Miners face penalty over new royalties


Mining cabinet secretary Najib Balala. Photo/FILE

The government Wednesday said it would penalise miners who have not paid enhanced royalties since new regulations were gazetted last August.

In a move likely to worsen relations with especially foreign miners, Mining minister Najib Balala said miners would be forced to pay penalties and interest on the arrears.

Miners have gone flat out to oppose the 10 per cent royalty gazetted on August 1 with heavy media lobbying.

Speaking during a media breakfast meeting in Nairobi, Mr Balala asked miners to respect local laws.

“We gazetted the new royalties in August,” he said. “If you think our royalties are too high find a country that will give you minerals for free.”

READ: Balala says new mining royalties non-negotiable

The Mining Bill 2013, which contains the royalties and targets to secure Kenya’s mineral wealth, will become law by year-end according Mr Balala.

Miners who the minister met after the breakfast declined to respond to our queries. Legal practitioners though hold that Cabinet secretaries, in some instances, are allowed by law to enforce certain regulations upfront.

“Ministers are allowed to craft regulations pending passage of new ones,” said a lawyer who asked for anonymity, adding that “the move avoids vacuum of legislation.”

He said that Mr Balala was justified to call for backdating of payments by mining firms since the gazettement of the guidelines could as well be interpreted as law in the context.

He, however, noted that all factors unchanged, a good law should only be implemented after enforcement to avert acrimonious tussles among stakeholders.

Among firms set to be affected most is Base Resources which recently announced plans to commence shipment of titanium after starting processing ore at its Kwale mine.

READ: Australian firm to earn Sh60bn from Kwale mine

Alongside a 10 per cent royalty of gross sales of titanium, which is thrice the previous three per cent, the State will claim a 10 per cent share in profits once the Bill is enacted.

Other firms such as Kenya Flourspar Company and Tata Chemicals (TCL), formerly Magadi Soda Company which has been producing soda ash at Lake Magadi, are expected to be affected.

Kenya Chamber of Mines did not respond to our queries. The miners have in the past raised concern over Kenya’s enhanced royalties and claimed investors could bypass the country for neighbouring nations which have lower rates.

Tread carefully

Some mining sector experts say the government should tread carefully as it positions itself to reap from the nascent sector.

“Review of rates is not new. In fact many nations endowed with minerals are adjusting their rates,” Cliff Otega, a minerals consultant, said. “But the Kenyan market is new in the sector. This is the stage of attracting investors.” The new royalties range between three per cent and 12 per cent depending on mineral value.

Diamond, which has not yet been discovered in Kenya, will attract the highest royalty of 12 per cent, while rare earth, niobium and titanium will each fetch the State 10 per cent of the gross sales.

Coal and gold royalties have been doubled to eight per cent and five per cent respectively. Fluorspar will attract a five per cent royalty from Sh17 per tonne.

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