Background to the legislation
Currently, the Mining Act 1940 (Chapter 306 of the Laws of Kenya) regulates all mining activities in Kenya. The legislative proposal giving rise to the Mining Bill was recently submitted by the Cabinet Secretary for Mining. Once the Bill is assented to by the President, it will repeal the existing legislation relating to mining and it will establish a new legal framework for the management of mineral resources in Kenya.
Following the promulgation of the new Constitution, more focus was brought under Article 69 to ensure sustainable exploitation, utilization, management, and conservation of the environment and its natural resources. Whilst focusing on the above, the Constitution requires the State to ensure there is equitable sharing of accruing benefits. Other than the constitutional need to amend the Mining Act accordingly, it is over 60 years old which makes it outdated as it fails to accommodate both technological and economic advancements.
Technological developments have made it possible for information to be shared electronically across the world, and most importantly, make payments and trade on a common virtual platform. The Bill therefore embraces technological advancements by providing for a computerized mining cadastre and registry system which will include an online transactional facility to enable applications for the granting and renewal of mineral rights to be submitted online.
Policies to bolster economic growth have also been incorporated into the Mining Bill and a good example is local content. “Local content” is defined as the added value brought to a host nation (and local and regional areas in that country) through activities such as oil exploration, mining among others.
Principal objectives of the legislation
It specifically establishes a mining corporation (previously not in existence), that will be the investment arm of the government in respect to minerals. The corporation’s functions among others will be to engage in mineral prospecting and mining. The corporation will also have a chief executive officer who will be recruited by the corporation and will be responsible for the day to day administration and management of the affairs of the mining corporation.
The mining corporation will also have a board whose chairman will be appointed by the President, the Principal Secretary responsible for mining or a representative; the Principal Secretary responsible for the National Treasury or a representative; the Principal Secretary responsible for trade or a representative and four other persons not being employees of the corporation, of whom not more than two shall be public officers. The introduction of this corporation will go a long way in bolstering the economy because it will ensure that the proceeds made by mining corporations are invested back into the country.
Mineral and Metals Commodity Exchange
The Mining Bill also aims to facilitate efficiency and security in mineral trade transactions by making provision for the Cabinet Secretary to establish a mineral and metals commodity exchange. Unlike before, the geoscience information will also be recorded and made available to the public upon request. A minerals and metals exchange is a market where various minerals and contracts based on them (derivative products) are traded. The exchanges usually trade future contracts on the minerals-such as trading contracts to receive gold in a certain month at a certain price. With such an exchange in place, the middlemen and other intermediaries who make money out of speculation are kicked out of the mineral value chain. The aim of this would be to lead the region in trade despite not having all the minerals and metals.
An important element to be highlighted is the introduction of the mining tribunal. Previously, disputes would be lodged with the Commissioner of Mines and Geology but the Mining Bill provides for an ad hoc tribunal to be set up by the cabinet secretary in consultation with the Chief Justice.
The Mining Bill has also done away with the office of the Commissioner whose primary duty was to ensure the provisions of the previous Act were followed. The Mining Bill states that the Cabinet Secretary for mining will be responsible for its general administration. It gives him extensive powers to make regulations to prescribe the procedure for consideration of applications made under the Bill and also to negotiate, grant, revoke, suspend, or renew mineral rights. Another addition is the Directorate of Mines and the Directorate of Geological Survey both of whom have their specific functions listed in the Mining Bill.
However, the Cabinet Secretary is empowered by the Mining Bill to establish additional directorates if need be. This change could either remove the previous directorates listed as below or be amalgamated altogether:
a. Directorate of Mineral Management and Regulations;
b. Directorate of Geological Surveys;
c. Directorate of Mineral Promotion and Value Addition;
d. Directorate of Mine Health, Safety and Environment;
e. Directorate of Resource Surveys and Remote Sensing; and
f. Directorate of Corporate affairs.
Another highlight in the Mining Bill is that the requirements of obtaining a mining right have been categorized into those needed for a natural person, and for a corporate entity. The current Mining Act prohibits a company from being granted a prospecting right; it only states that it could be granted to an individual as an agent of the company. Additionally, the provision on conditions to be fulfilled for any applicants is lengthy and makes it difficult to easily construe the conditions needed.
Furthermore, the Mining Bill introduces large and small scale operations which will determine the mineral right to be granted. The licences and permits granted to a mineral right holder engaged in large scale operations will include a prospecting licence, a retention licence, or a mining licence. On the other hand, those involved in small scale operations will include a prospecting permit or a mining permit. Large scale operations and small scale operations will be designated by the Cabinet Secretary. It should be noted that the Mining Bill expressly states that permits under small scale operations will only be given to Kenyan citizens or a body corporate owned by Kenyan citizens.
The Bill has also provided for rights granted on both private and community land which was not there before.
i. Private Land
Mineral rights on private land will only be granted to applicants if they have express consent from the owner and this will be through a legally binding agreement which allows prospecting or mining operations to take place or for an agreement concerning adequate compensation.
ii. Community Land
Mineral rights on community land will be given to applicants if they obtain consent from the authority in charge of administering such land or the National Land Commission in relation to community land that is alienated.
The Mining Bill also introduces mineral agreements which may be entered into, by a prospecting licence holder and the Cabinet Secretary with respect to any matter related to operations under the licence. Although the Mining Bill does not make it mandatory, it states that the Cabinet Secretary will prescribe the type of operations that will be subject to such an agreement.
As mentioned in the background of this article, local content is one of the elements introduced by the Mining Bill. Though local content has not been expressly defined in the Mining Bill, the Bill does ensure its provision by requiring mineral right holders to submit to the Cabinet Secretary a detailed programme for recruitment and training of Kenyan citizens in a bid to ensure the transfer of skills and capacity building for citizens. There is also an obligation for mineral right holders to source for materials and services. Another obligation is one to give employment preference to Kenyan citizens. The spirit behind these provisions is similar to the local content provisions in both the Energy Bill and the Petroleum, Exploration & Development Bill of 2015. The Mining Bill gives the Cabinet Secretary powers to issue further policy guidelines to give further effect to these requirements.
Where the mineral rights are for large scale operations or mining operations relating to strategic minerals, the Mining Bill stipulates that the State will acquire 10% free carried interest in the share capital of the right in respect of which financial contribution will not be paid by the State. There will also be a limitation on capital expenditure for the mineral right holders but this will be prescribed by the Cabinet Secretary. Where the holder’s capital has exceeded the limit within 4 years of obtaining the licence, there will be a requirement to offload at least 20% of its equity at a local stock exchange.
To whom does the legislation apply?
The Mining Bill will apply to the Ministry of Mining headed by the Cabinet Secretary, the mining corporation and its Board, the Directorate of Mines and Geological Survey, applicants of mineral rights, mineral right holders, and the mining tribunal. All these bodies are established by the Mining Bill except for the Ministry. With regards to the substantial minerals, the Mining Bill has specified in its First Schedule the following categories; construction and industrial materials; precious stones; precious metal group; semi-precious stones group; base and bare metal group; fuel mineral group; and gaseous minerals. Reference should be made to the first schedule of the Bill to see where the specific mineral is categorized. The Cabinet Secretary in charge of mining may, from time to time, by notice in the Gazette, amend the First Schedule. However the Mining Bill will not apply to matters relating to petroleum and hydrocarbon gases.
How does the legislation apply?
The Mining Bill will repeal the entire Mining Act (Chapter 306) once it is assented and comes into force.
Future review/revision and steps required in regard to the legislation
In order for the Mining Bill to be effective, it needs to be accompanied by regulations and policies. Most of the provisions discussed above anticipate for the Cabinet Secretary to provide policy guidelines. The better avenue would have been for the drafters of this Bill to provide anticipatory regulations that once implemented, would be subject to change by the Cabinet Secretary if need be. Regulation is of critical importance in shaping the welfare of economies and society. The objective of regulatory policy is to ensure that legislation works effectively, and is in the public interest.