Mining firms starve State of billions in unpaid royalties

Workers clean outside the Athi River Mining (ARM Cement factory in Kaloleni within Kilifi County, December 11, 2013.[File,Standard]

Cement producers and mining companies have for years failed to pay levies and royalties running into billions of shillings.

Some of the companies have disputed the amount the Mining Ministry is demanding, while others are in dire financial straits, casting doubt whether the government will ever get its dues.

According to Auditor General Nancy Gathungu, cement manufacturers owe the State Sh1.72 billion in cement levy.

Another Sh1 billion is owed by miners, who have not been remitting mining royalties to the government.

In the audit report on the National Government for the year to June 2020, the Auditor General paints a picture of an industry where players appear to flatly refuse to pay their dues to the government. Gathungu also alludes to a general laxity by the government in collecting outstanding arrears.

Savannah Cement, according to the audit report, owes Sh375.86 million followed by the State-owned East Africa Portland Cement Company (EAPCC), which owes the government Sh280.33 million. Others include Athi River Mining, which has been taken over by National Cement (Sh255.53 million) and Rai Cement (Sh25.78 million).

The Auditor-General expressed doubt as to whether the government would be able to recover much of the money going by unfolding scenarios among the different players.

No evidence

For instance, Savanna Cement has gone to court challenging the amount that the government is demanding.

For its part, EAPCC – which had not remitted cement levy between the financial year to June 2015 and June 2018 – has been experiencing financial difficulties, reporting a net loss of Sh2.77 billion for the year to June 2020.

Athi River Mining has since been taken over by Devki’s National Cement. While ARM’s receiver-manager paid the firm’s creditors, it appears that the government was not on the list of those owed by the firm.

“ARM Cement Plc was acquired by the National Cement Company Ltd as a going concern for a purchase price of $50 million (Sh5.2 billion), and a distribution was made to all creditors in April 2020 as per the administrator records,” noted the Auditor-General.

“However, the outstanding cement levy arrears of Sh255.53 million at the time of acquisition was not settled from net proceeds realised from the sale. Management did not explain why the outstanding levies were not settled after the sale of the ARM assets, and no evidence was provided to show how the buyer, the National Cement Company, intends to settle the outstanding cement levies,” added Gathungu in her report.

The cement levy was introduced in 2014 at a rate of Sh140 per tonne of cement, translating into about Sh7 per 50kg bag of cement. The large amounts that cement and mining firms owe the State have piqued the interest of the National Assembly’s Public Accounts Committee, which recently launched a probe into the matter. Savannah Cement last week appeared before the committee. The firm had committed to paying the money owed to the government and agreed with the Ministry of Petroleum and Mining in 2017. It had even started making payments but changed its mind midway.

It now argues that the money being demanded by the Mining Ministry is not due as it does not hold a mining licence.

It filed a suit in court challenging the demand by the ministry and got an injunction that gives it room to stop paying as the case is heard and determined.

“We are cement grinders and do not produce our own clinker,” Savannah Chief Executive Samson Shivina told the committee last week. “Cement making process comprises two processes, the clinkerisation and the grinding process that produces the cement from the clinker. We only have a grinding station and not a clinker plant. We import clinker that we use in cement production.”

He added that the firm also procures other raw materials such as gypsum from suppliers who hold mining licences.

The firm, which got a court injunction to stop paying the arrears on July 27, 2020, also said the Attorney General has recently proposed to have the matter settled out of court.

Opiyo Wandayi, Ugunja MP and chairman of the committee, queried why the company had signed an agreement with the ministry, agreeing to pay the arrears but later had a change of heart.

He also questioned why this happened three years after signing the agreement with the Mining Ministry.

“You had entered into an agreement with the ministry of mining, which you never honoured,” he noted, adding that the firm could be “using the Judiciary to circumvent the law and frustrate government’s efforts to collect its dues.”

Miners have also not been fully remitting royalties to the government.

The Mining Act, 2016 requires mining firms to pay 2.5 per cent of revenues as royalties to the government.

The money is then shared by the national government (70 per cent), county government (20 per cent) and communities where the mining operations are located (10 per cent), but lack of enabling legislation to cascade the money to the counties and communities has meant that they are yet to benefit from the royalties.

Among the biggest debtors are the Magadi Soda Company, which operates in Kajiado County, from which the State is demanding Sh622.2 million in unpaid royalties. The money has accrued since the 2015/2016 financial year. 

The firm, according to the Auditor General, had undertaken to settle the arrears, but “no significant progress was made in the year (to June 2020).”

Carbacid, too, has arrears of Sh30.46 million but has disputed the amount.

[e-mail]