New mining law a recipe for disaster

By Dominic Odipo

Kenya: What is our mining policy or blueprint? Do we already have it in one single document or is it, like the British Constitution, unwritten and still being developed one paragraph at a time as the days go by?

Whether or not we already have this document or blueprint, what are the basic principles that should underpin or guide it?

For example, should we be trying to maximise the returns from the minerals that lie under our soil within the first five or ten years, or should we be trying to stagger these returns over the next 50 years so that they can directly benefit not just those Kenyans alive today but even those who will be born in the next century?

On the threshold

As Kenya stands on the threshold of a modern mining industry, there are still a number of very key questions that need to be raised at the outset if we are to avoid some of the fundamental mistakes that some countries, especially in Africa and Latin America, have made in the past.

Who should spell out our mining policy or blueprint? Should we leave this critical task to the ministry of Mining alone or should we be inviting all the major stakeholders involved for open, constructive discussions before all the final policy positions are reached?

Does our newly-minted ministry of Mining have the capacity to determine the various mining policies and regulations on its own or does it need some vital inputs not only from the mining companies themselves but also from other Mining ministries around the world which came to this pass long before us?

War, as has been so well put, is far too important to be left to the generals and, by extension, to the ministries of War, Defense or External Affairs alone. In the same way, our mining policies and blueprints are far too important to be left to the mining companies, mining ministries or mandarins alone.

A much wider interactive debate needs to be instituted between all the mining stake-holders in this country before the final policy positions are reached. And in these debates, the ministry of Mining must initially participate just like any of the other stakeholders.

It must not dictate or be seen to be dictating its views over all the other stakeholders. And it must, as the lawyers would say, come to these exploratory discussions with clean hands.

Let us take just one example to help illustrate this point. In July, 2004 the Government of Kenya, acting under Section 55 of the Mining Act, issued a 21-year special mining lease to a company called Tiomin Resources Inc., which was later assigned to the Kwale-based Base Titanium Ltd almost exactly six years later.

According to documents now in the public domain, there were two key provisions in this lease agreement.

Letter and spirit

First, the lessee, in this case Base Titanium, was to have a full and exclusive right to carry out mining operations for ilmenite, rutile and zircon within the agreed area. And, second, Base was to pay a royalty on gross sales freight on board of 2.5 per cent to the Kenya Government during the first 5 years of its commercial operations, a percentage which was to be renegotiated by both parties after the expiry of the initial 5-year period.

As is the procedure in a football match, or in any other game for that matter, the rules had been set before the game started and they were supposed to stay, in letter and spirit, until the end of the initial five year period.

But, according to the latest reports from the new ministry of Mining, the ministry, neglecting the bilateral negotiations which were built into the lease agreement, now wants Base to immediately begin paying a new royalty of 10 per cent on the same gross sales, a whooping 300 per cent increase which is essentially unilateral.

At a recent meeting with some of the mining industry stakeholders the new Cabinet Secretary for Mining left very little doubt on where he stood on this matter. His ministry had already decreed that the new royalties would be pegged at 10 per cent of the gross sales freight on board. Full stop.

The rules of the game were being changed half way through the game. Those who did not like these new royalty figures could pack up and go. The ministry of Mining was not going to babysit anybody!

What sort of mineral resources management is this? Management by decree or management by edict, it would seem. It cannot be the old, time-tested management by objectives which would have made the most sense in this case.

These mineral resources which lie at the core of this business have been lying under the soils of Kwale County for millions of years, and contributing nothing to our gross national product.

But now, a foreign company wants to dig them out for us, pay us a contractual royalty for the initial period, pay the mandatory corporate taxes to our Treasury and then employ up to 3,000 Kenyans who are now jobless.

In response, we want to kill the goose that is about to lay the golden egg! In pursuit of short-term power and profit, we want to extort the most in the shortest time possible! What sort of mining management is this?

The writer is a lecturer and consultant in Nairobi.

dominicodipo@yahoo.co.uk