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Kenya: Many Prospecting and Mining Licenses Cancelled; New Mining Law Considered

(May 22, 2015) Kenya’s Ministry of Mining has cancelled 65 licenses for prospecting and mining; some of the revoked permits were held by individuals and others by companies. The moves have raised concern that investors will lose confidence in the viability of the industry in Kenya, and some have threatened lawsuits over the issues of licenses and royalty rates. (Kennedy Senelwa, Kenyan Ministry Revokes 65 Mining Licenses for Violating Laws, EAST AFRICAN ONLINE (May 16, 2015), Open Source Center online subscription database, ID No. AFN2015051861715551.)

According to Najib Balala, the Cabinet Secretary who heads the Ministry of Mining, the licenses were cancelled either due to their having reached their dates of expiration or due to breaches of licensing conditions and of the Mining Act. He stated on May 8, 2015, “[h]enceforth, any mining or prospecting activities by these persons or companies over the areas that are subject of [sic] the revoked licence shall be illegal.” (Id.; Mining Act, 306 LAWS OF KENYA (rev. 2012), FAOLEX [website of the U.N. Food and Agriculture Organization].)

The cancelled licenses covered a number of regions in the country and a variety of types of mines, including some for bauxite, gemstones, gold, gypsum, iron ore, and nickel. Cliff Otega of the mining consultancy firm Standard & Mutua notes that the “law allows the Cabinet Secretary to cancel licences but how the issue is handled matters, as Kenya is competing for investment with other countries and investors require a predictable environment.” (Senelwa, supra.)

Possible Increase in Royalty Rates

In addition to revoking some licenses, the Ministry has said it wants to raise the amount of royalties that Base Resources Ltd. of Australia must pay for titanium, in contradiction to the existing agreement. The royalty rate in effect in February 2014, when Base Resources obtained its mining lease, was 2.5% for the first five years of production, according to a gazette notice quoted by the East African. The Ministry now would like to base the rate on the charges in South Africa and Australia, which charge a 5% mining royalty. The comparable rate in Mozambique, Senegal, and Sierra Leone is 3%. (Id.)

New Mining Law Under Consideration

Kenya is now in the process of considering a new law on mining, based on draft legislation from 2014. The expectation, according to Balala, is that the law will provide policy stability and make Kenya more attractive to potential investors. Speaking in March of this year, Balala expressed the hope that the new law could be enacted by the end of the fiscal year on June 30. (Ilya Gridneff, Kenyan Mines Minister Sees Law Boosting Investment Interest, BLOOMBERG BUSINESS (Mar. 23, 2015); The Mining Bill 2014, Commission for the Implementation of the Constitution website (last visited May 20, 2015).)

Kenya has been given a low ranking on an investment attractiveness index produced by the Fraser Institute of Vancouver, based on taxation and regulation uncertainty and a lack of transparency, in addition to the threat of terrorist action. (Gridneff, supra.)

In addition to improving the investment climate, the revision is aimed at increasing the share of revenue the state receives from the mining industry. Royalty rates will reportedly vary based on the product mined, including:

  • 1% of gross sales value for minerals such as gypsum and limestone;
  • 10% for coal, titanium, niobium, and rare-earth elements; and
  • 12% for diamonds. (Id.)

Commenting on the draft law, Balala said “[t]here have been bad practices before, so we want to change that. … This bill is good not only for the government, but also for the industry as it guarantees them stability, it guarantees them their rights. It also brings transparency to the process.” (Id.)