Mining Bill needs proper scrutiny

By Cliff Otega

The long awaited Mining Bill 2014 has finally been published despite lack of a comprehensive policy stating what Kenya wants to achieve from this industry. Given the hype that has surrounded the industry lately, we should expect vigorous debate both inside and outside Parliament.

However, the Bill would not be up for public debate if it did not contain some contentious clauses.

It proposes that the State have pre-emptive rights to all strategic minerals ahead of other buyers, based on an offer for sale of the mineral by the holder to the State. The State has a right to accept or reject the offer but is silent on what happens upon rejection.

There are two key issues here. The definition of strategic minerals is discretionary and any mineral can be targeted. More importantly, there is no reference to the market value of the mineral, meaning the seller could conceivably have to sell below market value or even below cost. That is not reassuring to any investor – local or foreign.

The recurring theme of government participation and local equity participation appears in the form of a National Mining Corporation, 10 per cent free carry interest and an obligation for larger companies to list on a local stock exchange within four years. The debate here revolves around ownership benefits, financing and return on investment considerations. Will the National Mining Corporation compete on a level playing field or will it have preferential treatment in the award of licenses, payment of royalties and so on? How does the 10 per cent free carry interest affect project economics? Is four years sufficient time to establish a large scale operation and make it attractive enough to list?

The Bill also seeks to tie the export of minerals to the principle of value addition. Value addition for any modern economy is the Holy Grail but the extent is governed by many technical and economic considerations. This can unfairly be used to deny companies export permits in the future and clear guidelines on the issuance of these permits need to be defined.

While the Bill provides for Mineral Agreements between companies and the State, it appears contradictory by stating that the agreements do not absolve parties from any requirement prescribed by law. Many aspects of the Bill will have to be clarified before its passed into law.