Mining secretary Najib Balala, flanked by PS Richard Ekae (left), addresses a news conference in his office in Nairobi on Monday during which he announced the cancellation of prospecting, exploration and mining licences issued between January 14 and May 15 2013. Photo/Phoebe Okall
What you need to know:
Mining secretary Najib Balala has lined up establishment of minerals and metals commodity exchange among the ministry’s priorities for the next five years as it seeks to make Kenya a mining hub.
The push for a futures market is one of the highlights of the Mining Bill 2013 which classifies it as one of the mining ministry’s flagship projects.
Among other measures, the Bill seeks to empower the mining Cabinet Secretary to promote minerals and establish a mineral commodity exchange.
The government is considering setting up a futures market for minerals just months after it shelved a similar plan for agricultural commodities exchange.
Mining secretary Najib Balala has lined up establishment of minerals and metals commodity exchange among the ministry’s priorities for the next five years as it seeks to make Kenya a mining hub.
“We can’t have all the minerals and metals but we can lead the region in trade,” Mr Balala said at a press briefing on Monday.
The push for a futures market is one of the highlights of the Mining Bill 2013 which classifies it as one of the mining ministry’s flagship projects.
Among other measures, the Bill seeks to empower the mining Cabinet Secretary to promote minerals and establish a mineral commodity exchange.
“The Cabinet Secretary may make regulations to prescribe the criteria for establishment of a mineral commodity exchange,” A minerals and metals exchange is a market where various minerals and contracts based on them (derivative products) are traded.
The exchanges usually trade futures contracts on the minerals—such as trading contracts to receive gold in a certain month at a certain price.
They allow the gold miner to sell a future contract on his or her gold, which will be mined for several months, but is still guaranteed of the price when the actual commodity is delivered.
With such an exchange in place, the middlemen and other intermediaries who make money out of speculation are kicked out of the mineral value chain.
At the moment, Kenya is commercially exploiting a number of minerals including soda ash, fluorspar, salt, diatomite, gold and gemstones.
The earnings from minerals jumped 50.5 per cent from Sh18.3 billion in 2011 to Sh27.6 billion in 2012, data prepared by department of mines and geology indicates.
The government has been conducting mineral mapping, which has shown potential for a number of other minerals such as tiomin, niobium and rare earth material.
The thin list and low volumes of exploited minerals at the moment have, however, raised concerns that a futures market for the sector could suffer the same fate of the agricultural commodities exchange which collapsed over fears of erratic supply.
“The minerals that we have in the country cannot sustain a commodities exchange,” said Monica Gichuhi, CEO, Kenya Chambers of Mines. “We advised the ministry to consider a regional exchange governed by capital markets laws, not Mining Act.”
On Monday, Mr Balala maintained the ongoing regional integration has created the opportunity for Kenya to widen the list of minerals on offer at the exchange.
“Our neighbours have a rich list of minerals that could be traded through our exchange,” said Mr Balala.
The Mining Bill 2013 has already been submitted to the Cabinet for discussion in its next meeting. Among other changes, it seeks to compel mining companies to list at the Nairobi Securities Exchange to enable the government to enforce the rule on local ownership.
If passed, a number of institutions will be set up to manage the mineral wealth.
These include a testing laboratory through public private partnership to cut the current waste where up to 10 per cent of local production is lost in the form of samples submitted to overseas labs.
The Bill also proposes the establishment of an institute to generate up-to-date data about the country’s mineral wealth and a National Mining Corporation to serve as the investment arm of the national government in respect of minerals.
The corporation to be based in Nairobi is expected to engage in mineral prospecting and mining as well as invest on behalf of the national government.
The draft law also envisages a Sovereign Fund to hold the mineral sector’s proceeds in trust for investment in other segments of the economy.
The fund will also be used to cushion the economy against shocks associated with sudden massive forex inflows and to store wealth for future generations.
It will consist of at least 25 per cent of all mineral rights revenues, including, royalties, royalty sales proceeds, mineral revenue-sharing payments and bonuses received by the country.
