Markets & Finance

Balala says new mining royalties non-negotiable

mining

Mining secretary Najib Balala (left) with Tanzanian deputy minerals minister Stephen Julius Masele. Photo/Diana Ngila

Cabinet secretary Najib Balala has told off mining firms that are pressing for a reduction in royalty payments due to the government as pressure mounts from stakeholders who say the rates might scare away potential investors.

It comes as debate rages over high rates charged on minerals extracted in the country, with miners raising concerns that investors could bypass Kenya for other African nations with lower royalty rates.

Speaking on Thursday during the third edition of the annual Mining Business and Investment Conference in Nairobi, Mr Balala said the rates were non- negotiable, adding that charging more would guarantee the country of its due benefits.

“We were told about Kenya overpricing itself in terms of royalties. If you look at these multinationals they are minting money in the stock exchange,” he said.

“To help this country we have to charge high royalties.” The new royalties are contained in the Mining Bill 2013 which awaits its passage next week by the cabinet before being introduced in Parliament for scrutiny.

The legislation lays down new guidelines on royalties imposed on resources mined in the country.

(READ: Kenya targets more royalties from mining firms)

Rare earth, niobium and titanium which are classified as precious minerals will each fetch the government 10 per cent of their gross sales in royalties, more than tripling from the previous three per cent. Coal and gold royalties have been doubled to eight per cent and five per cent respectively.

Mr Balala said Kenya has been earning about Sh21 million per year from the mining sector, yet the country is endowed with massive deposits of minerals. He now targets to collect Sh1 billion per year from the sector.

The Kenya Chamber of Mines, however, proposes the rates on precious minerals be reduced to five per cent to enable the country participate competitively on the east Africa’s mining landscape.

In Tanzania, royalties range between three per cent (industrial minerals) and seven per cent (diamond). The government maintained that provisions of the law had factored in locals’ interests and that it had been formulated after studying mining models of several nations in Africa.

It said it will impose a 10 per cent free-carried interest on large mining firms and a few strategic minerals which it did not name.

In a free-carried interest model, a firm bears all costs in mining activity while the government whose minerals are extracted receives interest for free. Botswana and Ghana, Mr Balala said, are among nations that have successfully implemented a similar model.

During the conference, Tanzania deputy minister for energy and minerals Stephen Masele warned Kenya to tread carefully in the quest to reap huge returns from minerals.

“There is need to strike a balance between foreign direct investments and the demands of locals,” he said.