Companies

Titanium miner offers additional Sh2.1bn royalties

kwale

A worker at Base Resource’s Kwale plant. FILE PHOTO | NMG

Australian mining firm Base Resources is 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 multinational, which mines titanium in Kwale, has been paying royalties at the rate of 2.5 percent of export sales.

The offer to pay the higher royalties is based on the company’s proposal to double the rate to five percent.

Base Resources has been setting aside the money since 2015 with the figure growing over time in line with its revenues. The government is yet to take up the offer which would have seen the multinational’s cash flow position improve considerably from the refund of VAT that has been piling up.

The latest provision is over four times the $4.96 million (Sh502 million) that was made in 2015.

“The group is in ongoing discussions with the Government of Kenya with respect to the royalty rate payable for the Kwale operation in the context of resolution of a number of outstanding issues, including refund of $16.9 million (Sh1.72 billion) VAT receivables related to the construction of Kwale Operations,” the firm says in its latest annual report.

The Kenya Revenue Authority (KRA) has been slow in settling the company’s claims which had risen to $24.2 million (Sh2.4 billion) as of June 2019.

These comprise VAT relating to both the construction of the Kwale project and the period since operations commenced.

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.

Kenya stands to earn more from the Kwale operation if it takes up the offer to have the royalty rate doubled to five percent.

For Base Resources, having quick refunds of VAT will boost its cash flows and reduce the need to seek alternative source of funds including debt which comes with finance costs.

Base Resources is among many companies that have billions of shillings tied up at KRA for years. The VAT is expected to be refunded within two years but there are no guarantees that this will be honoured.