Treasury on the spot as idle mining royalties hit Sh6 billion

A cash pile of mining royalties due for payment to counties and communities has risen to more than Sh6 billion over the last four years, due to delays in concluding a legal instrument required to unlock the funds, a committee of Parliament has said.

The Environment and Natural Resources Committee of Parliament said the National Treasury was to blame for the delayed disbursements as required in the Mining Act of 2016.

The Mining Act stipulates that royalties are shared by national and county governments and communities on a percentage of 70-20-10 respectively.

Parliament now wants the Treasury and the State department of Mining summoned to explain why the Public Finance Management (Royalty Fund Sharing) Regulations have not been concluded and tabled for House approval following the enactment of Mining Act, 2016.

“The Public Finance Management (Royalty Fund Sharing) Regulations are under consideration by the National Treasury. Royalties have not been shared due to the absence of this regulations. Sharing will only start once the Treasury publishes the regulations,” Kareke Mbiuki, who chairs the Environment and Natural Resources committee told Parliament.

He was responding to a question asked by Wundanyi MP Danson Mwashako who sought to know the amount of royalties so far sent to communities where mineral exploration firms such as Base Titanium had received since enactment of the Mining Act, 2016.

In 2018, Mining Principal Secretary John Omenge told Parliament that the draft Royalty Fund Sharing Regulations had been sent to the Attorney General and the Treasury for approval.

Mr Omenge disclosed then that the ministry had collected Sh3.43 billion in the last three financial years which were all been remitted to the Consolidated Fund in the absence of regulations guiding the sharing of the royalties.

As at 2018, Mr Omenge said the Treasury held Sh686 million being 20 per cent of the counties share and Sh343 million or 10 per cent share to communities where minerals were exploited. The balance of Sh2.4 billion (70 percent) was the share of the national government.

“The ministry told us that the Consolidated Fund Account at CBK is currently holding more than Sh6 billion in royalties. In the last financial year along (2019/20), Sh1.6 billion was collected as royalties yet none of the mining communities have benefited. I suspect the Treasury and Mining ministry have something to hide,” Mr Mwashako said.

National Assembly Speaker Justin Muturi asked Mr Mwashako to file a substantive motion for the House to make a binding resolution on the Treasury to promulgate the regulations within set timelines.

Mr Mbiuki said that as soon as the Treasury gazettes the regulations, a clear roadmap for the sharing of royalties will be communicated.

He said three firms, Lockland Limited, Universal Resource International Limited and Base Resources have licenses to mine gemstone, industrial minerals and manganese and titanium respectively in Taita Taveta and Kwale counties.

Mr Mbiuki said Base Resources and Lockland Limited are currently in production with Base Resources paying Sh171,000 in royalties in 2014/15 and Sh307,000 in 2015/16.

Base Resources has paid the Kenyan government a total of $65.4 million (Sh6.62 billion) in the past five years. The latest payout was Sh1.47 billion in the year ended June 2019, up from Sh1.38 billion the year before.

The Australian miner paid the Kenyan government royalties of $5.8 million (Sh593.7 million) in the half year ended December on titanium exports from its Kwale operation. This was down from $7.1 million (Sh721.1 million) paid a year earlier, with the lower earnings caused by reduced sales and production of the titanium minerals ilmenite, rutile and zircon.

The multinational pays royalties at the rate of 2.5 percent of export sales value. The company has paid total royalties of more than Sh7 billion over the past five years.

In January, Australian mining firm Base Resources said it was ready to pay $21.4 million (Sh2.1 billion) in additional royalties to the Kenyan government in exchange for refund of value added tax (VAT). The offer to pay the higher royalties is based on the company’s proposal to double the rate to five percent.