A British mining company is stuck with iron ores valued at $60 million (Sh7.8 billion) at the port of Mombasa which it cannot sell in the global market after the national government introduced an export levy of $175 (Sh22,925) per tonne of the industrial mineral.
Fujax East Africa, a local subsidiary of UK-based Fujax Group Ltd, says it is stranded with approximately 530,000 metric tonnes of iron ore which was meant for export.
In two separate letters seen by Business Daily, Fujax, which says it has a combined investment of over $20 million (Sh2.6 billion), is requesting for a waiver on the levy by Treasury Cabinet Secretary (CS) Njuguna Ndungu even as his mining counterpart Salim Mvurya works on having it suspended.
A tonne of iron ore in the global market is going at $110 (Sh14,410), which is lower than the levy of $175 per tonne, technically translating into a ban on export of the industrial iron ore, critical for the production of cement and steel.
If Fujax were to pay the levy, it would remit to the State a total of $92.75 million (Sh12.06 billion), leaving it with a loss of Sh4.26 billion.
“The Finance Act 2022 amended the First Schedule to the Miscellaneous Fees and Levies Act 2016 by introducing a new Export Levy rate of $175 per tonne on iron ores and concentrates including pyrites. We suffered a setback in our sourcing and export of iron ore from Kenya,” reads the letter which was written by John Masanda, the regional director for Fujax East Africa.
“This Export Levy is double taxation since the Mining Act provides for a Royalty Fee of eight percent. We are stranded with 30,000 metric tonnes of Iron Ore at Comarco, Mombasa, and over 500,000 metric tonnes at Kishushe, Taita Taveta,” added Mr Masanda.
This stock of iron ores, which is used as a feedstock by cement and steel manufacturers, is approximately $60 million (Sh7.8 billion) worth of exports.
The company, argues in the letter dated December 1, 2023 that the levy has not helped the country to build local capacity as manufacturers continue to import cheap iron ore.
Moreover, by preventing the export of Magnetite iron ore—a denser type of iron which is not used locally as it requires high temperatures and a lot of energy for the reduction process—is denying the Kenyan economy at least $120million annually, added Masanda.
The purpose of this levy was to discourage exports so that our local steel and cement factories could use the iron ore locally, said Dr Caroline Saroni, an international trade and investment expert and a director at Afritrade Consulting Group.
“Unfortunately, following the levy's introduction, our foreign investors who were mining and exporting iron ore magnetite could not export the mineral,” explained Dr Saroni. Unlike iron ore magnetite, hematite is less dense and used by local steel and cement manufacturers. The price of a tonne of iron in the global market is $110, lower than the $175 levy.
“The net effect of this is that the export levy on iron ore is more than the price of the ore itself, making it economically unviable to mine,” said the chairman of Kenya Chamber of Mines Dr Kanyoro Patrick in a letter to the Trade CS Rebecca Miano.
Kenya in 2022 introduced an export levy of $175 per tonne of the raw and semi-processed iron ores in what was aimed at protecting the local industry.
This has made it almost impossible for companies to export iron ore mined from Kenya, a big blow to companies that had started mining and exporting the commodity.
Despite the introduction of the export levy on iron ore, Kenya has continued to import iron ore from countries such as South Africa, India, the United Kingdom and China, mostly the less dense Hermetite that is used mostly by local cement manufacturers.
In 2023, Kenya’s imports of iron ore increased, reflecting increased demand for the commodity, which is also key for cement production.
According to the Kenya Ports Authority (KPA) database, iron ore imports were approximately 418,500 MT (excluding Uganda’s) between 13th March 2023 and 3rd March 2024, valued at approximately Sh6.4 billion.
The KPA database further shows that there has been a significant increase in the import of steel coils between December 2023 and March 2024.
Fujax, which acquired Maast Maritime Group Ltd (formerly Comarco Group), said the type of iron ore they have been mining, has also partnered with the Government to revive the mining of fluorspar in Kerio Valley through a Sh4.8 billion deal.
As part of the Government’s deal to reduce cheap imports and build local capacity, the government introduced the levy in the Finance Act 2022, a move that the players in the industry have been counterproductive.
“We do observe that the Government of Kenya has inadvertently discouraged export of iron ore and encouraged import of the same,” added Masanda.
Data from the Kenya Ports Authority shows that Kenya imported 270,000 metric tonnes of iron ore through Mombasa Port between July 2022 and November 2023. This figure is even higher when you include imports of iron ore from Uganda, one of Kenya’s main sources of the industrial mineral.
Kenya also imports iron ore from South Africa, India, the United Kingdom and China.
Before the levy, Kenya’s ore export in 2022 to China, Estonia and South Africa was worth $5.3 million (Sh6.9 billion).
This comes at a time when Kenya has lifted the four-year moratorium on mining and has been issuing licenses.
Fujax has also been sourcing for Manganese Ore from Kilifi and Samburu counties and says it is also diversifying to include Copper Ores in Kitui, Chrome Ore in West Pokot, Lead and Titanium in Kilifi and Fluorspar in Elgeyo Marakwet.
