the development of the Mineral Royalty Fund.
This is to enable distribution of respective share of funds collected to County Governments and Communities. Kwale County Government and the local communities in the project areas within the County are expected to be big beneficiaries once the Mineral Royalty Fund is in place. Details of this will become clear from the presentation about the mining companies operating in Kwale that would be made in this forum hereafter.
8. Community Development Agreement
There is also requirement for large scale Mining Licence holder to sign Community Developer Agreements with community where many operations are to be carried out under Section 109(i) of the Mining Act. The provision is to ensure that among other benefits are to be shared between a Mineral Right Holder and Local Community.
For example, a mining company under this provision is to pay a minimum of 1% of its gross revenues in a year to support local community in its area of operation. This is aside from the contribution to the County Government and the local community under the framework for Royalty sharing. Community Development Agreement is therefore a very important provision that the people of Kwale County cannot afford to fail to have put in place within the County.
9. Work Performance of Operations
Requirement for execution of the approved work programme. The provision enables monitoring and evaluating compliance of Mineral Right holders with the terms of agreement.
10. Consent – Applicants of Mineral Rights are Required to Obtain Comments from Land Owners (Sections 37-39 of the Mining Act)
(i) This is in respect of Registered Private land owners
(ii) Community land i.e. consent note by authority administering/ managing community land
● National Land Commission in case of un-registered community land.
● For Community land where consent is granted prior to any change in land ownership, such consent shall be valid for as long as the prospecting and mining rights subsist.
(iii) Person responsible for state agency in case of government land.
This provision is causing difficulty to smooth implementation of mineral exploration projects, as it is not easy to implement in areas where the consents have to be obtained from a large number of people.
11. FOURTH SCHEDULE of the Constitution – Outlines the distribution of functions between the National and County Governments whereby Part 1 outlines functions of National Government and Part 2 –County Governments
With regards to mining –it is outlined under No.22 protection of the environment and natural resources with a view to establishing a durable and sustainable system of development
Under the Mining Act, the roles of National Government, County Governments and of Local Communities in mineral developments are clearly defined. These are therefore subject of our next presentation.
A miner inside the Bulyanhulu gold mine in northern Tanzania. The country has been ranked as the fourth least attractive mining destination in Africa (Image Source: The East African)
By: Njiraini Muchira
Just when Kenya and Tanzania are undertaking reforms to ensure their mining sector plays a central role in economic growth, a report by Canada’s Fraser Institute has cast a dark cloud on its attractiveness, after ranking them at the bottom of the pile.
Its Annual Survey of Mining Companies 2017 index ranks Kenya as the second worst mining destination in the world, after Guatemala, and the worst in Africa.
According to Fraser Institute, which is a leading think-tank that shapes public policy and influences private sector decisions through its research, Tanzania is the fourth least attractive destination in Africa and ranks at position 78 out of 91 countries globally.
Dar’s ranking has dropped from 59 out of 104 in 2016, attributed to increasing concern among investors over uncertainty regarding the administration, interpretation and enforcement of existing regulations, trade barriers, and security.
“Legislative changes in Tanzania, which are being retrospectively applied, undermine the sanctity of contracts and remove recourse for international arbitration to resolve disputes with the government. This creates uncertainty and instability and makes for a particularly hostile investment environment,” says the report.
Industry players say that the poor ranking of Kenya and Tanzania, which have been at the forefront of implementing initiatives to drive growth of the mining sector, is an indication that the reforms do not resonate well with investors.
“The index tells policy makers that investors do not consider East Africa a destination to put their money in, largely because the regulatory environment is not friendly,” Moses Njeru, Kenya Chamber of Mines chief executive officer, told The EastAfrican.
The two countries want mining revenues to contribute at least 10 per cent of GDP from less than one per cent for Kenya and 3.5 per cent for Dar.
In Kenya, the government published regulations compelling foreign companies to cede some shareholding to the government and list at the stock market in line with the Mining Act, 2016.
The regulations stipulate that foreign companies investing at least $100 million must list at the stock market to allow Kenyans to benefit from the minerals and to check the mass repatriation of revenues.
But foreign investors say they are already overburdened by the capital-intensive exploration activities, the lack of critical seismic data, forcing them to undertake their own surveys; the steep compensation to landowners and the requirement that they invest at least 1 per cent of their capital in community development.
Tanzania has reviewed its mining laws to enable it to renegotiate mining contracts with foreign companies, which it accused of tax evasion and under-declaring volumes and types of minerals exported.
The laws are the Natural Wealth and Resources Contracts (Review and Re-Negotiation of Unconscionable Terms) Bill, 2017, the Natural Wealth and Resources (Permanent Sovereignty) Bill, 2017, and the Written Laws (Miscellaneous Amendments) Act, 2017.
The laws seek to increase mining taxes, force companies to renegotiate their contracts, allow the state to own up to 50 per cent shares in mining companies, ensure mining companies invest in local smelters to add value to the raw minerals, create jobs as well as stamp out corrupt practices and tax evasion.
Following these changes, some prospective investors have held off their plans to enter Tanzania.
London-based Tremont Investment cancelled a bid for Australia’s Cradle Resources while Shanta Gold cancelled a takeover bid for Helio Resource Corp, citing the new regulations.
The move has also seen companies operating in the country rethink their strategies, with some, like Acacia Mining, scaling down their operations.
According to the Fraser index, although geologic and economic evaluations are always pre-requisites for exploration, a region’s policy climate has taken on increased importance in attracting and winning investments in today’s globally competitive setup.
This is because 40 per cent of investment decisions are determined by policy factors while the remaining 60 per cent are based on the assessment of a jurisdiction’s mineral potential.
“A best practice environment is one which contains a world-class regulatory environment, highly competitive taxation, no political risk or uncertainty, and a fully stable mining regime,” the report says.
The index ranks Finland as the most attractive destination in the world while Ghana is ranked as the most attractive in Africa at position 22 globally.
Guatemala is the least attractive jurisdiction in the world for investment. Also at the bottom (beginning with the worst) are Kenya, Argentina, Mozambique, Bolivia, Venezuela, Romania, China and Nicaragua.
Ethiopia, which has seen its once promising mining sector plummet due to a rise in illicit trade and political instability, was also ranked among the worst destinations in Africa after Kenya and Mozambique. Globally, it was ranked at position 81 out of 91 countries.
Source: The East African
KCM Board Member, Kimani Wainaina, CEO of KenCoal is interviewed at Mining Indaba in Cape Town, South Africa. He talks about investing in mining in Kenya and his own project in coal extraction.
KCM encourages its members to attend Indaba in the future to promote Kenya as a mining destination and their own projects.
Last week the Board / Executive Council of KCM met CS John Munyes and gave an extensive
presentation on solutions to the many issues and bottlenecks facing the industry. The Ministry agreed to
form a 6 man team drawn from the KCM Board and the Ministry to meet quarterly with a mandate to
address issues and problems and forge a way forward. President Kenyatta has set a target of 4% of GDP
for the mineral industry and much needs to be done to achieve this. KCM is fully committed to playing
its part in making this a reality.
KCM Members can access more information from the meeting by logging into the members portal.
KCM was formed in the year 2000 to represent the interests of Kenya’s miners, exploration companies, mineral traders, suppliers and professionals in the mining industry.
19B 3rd Floor | Crawford Business Park | Statehouse Rd
P.o. Box 3174-00200 ,Nairobi, Kenya
T: +254 20 3861217 | C: +254 773 216 361