The Commission on Revenue Allocation (CRA) wants the Ministry of Mining and Petroleum to put in place mechanisms that would allow mineral-rich counties to enjoy the benefits of the resources currently being exploited within their jurisdictions and boost their own source revenues.
In recommendations on how the amount of money counties should be allocated in the 2020/21 financial year, the commission noted that while the different laws governing extraction of resources such as minerals, geothermal steam and oil have put in place revenue share mechanisms, the respective ministries are yet to put in place subsidiary legislation to allow the money to flow to counties and communities.
This is especially the case for geothermal and mineral resources.
The Energy Act requires firms generating electricity using geothermal to pay royalties to the government, which should be shared in the ratio of the national government (75 per cent), county government 20 per cent and communities five per cent.
Geothermal power generating firms such as KenGen and Akiira Geothermal will pay royalties at a rate of between one and 2.5 per cent of revenues earned from the sale of power produced by geothermal for first 10 years and up to five per cent after 10 years.
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“However, no revenues have been shared to counties and communities yet from geothermal energy,” said CRA.
It is the same in the case of mining, where according to the CRA document, Treasury received Sh634 million in royalties from different companies, which adds up to billions since the Mining Act came into effect in 2016.
Retain earnings
The law provides for the national government to retain 70 per cent of the earnings, while counties get 20 per cent and 10 per cent to communities where mining activities are carried out.
The National Treasury projects that royalties from the different minerals will grow 44 per cent in the financial year to June 2020 to Sh915.7 million from Sh635 million last year.
“The commission recommends that the State Department of Mining together with other stakeholders prepare the regulations to operationalise the Mining Act, 2016. This is important to ensure county governments and communities in areas where mining is carried out benefit from the share of royalties,” said CRA.
While Kenya is yet to start selling its oil commercially, the Petroleum Act, 2019 also has similar provisions. According to the Act, the national government will get 75 per cent of the revenues that the country gets from the sale of oil, while 20 per cent will go to the counties and five per cent to the communities.
The non-remittance of what is owed to counties and communities has been due to the lack of enabling legislation.
This has led to grumbling in some of the counties where mining activities are taking place as the government has failed to live up to the expectations of the law.
The Mining and Petroleum ministry has in the past said it is developing a framework to share royalties that mining firms are already paying to the government.
Officials had drafted the Mineral Royalty Fund regulations that would enable Treasury to take the national government’s share and pass on the balance to the counties and the communities and forwarded the same to the Treasury and the Attorney General’s office.
The regulations would also stipulate how the community’s share would be governed.
But there has been a push and pull, with Treasury at some point requesting the ministry to come up with one modality of sharing revenue for mining and oil and gas resources, since the two are housed by the same ministry. However, the different legislation stipulating how to share proceeds of the returns complicate the issue for the Mining and Petroleum departments.
The royalties would definitely boost revenues for counties such as Kwale, Taita Taveta, Narok and Kajiado, where different miners are already at work and in some cases remitting royalties to the national government.
Base Resources, which has been mining titanium in Kwale County, has since 2015 paid the government Sh6.6 billion at a rate of 2.5 per cent of revenues but says it is ready to pay an additional Sh2.1 billion, which it has provided for in its books against an expected hike in the royalty rate to five per cent.
Goldplat, which has been producing gold in Narok, in 2018 made Sh628.4 million from sales, which would have translated to a royalty of Sh15.7 million. Its revenues dropped to Sh399 million last year, with royalties of Sh9.9 million.
