The Mining ministry recently raised application fees for large scale prospectors and miners nine folds from Sh50,000 to Sh500,000 for some minerals, in a bid to keep away speculators and free up space for big-ticket investors.
The new regulations, which started being enforced from last July, are meant lock out bids from speculators who have explored the “lower fees” in the past, to apply as many times as possible in the hope of being awarded mining rights which they then hawk to the highest bidder.
Chairman Chamber of Mines (KCM), Patrick Kanyoro, spoke to the Business Daily on the implications of the new regulations on the sector.
What have been the early impacts of the enhanced licensing fees on the industry?
While we appreciate and support the initiatives of the government to generate revenue from our sector, we are missing the economics of it.
When you have high rates acting as barriers to entry into the sector, it means essentially lower numbers coming to the formal part of the business and that will cut royalty.
For example, when you move mineral dealership licences from Sh20,000 to Sh500,000, how do you justify that? The truth and reality that we should face — but we are running away from — is that if we have 50 dealers in formal market, we may end up with 40 of them becoming smugglers because of the 900 percent increment in fees.
But Mining ministry says the fees reduce speculators and create space for investors with adequate money to explore and mine Kenya’s minerals…
That’s not good for this country because we ought to make it cheaper for Kenyans to do the exploration. We should have Kenyans at the very early stage of exploration so that they grow as the exploration projects are converted into mining projects.
Why are you opposed to these enhanced fees whereas the ministry says it on-boarded the views of stakeholders, including KCM?
They only considered five percent of our input. Sometimes, it is very discouraging. The regulations are making Kenya an unpopular mineral investment destination because we do not have monopoly of the geology. Our neighbours have the same geology, but have a better policy framework.
The review in the fees, according to the ministry, was to bring them in tandem with what Kenya’s counterparts in the East African Community (EAC) bloc charge?
Respectfully, this is a case of comparing bananas and apples. I say this because an investment decision in mining is not just premised on the levies or the rates, but on the entire policy and fiscal regime.
If you look at our neighbours like Tanzania, they have not put entry barriers to the industry, but when you are in and they see you are making money, then they start to levy.
So there are so many other variables when you are comparing the two. For example, other operating costs like energy are lower there.
So, it cannot be compared on dollar for dollar basis. It is a whole series of factors, and we need to work on an investment environment that is friendly.
Are you saying there aren’t any positives in the recently enforced rules?
There are a few. To start with, the royalty for gold was reduced from five to three percent [of revenue generated, and that’s commendable because it takes good care of artisanal miners.
We hope they will now formalise and professionalise the artisanal miners so that they can deal in the open market, because previously gold has been smuggled.
They have also introduced licences for the jewellers. Hitherto it has been a challenge to know which licence they should have.
As an insider in the industry, what are you seeing in terms of investment?
People are knocking our doors in Nairobi because of our strategic location, proximity to the ports and we are an active democracy.
However, the bottlenecks that we are seeing could make it impossible for them to operate. I know some companies that are running offices in Nairobi, but are mining in Tanzania and Uganda. They are not operating here because the policy framework is unfriendly.
What are your views on classification of 14 minerals as strategic, meaning exploration, mining and dealing will be done by National Mining Corporation?
We have a petition in court seeking guidance and direction as to whether the 2017 regulations on mining were properly followed in this policy shift. Section 10 of the Mining regulations are clear on seven things that we must do.
We support the issue of strategic minerals as industry, let’s do things right so that whatever we have now as an engagement between industry and government, is something that serves people fairly, creates level-playing field going into future.
There have been cases where firms get prospecting and even mining licences and sit on them.
I wouldn’t want to be defending anyone, but I would also like to say that mining is a highly capital-intensive venture and requires patient capital and strategic decisions.
Most times, large firms that operate across the borders look to acquire deposits that they will exploit in 20 years or more. I know there has been discomfort and suspicion that these firms have been here for so long and we see nothing.
But they commit to timelines and budget when they get the licences?
Yes, we want them to mine now, but for many strategic business decisions, that may not be possible sometimes.
For prospecting licences, for example, we have a retention clause meaning if I am unable to raise necessary capital or there are factors beyond my control, I can go to State Department for Mining and ask that this be put on hold for three or so years.
I would not advocate for that, but sometimes there are things which are beyond investors.
What are your initial view on proposed policy on mineral processing and value addition seeking bar export of some minerals such as gold and granite in raw form?
We support value addition because it will generate more money. But we have problem with the strategy. From a perspective of saying you have a national gold refinery, for example, it sounds politically correct.
But from a business perspective, it’s one of the worst decisions because we have gold refineries in Kampala and Entebbe, which are operating below capacity.
Instead of building a refinery and tying a lot of capital in something that could easily be a white elephant, why can’t we explore partnerships in the EAC region? What scientific research and data informed that decision that we can sustainably run a refinery?
Same for granite in Vihiga. How sure are we it will run more efficiently than existing equipment in Athi River and Industrial Area?
How are the county artisanal committees formalising small-scale operations and mitigating muggling?
The majority of artisanal miners are not aware that they need to comply with anything. In fact, some of them operate on their own land.
Theirs is that gap of creating awareness and infrastructure for them to comply.
The 28 or 29 artisanal committees created and gazetted so far have not started operating. I want to ask the committees to start doing their work.
