Fresh dispute over coal mining agreement

The government is headed for a fresh controversy involving the estimated Sh6.9 trillion coal deposits in Kitui County after it emerged that the firm awarded mining rights, Fenxi Mining, will pay between 22 and 23 per cent to the government in gross revenue.

According to the Benefits Sharing Agreement (BSA) negotiated by the government, Kenya will get 23.6 per cent of all revenue generated from Coal Block C and 22.1 per cent from Block D, besides other benefits, including royalty fees, to be shared between the national and county governments and the local community, in a formula to be determined in the proposed Mining Bill.

On the other hand, the investors will get 76.4 per cent of the proceeds to recover their input. The government will also acquire an 11 per cent stake in Fenxi Mining.

The coal deposits in Kitui are projected to be in excess of 1 billion tonnes, with an estimated market value of Sh6.9 trillion.

On Wednesday, the chairman of the Kenya Human Rights Commission Prof Makau Mutua described the deal as “lopsided and measly”.

“This basic framework is skewed in favour of Fenxi Mining Group. It’s long in duration – 21 years, allows Fenxi to sell the contracts to a third party, which is dangerous and expensive, and the percentage going to government is too small,” he said.

Prof Mutua said Kitui residents should not be short-changed and vowed to go to court to challenge the merits of the agreement. He said other issues of concern include why the Chinese firm was allowed to do the environmental impact assessment rather than have an independent party do it.

“Even more devastating is that Fenxi has no obligation to hire local labour, buy local materials from Kenyan suppliers or sub-contract local entrepreneurs,” he said. 

But Energy Secretary Davis Chirchir has defended the agreement between the government and the Chinese firm, saying it is the highest performance guarantee in Kenya’s history.

“The investor shoulders the responsibility of developing infrastructure and resettling displaced people, besides sharing the royalties; it is a good deal,” he said. 
The two parties – the government and Fenxi Mining Company – exchanged the Benefits Sharing Agreement after the official signing in Mwingi town on December 23, 2013.

Mr Chirchir said that prior to the BSA talks, the government consulted widely and borrowed from experiences in Asian and sub-Saharan countries currently mining coal.

The coal project has been dogged by controversy since the concession was awarded to Fenxi two years ago with numerous court cases filed by the local community to stop the government from signing the deal, which were later withdrawn.

A report of the Task Force on Review of Prospecting, Exploration and Mining Licences commissioned by Mining Secretary Najib Balala last year revealed glaring irregularities in the issuance of licences between January and May 2013.

“Some licences were issued without proper registration records, bank statements, and with some not having paid statutory fees to the ministry,” the report said.

On receiving the report, Mr Balala revoked all licences that were awarded between the period under review, saying the rush just before the March 4 General Election was suspect.

The task force found 15 firms had been granted licences, while 28 others were in various stages of procuring them.

The Energy Secretary also suspended Mr Moses Masibo, the Commissioner of Mines. The licences were to be reviewed and the affected firms make submissions to the task force, but only slightly more than half complied with that directive.

The report recommended that the ministry needed to establish policies to protect Kenya’s economic interests and encourage investors to venture into the capital-intensive sector.