Why mining licences row could hurt sector

By LILLIAN ALUANGA-DELVAUX

The recent cancellation of dozens of mining licences could have a negative impact on investor confidence in the high-risk investment sector, experts say.

Mining Cabinet Secretary Najib Balala last week cancelled over 40 mining licences issued between January and May this year. He set up a taskforce to audit them afresh along with hundreds others issued since 2003. Balala also sent home Commissioner of Mines, Moses Masibo, increased mining royalties and banned direct announcement of findings from field activity results without the ministry’s approval.

The moves were meant to end corruption, ensure Government got a fair share of income and stop prospectors from exaggerating findings to talk up their share prices.

While Balala’s actions have been supported by some quarters, they have been faulted by others like the Kenya Chamber of Mines, which argues that the proposed royalties to the State would be “the highest on the continent”, lowering Kenya’s competitiveness.

The royalties were increased from between 0.01 to five per cent, to between two and 12 per cent, depending on the mineral. Drilling charges also increased from Sh800 to Sh8,000 for the first 50 metres and an additional Sh1,000 for every extra 50 metres.

Now geological and investment experts have waded into the debate amid calls to have a more consultative approach in making such critical decisions.

“The mining sector has become a high risk area for investors because there are no guarantees their investments are safe,” says University of Nairobi lecturer Eric Odada. Prof Odada, a lecturer in the Geology department and a former Principal Geologist in Mombasa between 1970 and 1980, says despite Kenya’s potential, moves like the one effected last week send wrong signals to potential investors.

Shifting to Uganda

“It appears we haven’t learnt our lessons. We had similar cases in the past were licences were revoked resulting in investors shifting to Uganda and Tanzania, which have clear laws governing the industry,” says Odada, a member of UN Secretary General’s Advisory Board on water and sanitation.

“When we discovered titanium, firms that showed interest in the project gave up because of delays in issuance of licences. Mining within the Vitengeni area also stalled (due to such difficulties).”

He adds that uncertainty in law and individualised decision-making on licences would put off investors “because there is no guarantee their investments are safe.”

The lecturer cites an example of the recent oil discoveries in Lake Turkana where decisions to reallocate oil blocks among parties were sometimes made unilaterally.

Odada proposes formation of a committee that would incorporate ministries of Finance, Industrialisation, Education, Science and Technology, Environment and Energy to take charge of considering applications for operation in the industry.

He also suggests the separation of licensing between small-scale and large-scale mining, as well as clarity in agreements that show allocation of foreign exchange earned from mining ventures, and infrastructure development.

A 1992 field survey on mineral resources of Kenya and Sudan and issues associated with their management for sustainable development, proves that Kenya has a considerable, largely untapped potential for mineral development.

Findings of the study, done by Odada, on behalf of the United Nations University Institute for Natural Resources in Africa, shows that Kenya is endowed with soda ash, fluorspar, diatomite, cement, gemstones, dimension stone, tale, gypsum, vermiculite, lime, graphite, phosphate, titanium, kyanite and different types of clays.

Major metals that can be found in the country include gold, lead, silver, zinc, manganese, chromite, iron ore, and copper. Uranium, petroleum and geothermal energy form part of the resources present in the country.

But a lack of clear policies and laws governing the sector has seen Kenya lose out to her neighbours and others on the continent.

“Oil exploration, for instance, started much earlier in Kenya than in Tanzania and Mozambique but many oil companies, in our case, were holding out in revealing the worth of their finds because there was no sufficient review of laws to guarantee their investment,” says Odada.

“Tanzania and Mozambique, whose geology is similar to Kenya’s, are now producing gas but we are still lagging behind. These countries will soon be selling us gas despite the potential Kenya has to produce it.”

Kenya Investment Authority Managing Director Moses Ikiara says cancellation of licences, if acquired following the required legal procedures, will send wrong signals to potential investors.

He argues that should there be evidence showing the licences were illegally acquired th

en their cancellation will safeguard investor confidence and long-term sustainability in the sector. But he, too, urges caution. “Transparent audit of licensing and other procedures should be supported but should be done in a sensitive and cautious manner to avoid panic,” says Dr Ikiara.

Cried foul

Among firms that have cried foul over Balala’s revocation of licences is Cortec Kenya Limited, which has accused the Cabinet Secretary of demanding a Sh80 million bribe. Balala has denied the claims.

Cortec had acquired a licence for the exploration of rare metals and Niobium at Mrima Hills in Kwale, which in the firm’s estimation was worth over $100 billion (Sh5.8 trillion).

Ikiara says the Authority has actively participated in the review of the Mining Act to put in place a legislation that can help Kenya attract more investors to the mining sector. Kenya is currently using a colonial law enacted in the 1940s and revised in 1987.

The authority, he says, has so far received and processed 34 investment applications for approval in the mining sector, for cement, gemstones, titanium, gold and copper at a total proposed investment worth Sh40 billion.

Ikiara says lack of adequate information on mineral resources and geological surveys and data on types of minerals available, their location, quantities and quality has affected promotion of investment opportunities.

Conflicts between investors and local communities due to lack of clear policies as witnessed in Kwale and Taita has complicated such efforts.