KENYA MINING COMMENTARY
Kenya, officially the Republic of Kenya, is located in East Africa, bordering Somalia, Ethiopia, South Sudan, Uganda and Tanzania; the country’s southeastern coast sits on the Indian Ocean. A former British colony, the country gained independence in 1963 and is now a presidential, representative democracy. Along with Rwanda, Uganda, Tanzania and Burundi, Kenya is a member of the East African Community (EAC), which aims to enhance political, social and economic co-operation between member states. Kenya has one of the strongest economies in Sub-Saharan Africa, with further growth predicted over the coming years.
Traditionally agriculture, tourism and manufacturing have been key industries and Kenya is recognised as a hub for transportation, finance and communication within East Africa. The mining industry is, at present, an insignificant part of the country’s economy, responsible for around just 1% of GDP. Kenya is the world’s third largest producer of soda ash, and it also has material fluorite and titanium deposits. Other mineral resources include diatomite, coal, gold, limestone, niobium, manganese, iron ore, gypsum and gemstones, with rubies the most common and widely exported. Considerable oil deposits have also recently been discovered in the north of Kenya.
In recent years the Kenyan Government has embarked on a plan to develop the mining sector and attract greater investment in the hope that the industry will grow to contribute 10% of the country’s GDP. In pursuit of this goal a new Mining Code has been written, a new portal for licence applications has been established, and several new organisations have been created, including the Ministry of Mining. Nevertheless, the government will have to work hard to overcome its mass licence revocation programme, which commenced in 2012 and led to 65 prospecting and mining licences being revoked in 2015, as well as various disputes over royalties. Such actions can cause lasting damage to a country that depends upon certainty of title to attract new investment.
Kenya is ranked 84th out of the 109 jurisdictions surveyed by the Fraser Institute in its 2015 Policy Perception Index.
PRINCIPAL LEGISLATION AND REGULATOR
Kenya’s new mining code is currently awaiting Senate approval and it is anticipated that the legislation will enter into force early in 2016. Prior to this new law, the principal mining legislation was the Mining Act 1940, a relic from British colonial rule. In anticipation of the new legislation entering into force imminently, this commentary and the Hutte Score focus on the Mining Act 2014 (Mining Act), which provides that all minerals resources within Kenya are the property of the Republic and are vested in the national government in trust for the people of Kenya (s. 6.1).
The Cabinet Secretary for Mining (CS), who sits within the Ministry of Mining, administers the Mining Act. Section 17 of the Mining Act establishes the Directorate of Mines, which is to be headed up by a Director, who shall report to the CS via the Principal Secretary of the Ministry of Mining. The responsibilities of the Director of Mines are listed in sections 20(1)(a)-(o) and include administering and supervising all prospecting, mining, processing, refining and treatment operations and any dealings in minerals, including: importation and exportation; ensuring compliance with conditions relating to mineral rights; and reviewing assessing and approving prospecting and mining programmes.
GRANT AND FORMS OF MINERAL TITLE
The CS has the power to exclude or restrict operations in designated areas, and reserve areas of land exclusively for small-scale mining activities or for applications by tender for large-scale operations, as long as such actions are not incompatible with the continued enjoyment of an existing mineral right (see ss. 13, 14 and 15). Applicants for mineral rights must be of sound mind; over the age of 18; not an undischarged bankrupt (a mistake, in the legislation at present requires applicants to be an undischarged bankrupt); and have the required technical capacity, expertise, experience, and financial resources. Companies must be registered and established in Kenya and directors are required to meet the individual specifications listed above.
Applications for mineral rights are granted on a first-come first-serve basis; in cases where applications are made at the same time, for the same area of land and mineral right, the CS shall give priority to the applicant who demonstrates financial and technical capabilities (s. 54). Applications are generally approved or rejected in 90 days for a PL or RL, or 120 days in the case of a ML. If approved applicants have 21 days (or 30 days for a ML) to accept, in writing, the grant of the mineral right; the CS will then publish notice of the grant in the Gazette and a local newspaper with wide circulation (at the expense of the applicant). If no objections are raised within 21 das (45 days for a ML) the mineral right shall be granted; either the CS or a tribunal will decide upon objections in cases where they are raised (see s. 32 and s. 83). Applicants are also required to seek the consent of various parties, specified in s. 34(2), including the Governor of the county or any other person who the CS believes would be affected, prior to the granting of a mineral right.
Mineral rights may be subject to certain conditions, as determined by the CS, including conditions concerning the protection of mineral interests, the protection of the environment, and community development (s. 40(1)). The Mining Act provides for the following specific titles:
- Prospecting Licence (PL): Grants the holder the exclusive right to carry out prospecting operations in the relevant area for the mineral(s) specified. The relevant area cannot exceed 750 contiguous blocks and each block must have a side in common with another block covered in the application. PLs are valid for a maximum of three years (s. 60), renewable twice, for two year periods (s. 69(1)-(2)). Applicants for a PL must specify the mineral(s) sought; the area covered; particulars of the proposed programme for prospecting operations; details of financial resources; and a plan for both the procurement of local goods and services and the employment and training of Kenyan citizens (s. 58(2)). In addition, an approved EIA report, a social heritage report and an environmental management plan must be provided where required (s. 58(3)(c)). A PL grants the holder the right to enter the land specified and take all reasonable measures on or under the surface of the land to carry out prospecting activities and erect any equipment, plant and buildings necessary to do so (s. 61(2)(b)-(c)). Holders have the right to appoint agents to exercise the rights granted (s. 61(3)). Operations must commence within three months and must take place in accordance with the approved programme; holders must ensure that the amount of work and expenditure specified in the programme is actually expended, or pay the difference to the Ministry of Mining (see. s. 63). Records of prospecting activities must be kept, including financial statements and accounts, and the results of geophysical or geochemical analysis (s. 65(2)). Provisions are made for the approved programme to be amended, following the approval by the CS of a written application (s. 66). The CS must be notified of the discovery of any mineral deposit of potential commercial value, including mineral deposits not covered by the PL (s. 66(e)). Applications for renewal must be made three months in advance, and the CS shall respond within two months of receipt of application (s. 67(3)-(4)). Renewal is granted at the discretion of the CS; upon renewal the original area specified in the PL shall be reduced by no less than 50% of the number of blocks or by a set arrangement of blocks, unless a smaller reduction is agreed (s. 70(1)).
- Retention Licence (RL): PL holders may apply for a RL when a mineral deposit of potential commercial value is discovered, but cannot be developed immediately due to temporary adverse market conditions; economic factors; technical constraints; or other factors beyond the reasonable control of the licence holder (s. 71). RL are granted for a maximum of two years and the Mining Act does not provide for renewal. Applicants must provide, among other things, a full study and assessment by an independent expert on the prospects for recovery and the commercial significance of the deposit, as well as – strangely – plans for both the employment and training of Kenyan citizens and the procurement of local goods and services (s. 72(2)). The CS has the power to require the holder of an RL to apply for a mining licence if satisfied that, based on an independent report, it has become technically possible and commercially viable for the relevant mineral to be mined. If the RL holder fails to respond to notice given by the CS, the RL can be revoked and the holder is not entitled to compensation (see s.77).
- Mining Licence (ML): An ML grants the holder the exclusive right to carry out mining operations in respect of the specified mineral within the relevant licence area, subject to any terms and conditions specified within the licence (s. 86(1)). The term of a licence shall not exceed 25 years or the forecast life of the mine, whichever is the shorter (s. 85). The relevant area can be no greater than 300 contiguous blocks (s. 80(a)). In exercising such rights, ML holders may access the surface area to carry out mining operations and erect equipment, plant and buildings; they may also transport, dress and treat the minerals recovered; and dispose of any mineral recovered subject to the payment of fees and royalties (s. 86(2)). It is noteworthy that an ML holder may “dispose” of minerals (s. 132), but not “sell” them without a mineral dealing licence (s. 133). Applicants for a ML must provide, among other things, a proposed programme of mining operations, a feasibility study, a statement of the financial and technical qualifications of the applicant and plans for the employment and training of Kenyan citizens and the procurement of local goods and services; proof EIA approval is also required, as well as a social impact assessment report and an environmental management plan for the term of the ML (see s. 78). The granting of a ML is ultimately at the discretion of the CS, even though the legislation purports to require that an ML be granted to PL holders (s. 81). Operations must commence within six months, or a period otherwise agreed in a mineral agreement, and holders are required to, amongst other things, submit quarterly reports on mine development and mineral production, carry out activities in accordance with ‘international best practice’ and the prescribed guidelines and notify and obtain the approval of the CS of cessation or suspension of mining activities or curtailment of production (see ss. 87, 89 and 91). ML renewals are discretionary and shall not exceed 15 years or the remaining life of the mine, whichever is the shorter (s. 94).
The Mining Act also provides for small-scale mining operations, for which prospecting permits and mining permits are granted. Applicants must be either citizens of Kenya or a body corporate wholly owned by Kenyan citizens (see s. 101 and 102(1)).
Transfers and changes of control require the consent of the CS (s. 49(1), (6), (7)). Mineral rights can be surrendered, suspended and revoked. In order to surrender a mineral right, holders must notify the CS and obtain consent (s. 118 and s. 119). The CS has the power to suspend or revoke a mineral right if the holder fails to make a payment due under the Mining Act; fails to comply with any condition or obligation under the Act; commits an offence under the Act; makes or is found to have made a false statement in its application or renewal; or is adjudged bankrupt or declared insolvent (s. 121(1)). Holders shall be given written notice and a period of time in which they can comply with the relevant obligation or condition, or make a case as to why the mineral right should not be suspended or revoked (s. 121).
Mineral rights cannot be granted over private land without the express consent of the landowner or over community land without the consent of the relevant authority (see ss. 35 and 36). The CS can expropriate land in situations where consent is unreasonably withheld or the withholding of consent is contrary to national interest (s. 38). Despite sections 35 and 36, the drafting in the legislation is poor in respect to the ability of a landowner to prevent development, since section 127 states that where a landowner has been impacted it can make a claim for compensation, but not deprive the mineral rights holder of the exercise of its rights. It is hard to reconcile the two provisions and disputes are likely to arise.
Under the Mining Act applicants for mineral rights must obtain an EIAL, a social heritage assessment and an approved environmental management plan, the terms and conditions of which must be complied with throughout operations. Under the EMCA, mining activities, including quarrying and open-cast operations, are projects which must undergo an EIA. EIA must be approved prior to the implementation of any project and approval shall be given in the form of an EIAL. The EIA Regulations outline the EIA process, which has two stages, the first being the preparation and submission of an EIA report and the second being the preparation and submission of an EIA study. Reports and studies must be conducted by a registered expert. The National Environmental Management Authority (NEMA) is responsible for the overseeing of the EIA process and the granting of EIAL.
Alongside the EIA requirements, mineral rights shall not be granted unless an applicant has submitted site mitigation and rehabilitation plan, and a mine-closure plan for approval (s. 153). PL, RL and ML applicants must also provide an environmental protection bond, sufficient to cover the costs associated with the implementation of the environmental and rehabilitation obligations of the holder (see s. 154(1)). The amount of such bond will be decided by the CS and may be released in part upon the successful completion of rehabilitation measures undertaken within the duration of the licence, and in full upon the successful completion of all environmental and rehabilitation obligations prescribed (s. 154(2) and (4)).
The Mining Act also requires the preferential employment of Kenyan citizens, which is without conditions, and the preferential use, to the maximum extent possible, of local materials, products and services offered by Kenyan citizens and their companies and businesses (ss. 43(1), 45(1) and 48). The CS also has the power to provide regulations for the replacement of expatriates (s. 44(3)). Mining companies whose planned capital expenditure is over the prescribed limit shall, within four years of obtaining a ML, distribute a minimum of 20% of its equity at a local stock exchange (s. 47(2)).
See Kenya Environmental Regulation.