Industrialisation PS Karanja Kibicho looks at a sample of a mineral found in the country during the Mining Business and Investment East Africa forum at the Laico Regency hotel September 27, 2012. Photo/SALATON NJAU
What you need to know:
Environment and Mineral Resources PS Ali Mohammed said the existing fee structure is being reviewed to set specific charges for each mineral.
The proposals are contained in the Geology, Minerals and Mining Bill 2012 that the PS said is with the Cabinet.
If passed, exporters of raw minerals will face an additional four per cent royalty charge while those shipping out refined or processed metals will pay rock bottom fees chargeable at one per cent of the total value.
Kenya’s decision to increase its royalty fees comes a few months after Tanzania made a similar move, raising royalties charged on minerals such as gold from 3 to 4 per cent.
International companies seeking to exploit Kenya’s mineral wealth could pay up to three times the current rates as the government moves to increase its earnings from the mining sector with higher royalty fees.
Environment and Mineral Resources Permanent Secretary Ali Mohammed Thursday said the existing fee structure is being reviewed to set specific charges for each mineral away from the current policy that levies the fee at the rate of three per cent of a contract’s value for all minerals.
Under the proposed structure, diamonds and other precious minerals such as gold will be charged royalty at the rate of 10 and five per cent respectively. The proposals are contained in the Geology, Minerals and Mining Bill 2012 that the PS said is with the Cabinet.
If passed, exporters of raw minerals will face an additional four per cent royalty charge while those shipping out refined or processed metals will pay rock bottom fees chargeable at one per cent of the total value.
Mr Mohammed said the export charges are aimed at discouraging the shipping out of jobs and investment to help tackle the ever rising challenge of mass unemployment among the youth.
The Bill proposes that the threshold for value addition on minerals be set at a minimum of 30 per cent -- meaning that anything below the set limit would be considered raw and taxed at the rate of four per cent.
“We plan to get better returns from this sector that has recently become one of the most promising segment of our economy,” the PS told delegates to a mining conference in Nairobi.
In Kenya, royalties charges are pegged on gross earnings of an exploration firm in addition to a 30 per cent corporate tax on profits.
Kenya’s decision to increase its royalty fees comes a few months after Tanzania made a similar move, raising royalties charged on minerals such as gold from 3 to 4 per cent.
Dar also wants mining companies operating within its borders for more than five years to start paying corporate tax at the rate of 30 per cent regardless of whether they are making profits or not.
Mr Mohammed said revenue from the mining sector will be shared among the central government, which will retain 75 per cent, County government 20 per cent with the remaining five per cent going to communities living around the project sites.
Environment minister Chirau Ali Mwakwere said lack of sound regulations has denied Kenya its fair share of the mineral wealth, an anomaly that the new laws aim to correct.
“Things have been slanted in favour of investors leaving the government with a paltry five per cent of the proceeds,” he said.
Kenya’s mining sector is currently operating on the Mining Act of 1940 that has been revised only twice, in 1972 and in 1987 but without the inclusion of contemporary practices such as fair sharing of revenue.
The absence of comprehensive mining policy has left the country open to gross exploitation by foreign fortune hunters most of who have paid royalties at their own discretion.
Official data from the Ministry of Environment and Minerals shows that most mining companies are currently paying royalties at the rate of 2.5 per cent instead of the indicative rate of three per cent.
Some of the firms, especially the medium-sized and small-scale hunters operating in the countryside, do not pay the royalties altogether.
Heavy leakage of revenue from this sector has left Kenya with total annual earning of between Sh15-20 million despite the intensive prospecting and exploitation activities taking place in the country.
In 2010, for instance, exploration firms paid Sh15.5 million in royalty fees and Sh29.6 million in 2011 even as official records show that Kenya earned Sh6.2 billion from the sale of two tonnes of gold alone in 2010 -- three times higher than the year before.
The government’s earnings from royalties fees is however expected to rise sharply this year reflecting the recent tightening of the regulatory environment in the wake of increased interest in the sector.
Recent discovery of large reserves of gold in western Kenya continues to attract foreign interest resulting in the entry of a number of international mining firms mostly through farm-ins into existing licence holders.
Activity has also intensified in the coastal strip, especially the county of Kwale where large deposits of rare minerals such as niobium and titanium have been discovered and in Machakos county’s Mui basin where large deposits of coal have been found.
Poor performance collection of royalty fees is being partly blamed on small-scale firms that have over the years operated without filing any records with the government.
“The proposed laws should also help us to rope in small-scale prospectors through mandatory licensing,” Mr Mohammed said.
Mineral exploration licence fees and ground rent charged for presence on the various mining sites are also set to rise substantially. The prospectors are currently charged a paltry Sh250 for access to a site.
The proposed legislation also seeks to establish three mineral sector agencies, the Kenya Mining Investment Corporation, Kenya Geology, Minerals and Mining Authority and the Geology and Minerals Mining Board to enforce regulation and boost output.
Mr Mwakwere said the government would soon conduct an aerial survey to map all its mineral reserves. “Kenya is generally an under-explored territory whose actual mineral potential remains unknown,” the minister said.
Tanzania undertook comprehensive mapping of its mineral deposits in the 1970s while Uganda carried out a similar exercise between 2007 and 2010.
“We want to map our resources in the spirit of the East African integration so that we have a uniform picture,” Mr Mwakwere said.
Partner states of the East African Community are jointly drafting new laws to regulate the mining sector following increased interest by global exploration firms some of which have expressed interest in cross-border activity.
