New rules for State to own mining firms

Parliament has passed new operating rules the require all mining companies licensed in the past one year to cede a portion of their business to the government for free.

The rules, which do not apply to companies that were awarded mining licences earlier, give the government the right to a 10 per cent stake in all mining operations licensed after May 2016.

“The State right to a free equity participation shall not apply to any right that has been granted to a holder to mine or exploit a mineral before the coming into force of the Mining Act,” the Mining (State Participation) Regulations 2017 say.

The provision is different from the one that prescribes the formula for sharing mineral wealth between mining firms, national government, county governments and local communities.

The Mining Act, which came into force on May 27, 2016, entitles the government, through the yet to be formed National Mining Corporation, to acquire “a 10 per cent free equity participation or free carried interest in the mining operations to which the licence relates.”

The law also requires the Cabinet Secretary responsible for mining to make regulations that provide for State participation in mining or prospecting operations with the holder of a mineral right.

“Where a mining licence is granted in accordance with the Mining Act, the State shall not make or pay any financial contribution to the holder of a mining licence in respect of the interest acquired under sub regulation (1),” says the law, meaning the State is entitled to a 10 per cent shareholding for free.

In addition to the free carried interest or equity, the law gives the government the option of purchasing additional interest or share capital in the holder of the licence but only with the agreement of the licensee.

“Any additional interest that the State may acquire shall be agreed with the holder of the mining licence and the purchase shall be at a fair market value,” the rules state. The new regulations were tabled in the National Assembly on June 7, 2017, a week before the House went on an indefinite end-of-term recess.

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Mining secretary Dan Kazungu is now expected to send a written notice to the holders of licences, asking them to award the State the 10 per cent interest in their business for no consideration.

“The Cabinet Secretary and the holder shall agree on the timeframe for the issuance of shares and in any case shall not be more than one year after the grant of the mining licence,” Mr Kazungu said in the gazette notice.

Mining companies are prohibited from diluting any free carried government interest unless the same is transferred, assigned or sold in part or entirely to the holder or any other party.

The regulations require qualified mining companies to issue the government the shares, enter the same in the appropriate register and issue a share certificate to the State in accordance with the laws of Kenya.

The government does not have a direct stake in mining deals under the current law.

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Mining firms have in the past criticised the granting of licences on a first-come-first-served basis, arguing that it gives mining rights to well-connected speculators who then sell them to real investors.

“The purpose of these regulations is to provide for State participation in prospecting or mining operations carried out by the holder of a mineral right,” says the new set of laws.

Kenya’s Constitution requires all new oil and gas exploration rights that are negotiated with the Ministry of Energy to be ratified by Parliament.