Legislative changes set to boost Kenya's mining sector
26 February 2016, 17:04
Nairobi - Government
regulation of the East African mining sector is increasing as various
authorities hope to leverage investor interest to swell their coffers
and benefit their economies. These tendencies can be seen in the
changing mining sector regulations and ownership requirements in
countries in the region.
example, the Kenya Mining Bill, which was passed by the National
Assembly in October 2014 and is due to be enacted imminently, provides
the state will acquire a 10% free-carry interest in the share capital
of a ‘right’ without making a financial contribution for it.
Bill does not define exactly what ‘right’ will be impacted. However,
it is likely that this refers to the mineral right which covers
prospecting licenses, retention
licenses, mining licenses, prospecting permits, mining permits or
artisanal permits.The Bill further provides that
all immovable assets of a mining licence holder will vest in the government when the licence is surrendered or terminated.
these provisions may be unconstitutional (because Kenya’s constitution
prohibits its parliament from enacting a law that permits the state or
any person to arbitrarily deprive another person of property unless it
is for a public purpose or in the public interest and is carried out in
accordance with the constitution and any Act of parliament),
the Bill also unequivocally states that the state will have a right of
pre-emption of all strategic minerals before they are sold.
it does not set out the procedures for the offer of sale of minerals to
the state and also places the responsibility on the Cabinet Secretary
make regulations providing for the exploration, mining, processing and
export of strategic minerals and strategic mineral deposits, as the Bill
stands, there is no clarity on how the government will exercise its
In relation to local equity participation, the Bill
a holder of a mining licence whose planned capital expenditure exceeds
the prescribed limit, will be required to list at least 20% of its
equity on a local stock exchange within four years after commencement of
construction. There is no reference in the
Bill as to whether the local equity participants will have to pay market
value for such interest. However, it is not likely that the shares to
be listed on the stock exchange will be subject to a sale below market
value of the share price. The Bill does not
specify whether the existing Local Content Regulations (requiring 35%
local ownership) will be repealed.
Lastly, the Bill provides that
mining licenses will be required to sign a community development
agreement with the community where mining operations are to be carried
out. The format for this agreement will be set out in further
Tanzanian law, ownership is not restricted except for small scale
mining which is reserved for citizens of Tanzania and for corporate
in Tanzania and owned and managed by citizens of Tanzania.
scale mining is done under a primary mining licence (PML). A PML is
required for mining activities characterised by minimal machinery or
of an initial investment capital of USD 5 million. Holders of PMLs are
generally restricted from concluding deals with foreign investors.
types of licences include prospecting licences (PL), mining licences
(ML) and special mining licences (SML) whose ownership is not
only affects foreign investors who seek to mine in areas covered by
PMLs. However, investors and PML holders have used other ways to
conclude joint venture deals and the common way of doing this is through
conversion of PML to ML.
addition, the government may also conclude mining development
agreements (MDA), valid for 10 years, with holders of SMLs relating to
including government free-carried interest and state participation in
mining and the financing of mining operations.
of free-carried interest and state participation is a matter of
negotiation and depends on the level of investment and the type of
new Tanzania Extractive Industries (Transparency and Accountability)
Act, 2015 has introduced reporting and disclosure obligations for mining
including reporting/disclosure on financial and revenue matters, local
content and corporate social responsibility; and publication of
contracts, licences and individual shareholder details.
The writer is a director at Bowman Gilfillan Africa Group
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