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MPoM, Public Notice

MPoM, Public Notice

Is Devolution & Tax Making Kenya an Unattractive Mining Investment Destination?

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.

NATION :  NANDI COUNTY GOVERNMENT POLITICAL INTERFERENCE – Influential leaders plan a takeover of gold mining company, employees say

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.

TATA MAGADI

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:

https://www.businessdailyafrica.com/news/counties/Multinational–county-in-bitter-row-over-land-rate-billions/4003142-4949474-qu9rmuz/index.html

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 :

https://www.businessdailyafrica.com/corporate/companies/Kwale-titanium-firm-says-Kenya-owes-Sh2-4-billion-VAT-refunds/4003102-4939932-q88vwh/index.html

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

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.