Kenya denies IMF access to secret mining agreements

An International Monetary Fund (IMF) team is pushing the government to make public details of a number of deals it has signed with oil exploration and mining firms.

But officials on the IMF team have disclosed that the government has denied them access to the documents, a fact that can only leave Kenyans guessing how the country is faring in regard to the exploration and exploitation of minerals.

The team, which prepared the report ahead of the ongoing engagement with top government officials, miners and other industry players in Nairobi, is citing the constitutional requirement of transparency as basis for making the recommendations.

“The Ministry of Environment and Mineral Resources treats these agreements as confidential and did not release them to the mission,” the officials in their assessment. So far, the ministries of Energy and Mining have generally operated as closed shops even as oil and mineral discovery accelerated.

The technical assistance (TA) team issued the dossier seen by Business Daily ahead of its mission, which kicked off on Wednesday week ago with a meeting with the long-serving Investment Secretary Esther Koimett.

“The Constitution requires ratification by the National Assembly of future agreements granting rights to natural resources—implying that they will become public documents,” it says.

It also cites Section 71 of the Constitution which requires that the management of natural resource wealth be in the interests of all Kenyans.

Countries like Guinea have already made their agreements public by posting them online but only after losing much of their national heritage through lopsided deals with cunning Western mining concerns.

The team was on Wednesday morning scheduled to meet Kenya Revenue Authority and top Ministry of Energy and Petroleum people.

It will also meet gold miner Africa Barrick, Base Titanium, involved in titanium mining in Kwale, and Tullow Oil, which has discovered substantial oil reserves in the Turkana Basin.

The mission will conclude on Tuesday with a final meeting with Treasury secretary Henry Rotich during which the ultimate presentation will be made.

IMF, besides the opening up of the secret deals, will push for mining and petroleum tenders to be open to competition.

Until recently, the government has been awarding mining rights on a first-come basis, a fact that has seen briefcase companies buy rights and then flog them in the international market for a fortune.

The government had up to last February issued 780 exploration and mining licences. Some 10 sites are set for petroleum drilling this year alone.

The Fund, however, appears pleased with the open tendering for coal mining in Mui Basin where the government entered into negotiations with the winner who beat eight others.

Besides, it notes the fact that the government secured a 20 per cent signature bonus without making fiscal concessions. Fenxi Coal Mining Company Ltd of China won the contract, which is, however, currently clouded by local politics.

“The mission supports the principle of organising open and competitive exploration tenders, including an effective pre-qualification process,” says IMF.

Its views on openness tally with those of a consultant hired by the World Bank to draw a regulation map for the oil sector.

“We recommend that Kenya adopts public tendering regime for contract awards as more interest in the country’s exploration blocks yield competitive environment,” said Hunton & Williams and Challenge Energy Consultants.

IMF in a further assessment of the licensing regime says it was not very clear whether the operations of Kenya Fluospar, granted an Export Promotion Zone (EPZ) status, qualify for the host of tax concessions granted.

The EPZ Act requires the firms to be carrying out manufacturing but the report suggests the firm could only be conformant going by the broad description in the Act.

In its recommendations, it advises that one option government could use to improve public earnings would be suspend further “specification” of minerals and restrict benefits of the categorization.

“The EPZ authority could make clear that mining operations are not eligible for EPZ status,” it proposes.

EPZ Authority chief executive however defend the granting of the status to the firm. “They have been in the EPZ for over 10 years: the processing plant is EPZ but the mining area is not,” he said.

On the Kwale project operated by Base Resources, an Australian Stock Exchange firm, the report took into account information made public during a rights issue or public filings: “The mission did not have access to the texts of the agreement or lease.”

The firm has been granted a host of internal tax concessions, including paying half the applicable tax rate over the first 10 years.

Capital expenditure on mining equipment is fully tax-deductible during mining following the gazetting of rutile, ilmenite and zircon as ‘special’ minerals in regard to the Income Tax Act last September.

IMF’s working model suggests the Treasury will forfeit Sh8.7 billion due to the tax concessions but says introduction of other taxes could improve public take in the project while the operator would still make profit.

(Read: IMF pushes for wider VAT net to boost tax revenue)

“I cannot comment on the figure because I have not seen the report,” said Joe Swartz, Base Titanium managing director when contacted by the Business Daily.

On the brighter side the document, Extractive Industries Fiscal Regimes—A Reform Agenda reveals elaborate plans by the government to build and extend the oil pipelines, including a vital crude oil line from South Sudan via Isiolo to Lamu Port.

The IMF notes the pipeline business could yield a lot of income for the government given Kenya’s oil resources and that of Uganda and South Sudan. The existing pipeline is also expected to be extended to Rwanda and Uganda.

Another line for refined products will go from Isiolo to Ethiopia. But internally, the government is planning a refined oil pipeline from Nakuru to Isiolo to supply central Kenya.

IMF proposals come at a time the government is introducing a new Mining Bill 2013 and the Energy Bill. Some of the concerns have been addressed under the proposed laws.