Advice to Balala: Kenya will prosper if you don’t mistreat mining interests

Tuesday May 07 2013

Here is a piece of advice for Mr Najib Balala, President Uhuru Kenyatta’s Cabinet nominee for the new Ministry of Mining.

The mining sector in Kenya is on the brink of an explosion in terms of new activity. Interest by big international mining companies in Kenya is at an all-time high.

In the circumstances, his most important job as Cabinet Secretary for Mining is going to be how to sustain investor interest in this new growth sector.

I wish to update the minister on one case where his predecessor, Mr Ali Chirau Mwakwere, handled an investor so badly as to cast doubts about the government’s commitment to creating an enabling environment for investors.

Currently, the Australian investor, Base Titanium, is implementing what is Kenya’s first large-scale mining production project in Kwale.

Of course, there are many other mining projects in the country, including development of projects to extract niobium and rare earths in Taita-Taveta County. A Chinese company is in the process of starting coal mining in Kitui.


But most of these mining projects are still at their prospective stages. The truth is that Kenya has had little actual mineral production beyond soda ash, fluorspar, cement and small-scale gold. (Read: Are Kwale residents expecting too much?)

Kwale is where the real thing is going on. According to information the Australian company has disclosed, it plans to spend $300 million on the production of titanium.

In addition to the blocks in Kwale, Base Titanium also has rights on three blocks in Kilifi County where work is yet to commence.

In December last year, as Parliament was about to dissolve, Mr Mwakwere issued a Gazette notice cancelling the three Kilifi licences on the grounds of non-performance.

Although the blocks were still in the name of the Canadian company, Titanium International Ltd., which sold its assets to Base Titanium, the Australians have an option to buy them.

What happened in the wake of Mr Mwakwere’s cancellation of the Kilifi licences was simply sensational. It turned out that away from the limelight, well-connected individuals moved with alacrity to put in applications for these lucrative licences.

The exploits of these Nairobi-based wheeler-dealers only became apparent during court proceedings where Base Titanium had moved seeking to set aside the Gazette notice.

The well-connected parties sought to be enjoined in the case between Base Titanium and the minister, claiming that the injunction given to Base Titanium had compromised their interests in the three Kilifi blocks.

The stakes are very high because one third of Kenya’s titanium ore sits within the three Kilifi County blocks. If the well-connected chaps have their way, they will grab these licences and flip them to third parties in the secondary market for billions of shillings.

Strangely, one of the parties seeking to be enjoined in the case is the Jomo Kenyatta University of Agriculture and Technology through the Taita Taveta University College.

Where is JKUAT going to get the billions to invest in mining? Clearly, well-connected individuals are hiding behind the name of the JKUAT when their true motive is to grab the lucrative rights for themselves.

It is all disguised on the grounds that the university college needs one of the blocks to conduct research in titanium mining. As it is, Base Titanium has managed to get an injunction blocking the licence cancellations.

The international mining community is watching this case keenly especially because it came in the wake of an order by Mr Mwakwere to Base Titanium to sell 30 per cent of its shares to locals even before a legal framework for ceding shares to locals is in place.

How the saga unfolds remains to be seen. But it is clear that the success of the mining industry will depend on two crucial factors: investor confidence and the country’s political risk-rating.

Several years ago, neighbouring Tanzania introduced comprehensive incentives to attract international mining companies to that country.

Today, Tanzania is posting impressive numbers with the mining industry earning approximately $1 billion in annual revenues.

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