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Economy

How new law protects Kenya mining fortunes

The Mining Bill 2013 comes after months of vicious behind-the-scenes lobbying often pitting local mining interests against foreign miners.

Being the first major review of the 1940 Mining Act, it comes with strict stipulations in an effort to safeguard interests of the citizens and Kenya.

Under the Act, miners cannot just shut down a plant at a whim. They have to apply to the Cabinet Secretary who can agree to the request with conditions or decline.

Mineral agreements will also be tightened with miners obliged to disclose the amounts they plan to spend, with the consequence that they can be charged in court to pay the same if they default.

The Act also stipulates the timetable for mining, royalties, valuation of minerals and dispute resolution.

The licence can be cancelled or suspended if the information is incorrect or if the licence holder is declared bankrupt, in which case all the records have to be surrendered to the government.

Licensees will be required to execute an environmental protection bond and come up with a plan for rehabilitation of the mined land.

Companies like Bamburi Cement rehabilitate the land in use at a huge cost. The cement makers’ Mombasa nature park, Haller, is the best example.

“An applicant for a prospecting licence, a retention licence or a mining licence shall provide a bond or some other form of financial security (in this section called an environmental protection bond) sufficient to cover the costs associated with the implementation of the environmental and rehabilitation obligations of the holder under this Act,” says section 161 of the bill.

The law restricts mineral dealership licence to Kenyans or companies with 60 per cent local holding; a clause seen as a way to soften the blow of reversing the 35 per cent local shareholding rule.

Local interest in the mining zone have been catered for through the royalty allocation with the community taking five per cent and the concerned county 20 per cent—a factor that makes Kitui with its Sh3.4 trillion coal reserves the county to watch depending on the percentage of royalties set to be fixed by the government. Kwale is also set to be a big beneficiary with its vast titanium reserves.

It is, however, not a blank cheque as the financial records have to be audited. Counties, mostly some of the least developed in Kenya, will only be allowed to put the cash into road, water, health and education projects.

The national government will take the lion’s share at 75 per cent. The government will have better control of its fortunes from the mines: “The holder of a mineral right shall pay ad valorem royalty on various mineral classes won by virtue of the mineral right at rates which shall be determined by the Cabinet Secretary through regulations published in the Gazette.”

The Act specifies that royalties will be determined on the gross value of the sales.

Licensees in the mining industry will continue paying the current royalties for an interim period of 18 months upon which they apply the gazetted royalties.

Also to be repealed is the Trading in Unwrought Precious Metals Act and the Diamond Industry Protection Act.

Small miners are also protected under the proposed law. The Cabinet secretary will gazette exclusive mining zone for this category of investors who have often been treated with disdain.

The Act describes them as low tech wielders who do not employ heavy capital.

“In the case of prospecting operations, the proposed prospecting area does not exceed 5 km²; in the case of mining operations, the proposed mining area does not exceed 0.5km²,” it says.

Illegal miners face a jail term of up to two years and fines not exceeding Sh10 million. The court can also order the confiscation or disposal of the minerals.

The Act dedicates acres of space to diamond trading whose licensing is strictly controlled. Kenya has no proven diamond reserves but has been used as a conduit to the international market by smugglers from DR Congo.

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