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  • GDP, US$bn: 69.5
  • GDP per capita, US$: 1,433.6
  • Population, mn: 46.1
  • Inflation, CPI ave: 6.3
  • FX, LCY/US$: 101.5
  • Budget Balance, % of GDP: -7.8
  • Mining GVA, US$bn: 0.6
Regulatory Risk Rating
31
0
100
Score: 31
Severe Risk
The new Kenyan mining code literally contains everything and the kitchen sink; from carried interests to requirements to list on the local stock exchange, to lawsuits to recover deficiencies in exploration spend under government approved programs. This law is destined to deter investment, not solely due to these requirements alone, but also owing to the vast discretion preserved upon the State to determine all aspects of the miner's success, from the duration of licences and their renewal to the output or cessation of production. Frankly, one gets the sense in reading the law that somebody really doesn't like the mining industry at all.

Corruption Potential Index

Score: 10
Extremely High Corruption Potential

Corruption Risk Index

Score: 44
Moderate Corruption Risk

Regulatory Risk Rating

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Mining Overview Commentary plus sign

KENYA MINING COMMENTARY

GENERAL

 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). 

DEVELOPMENT CONSIDERATIONS

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)).

ENVIRONMENT REGULATION 

See Kenya Environmental Regulation.

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Environmental Overview Commentary plus sign

KENYA ENVIRONMENTAL COMMENTARY

GENERAL

Kenya, officially the Republic of Kenya, is located in East Africa, bordering Somalia, Ethiopia, South Sudan, Uganda and Tanzania; the country’s southeastern coast touches the Indian Ocean. Kenya has a varied landscape encompassing low plains, tropical coastal regions, Savannah grasslands and central highlands. The Great Rift Valley spreads into the country from north to south, and many of Kenya’s lakes can be found here. This area of the country, along with the central highlands, is the primary agricultural region of Kenya, due to fertile soils and heavy rainfall. From the tropical coastal climate to the arid landscapes of the north and east, the climate of the country, as with the landscape, is widely varied.

Kenya is home to numerous species of animal, including buffalo, elephants, lions, leopards, rhinos and wildebeest, making it a popular choice for safaris. Over 1000 species of bird and many different species of reptiles can also be found here. Numerous national parks and game reserves have been established in the region, including Masi Mara, where the famous great wildebeest migration takes place and Mount Kenya National Park, where Mount Kenya, Africa’s second highest peak, can be found. Key environmental issues for the country include water pollution, deforestation, droughts, soil erosion and desertification.

PRINCIPAL LEGISLATION AND REGULATOR 

The Constitution of Kenya provides for the protection of the environment, stating that “every person has the right to a clean and healthy environment” including the right to “have the environment protected for the benefit of present and future generations” (Art. 42 and 42(a)). The principal environmental legislation is the Environmental Management and Co-ordination Act (EMCA) Law No. 8 1999, which reiterates the Constitution in stating that “every person in Kenya has the right to a clean and healthy environment and has the duty to safeguard and enhance the environment” (s. 3(1)). The EMCA legislates over all matters pertaining to the environment, including the protection and conservation of the environment; the Environmental Impact Assessment (EIA) process; Environmental Impact Assessment Licenses (EIAL); environmental quality standards; and offences against the environment. 

The EIA process is further governed by the Environmental (Impact Assessment and Audit) Regulations 2003 (EIA Regulations), which detail, amongst other things, the application process and content requirements for an EIA and the terms surrounding the EIAL. According to the Mining Bill 2014, no mineral right will be granted without an EIAL, a social heritage assessment and an approved environmental management plan, and mineral rights may be granted subject to certain conditions relating to the protection of the environment (see s. 40(1) and s. 149(2)).

The EMCA established the National Environment Management Authority (NEMA), which came into operation in 2002 and sits within the Ministry of Environment, Water and Natural Operations. Under the terms of the EMCA, NEMA is charged with the responsibility to coordinate and supervise all matters relating to the environment and is the primary instrument for the implementation of environmental policies. The overseeing of the EIA process and the issuance of an EIAL are the responsibility of NEMA.

EIA PROCESS

According to the EMCA, mining activities, including quarrying and open-pit operations, are classed as projects that must undergo an EIA process (Second Schedule, s. 6). The EIA Regulations prohibit the implementation of any project for which the EMCA requires an EIA, without the prior conclusion and approval of an EIA. Approval of an EIA comes in the form of an EIAL, which is granted by NEMA.

Under the EIA Regulations, the first stage of the EIA process is the submission of a project report to NEMA. The report shall state the nature of the project; the location; the activities undertaken at each stage of the project; the design of the project; materials, products and by-products (including waste) and methods of disposal; potential environmental impacts and mitigation measures; plans for prevention and management of accidents; plans for the health and safety of workers and neighbouring communities; economic and social-cultural impacts to the local community and nation; the budget; and any other information NEMA may require (s. 7(1)).

Project reports must be prepared by an EIA expert, who must be authorised and registered by NEMA (s. 7(3)). Upon submission NEMA must, within seven days, submit a copy of the report to any relevant lead agencies, the relevant District Environment Committee, and, if more than one district is involved, to the relevant Provincial Environment Committee. Comments from the aforementioned bodies must be submitted to NEMA within 21 days, unless otherwise prescribed by NEMA (s. 9(1)-(2)). Within 45 days of the submission of the report, NEMA shall communicate its decision to the applicant (s. 10(1)). If satisfied that no significant impact will occur to the environment, or that the mitigation measures listed in the report are sufficient, NEMA will issue an EIAL; in cases where the project stands to have a significant impact on the environment and mitigation measures are insufficient, NEMA will require the undertaking of an EIA study (s. 10(2)-(3)). The decision of NEMA to require an EIA study can be appealed within 14 days (s. 10(4)).

An EIA study must be carried out by a lead expert, qualified in accordance with the EIA Regulations, and authorised and registered by NEMA (see ss. 13 and 14). Proponents of projects requiring an EIA study must submit the names and qualifications of the experts carrying out the study to NEMA (s. 13(1)). The study itself must take into account environmental, social, cultural, economic and legal considerations and shall: identify the anticipated environmental impacts and the scale of such impacts; identify and analyse alternatives to the proposed project; propose mitigation measures to be taken during and after implementation; and develop an environmental management plan with mechanisms for monitoring and evaluating compliance with environmental performance, which must also include costs and time frames for the implementation of mitigation measures.

Proponents must seek the views of those likely to be effected by the project via several methods including public meetings and announcements in national newspapers and on national radio stations (see s. 17(1)-(2)). Following an EIA study, an EIA study report must be submitted to NEMA. The content of such reports is specified in s. 18(1) and include, but are not limited to, details concerning: location; the relevant national environmental legislative and regulatory framework, baseline information and other relevant information; objectives of the project; technology, procedures and processes of the project; materials for implementation and construction; products, by-products and waste generated by the project; a description of the potentially effected environment; the environmental effects of the project including the social and cultural effects and the direct, indirect, cumulative, irreversible, short-term and long-term effects anticipated; an environmental management plan; and an economic and social analysis of the project. The report must be accompanied by a non-technical summary, signed by the proponent and the EIA experts.

Within 14 days of the submission, NEMA must seek the comments of lead agencies (by providing them with a copy of the report) and the comments of the public (by publication in the Gazette, in a national newspaper with sufficient circulation and via radio announcements, the specific details of which are specified in s. 21(3)). Following a public hearing, where required, and within three months of the submission of the EIA study report, NEMA shall issues its decision in writing. Where the EIA study report has been approved, an EIAL will be issued.

EIAL can be transferred to another person in respect of the same project for which the EIAL was granted, following payment of fees and joint notification from both parties to the Director General. Both the transferee and the transferor shall be liable for all liabilities and the observance of all obligations imposed by the transfer, but only the transferee shall be responsible for future liabilities and obligations (see s. 26). EIAL can also be surrendered, but surrender cannot take place without the consent of NEMA; notification of surrender must be made six months in advance. NEMA also has the authority to suspend, revoke or cancel an EIAL, on the advice of the Standards Enforcement and Review Committee, in cases where: the holder has contravened the conditions of the licence; the project or the implementation of the project is substantially changed or modified; an environmental threat which could not be reasonably foreseen arises; or information provided in the application for the EIAL is found to be false, incorrect, or intended to mislead.

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