Kenya-China coal agreement out

An agreement between the government and a Chinese company on the coal mining project in Kitui County has been released.

According to the Benefits Sharing Agreement (BSA), Fenxi Mining Company, the Chinese firm which won the mining concession, has committed to meet tough conditions, including statutory payments for the award of Blocks C and D, which will see the government recover the costs it incurred at the exploration stage.

“As a show of its commitment to the lucrative project, Fenxi will pay $63 million (Sh5.3 billion) as guarantees to the government. This means that if the investor reneges on the agreement, they will forfeit the money to the government,” outgoing Energy Permanent Secretary Patrick Nyoike said.

Mr Nyoike said the agreement was negotiated by an inter-ministerial committee, which oversees the coal mining project, in respect to coal Blocks C and D.

The investor will pay $3.5 million (Sh297.5 million) concession fees, special coal exploration licence fees at the rate of $4 million (Sh340 million) per square kilometre of both Blocks C and D, an environmental impact licence fee of $22,220 (Sh1.9 million) and an annual special mining lease fee of $42,000 (Sh3.6 million).

The firm will also establish an annual training fund of $662,538 (Sh56.3 million).

The BSA has yet to be signed by the two parties because it has not yet been debated and approved by Parliament, as required by law.

The Chinese Government will also have to approve the agreement because the mining project will need to mobilise huge resources from Chinese banks.

However, China has so far given Fenxi Mining a preliminary approval to proceed awaiting endorsement by the Kenyan Parliament. If the deal is endorsed, Kenya will be entitled to 23.6 per cent of all revenue generated from the mining project. The government will also acquire an 11 per cent stake in Fenxi.

This means that Kenya will still get a share of the coal profits from the remaining 76.7 per cent gross revenue, at the rate of the 11 per cent equity share. The government will also sit on the board of Fenxi Mining, in order to protect public interest.

The BSA document seen by the Sunday Nation outlines several obligations for the investor and the government, which will see significant infrastructural development of roads, power transmission lines and water pipelines in the county.

Coal auction

Every tonne of coal excavated will be auctioned through international open tenders under the supervision of the government to ensure the highest possible prices. This is meant to cushion the country against being short-changed.

The government, through the Attorney General’s office, had hired external legal experts to advise the negotiating team and ensure the country got the best deal out of the negotiations.

The inter-ministerial committee on coal includes top officials from the ministries of Energy, Environment, Water, Lands, and Industrialisation, Nema, the Treasury and the AG’s Chambers.

“This is a good deal by all standards. The gross revenue share from the two blocks is the highest amount to have been secured in Africa from a mining investor,” Mr Nyoike said, adding that other African countries get between four and ten per cent of mining revenue from investors.

The negotiations were launched last year after the parliamentary committee on Energy headed then by Karachuonyo MP James Rege endorsed the project, and gave the ministry a clean bill of health on the tendering.

The committee visited China to appraise Fenxi Mining’s financial and technical capacity to undertake the project after concerns emerged that the concession was awarded amid political meddling.

According to Mr Amyn Mussa, the lead counsel for the government negotiating team, Kenya got the best deal in terms of the royalties negotiated.

“The 23.6 per cent royalty fee secured is the highest performance guarantee in Kenya’s history because the investor shoulders the responsibility of developing infrastructure, and resettling displaced people,” he said.

This fee is the money that will be shared between the national and county governments, and the local community.

The BSA has checks and balances to safeguard the community and country’s interests, including resettlement of affected families, mining returns and environmental safety.

“We have ensured that the government is fully involved at all levels of the project, including been able to audit Fenxi’s books of accounts,” the PS said.

In the agreement, the Kenya government has been tasked with rolling out external infrastructure, including key roads leading to the project site. Fenxi will build the infrastructure in the Mui basin.

Among the roads on the government’s priority list is the Kibwezi-Mutomo-Kitui road for easy transportation of heavy machinery from Mombasa port.

However, according to government legal advisers, Fenxi has offered to cater for any external infrastructure projects related to the project and recover the costs from royalties payable to the government.

Families affected

The MPs and the community liaison committee were also taken through how affected families will be relocated through a resettlement action plan as per standards set by the World Bank.

The government had been accused of failing to actively engage locals in the process, creating room for speculation within the community. (see separate story)

Mwingi Central MP Joe Mutambu, who attended the forum, said the ministry of Energy should have established a coal public information office in the basin to keep residents updated on the progress of the project.

Six petitioners moved to court last year seeking to nullify the concession awarded to Fenxi Mining on the basis that the Mui community only relied on press reports for information on the project.
Chief Justice Willy Mutunga has appointed a three-judge bench to hear the suit.

A decommissioning plan is also spelt out in the BSA to determine how both players will rehabilitate the land after the mining operations.