Government targets higher royalties from mining sector

 

Prospecting equipment at Mrima Hill niobium mining site in Kwale County. The government is seeking to increase the royalty rates in line with the proposed new mining law. Photo/FILE  

By NEVILLE OTUKI

In Summary

• Kenya is seeking to increase the royalty rates, currently ranging between three per cent and five per cent, depending on the mineral’s worth in line with the proposed new mining law.
• The Mining Bill 2013 has left the royalty rates open to government policy although it demands a larger public share of the wealth.
• Precious minerals fetching premium prices in global markets may attract higher royalty compared to industrial minerals that are largely used locally.

The government says it will soon push for a larger public share of the mineral wealth. Officials on Monday said the government will seek nearly 20 per cent of the cash made by big miners, mostly foreigners, through higher royalties and a new proposal to secure government stake in mining companies.

The government is seeking to increase the royalty rates, currently ranging between three per cent and five per cent, depending on the mineral’s worth in line with the proposed new mining law. The Mining Bill 2013 has left the royalty rates open to government policy although it demands a larger public share of the wealth.

“The royalties are going to be as high as between three per cent and 10 per cent,” said Richard Ekai Titus, the principal secretary for Mining. Currently setting of the rates is subject to investment agreements with the mining firms where other issues such as concession agreements and tax are agreed.

This means precious minerals fetching premium prices in global markets may attract higher royalty compared to industrial minerals such as fluorspar and gypsum that are largely used locally.

Speaking on Monday during a seminar organised by the law firms, IKM and DLA Piper Advocates in Nairobi to discuss the public-private partnerships in mining, Mr Ekai said changes proposed under the Mining Bill, to be tabled before the Cabinet for approval, will be strictly applied once passed.

The law repeals the requirement that 35 per cent of foreign firms be owned by local private investors and instead entitles the government to a 10 per cent stake in all mining companies in Kenya. It creates a vehicle, Kenya Mining Corporation, to hold shares on behalf of the citizens.

Under the new law, on top of the government ownership in mining firms, 75 per cent of royalties collected goes to the State while the balance — 20 per cent and five per cent—is shared by the county government and the local community.

Cortec Mining Kenya Ltd recently released lab results positioning Mrima Hill in Kwale County as one of the top five rare earth deposits in the world, with a potential value of up to Sh8.7 trillion ($100 billion), making it the largest mineral deposit in Kenya.

That means for instance, if the State decides to impose 10 per cent royalty on the highly valued rare earth mineral deposits recently discovered at Mrima Hill, it could fetch about $7.5 billion in royalties.

These will be held in a sovereign fund, to be established under the proposed law, to cushion the economy against shocks associated with sudden massive forex inflows and to store wealth for future generations. The

Kwale county government and the community would have a combined wealth of $2.5 billion.

“The Bill, inter alia, advocates public-private partnerships (PPPs),” said Mr Ekai.

The Public-Private Partnership Act of 2013 provides for the government to finance projects by private companies, eliminating the need for external borrowing which often translates into burgeoning public debt.

The law provides for the formation of a PPP node (entity) made up of government technocrats who identify suitable firms and facilitate the tendering process before forwarding their recommendations to a PPP unit which may either approve or reject the selected firm.