Kwale miner seeks royalty cut over Sh1.7bn VAT refund

Base Titanium plant at Nguluku Maumba, Kwale. file photo |  nmg

By NEVILLE OTUKI

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Summary

• The firm currently pays royalty at the rate of 2.5 per cent.
• Renegotiation of the levy is meant to offset some of the tax refunds against the royalties.
• The Mining Act allows a mineral right holder to apply to the cabinet secretary in charge of mining for a “reduction or temporary suspension of a royalty rate.”

Mining firm Base Resources is seeking a reduction of the rate at which it pays royalties to the Kenyan government in the wake of a Sh1.7 billion VAT refund due to the Australian multinational.

The firm, which mines mineral sands in the Kenyan coastal town of Kwale through its subsidiary Base Titanium, currently pays royalty at the rate of 2.5 per cent.

Renegotiation of the levy is meant to offset some of the tax refunds against the royalties. The refund has been pending since January 2015, prompting talks with government officials.

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“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 receipt of $17.1 million (Sh1.7 billion) VAT receivables related to the construction of the project,” the company says in its annual report.

“Royalty costs are provided for, and expensed, on the basis of a five per cent royalty rate being payable to the government of Kenya, whereas the royalty rate applicable under the terms of the special mining lease is 2.5 per cent.”

The Mining Act allows a mineral right holder to apply to the cabinet secretary in charge of mining for a “reduction or temporary suspension of a royalty rate.”

Base Resources booked a Sh2.1 billion loss for the 2016 year, having widened 31 per cent from Sh1.6 billion a year earlier. The mining firm started producing the Kwale titanium in 2013 and made its first shipment a year later in 2014, making the sands Kenya’s highest mineral earner.

Official data shows that Kenya exported titanium worth Sh9.4 billion in 2015, earning the government Sh260.7 million in royalties.

The exports were a seven per cent growth from Sh8.8 billion in 2014. Titanium is used as an alloy with other metals to produce lightweight metals for jet engines with Kenya’s largest market being China.

Base Titanium external affairs manager Simon Wall said the company is keen to receive the Sh1.7 billion refund.