The government continues to collect and hold onto mineral royalties that have grown to Sh7.5 billion but is unable to distribute the money due to the failure of the Treasury to conclude a legal instrument required to unlock the funds.
The cash pile includes Sh2.3 billion that is due for payment to county governments and communities. The billions of shillings lying at the Treasury have accumulated over the past five years.
The Mining Act, 2016 requires royalties paid by a holder of mineral rights to be shared by national and county governments and communities on a percentage of 70-20-10 respectively.
This means that from the Sh7.5 billion, Treasury is holding Sh1.5 billion million for the counties and Sh750.39 million for the communities where minerals were exploited. The balance of Sh5.25 billion (70 percent) is the share of the national government.
Auditor-General Nancy Gathungu said the Sh2.3 billion due to communities and counties has accumulated due to the failure by the Treasury to put in place a mechanism of sharing of royalties.
The Treasury is yet to conclude the Public Finance Management (Royalty Fund Sharing) Regulations to unlock disbursements.
“During five financial years following enactment of the Mining Act of 2016, a total of Sh7,503,885,961 in royalties was collected from various mineral rights holders translating to Sh750,388,596 that the national Treasury should have paid to the communities and Sh1,500,777,192 to the devolved units,” Ms Gathungu said.
Ms Gathungu said all revenue collected by the Petroleum and Mining ministry in the five years to June 2021 was transferred to the exchequer account at the national Treasury and was not shared with county governments or communities.
She said the ministry of Petroleum and Mining attributed the situation to a lack of a framework for the remission of royalties share to the communities and county governments.
She said the ministry and the National Treasury are yet to put in place a mechanism to ensure that the share of the county governments and the communities are safeguarded until such a time when structures are in place for sharing collected royalties.
“In addition, if the share for the county governments and communities amounting to Sh2,251,165,788 is not set aside, the citizens in areas where mining activities are carried out might not benefit from royalties as the minerals being extracted are finite and might get depleted by the time structures for revenue sharing are established,” Ms Gathungu said.
“Consequently, the management was in breach of the law.”
Ms Gathungu raised the red flag over the failure of the Ministry of Petroleum and Mining to conduct inspections and audit of the mineral rights holders as required by the Mining Act, 2016, leading to the non-collection of Sh2.1 billion in mining revenues.
“From the records and reports available at the Ministry, the last inspections were conducted in 2017,” Ms Gathungu said.
Ms Gathungu fingered the ministry for failing to report cement levy arrears of Sh404,759,572 owed by East Africa Portland Cement Company (EAPCC) which accrued in the financial years 2014/15 to 2020/2021.
She said arrears of Sh370,862,635 due from Savannah Cement Company in respect of cement minerals levy as of June 30, 2021, was not collected.
The ministry failed to collect royalty arrears of Sh675,023,295 owed by Tata Chemicals Magadi Limited which has accrued since the financial year 2015/16.
Revenue of Sh78,490,587 due from Carbacid (CO2) Limited has not been collected from financial years 2017/18 to 2020/21.
The ministry also failed to collect royalty arrears of Sh30,196,739 and Sh17,520,857 accruing from Kilimapesa Gold Pty Limited and Africa Diatomite Industries Limited respectively.