Uncertainty in Kenya's mining sector could deter responsible investors
What you need to know:
- The extractive industry is expected to contribute up to 10 to 15 per cent of the country’s GDP in a relatively short period of time.
- Communities around Kwale’s titanium mines seem grateful for what Base Titanium has done for them: roads, schools, power, water dams, and even a cemetery.
- This political and legal uncertainty needs to be addressed or else no investor will agree to venture into mining in Kenya unless they come in as mineral mercenaries who ‘get in, mess up, ransack and get out.’
Erik Erikson coined the phrase “a man's conflicts represent what he 'really' is”.
This may be paraphrased into “a country’s conflicts represent what its people really are”. And truly, conflict and money are like smoke and fire, they always go together.
Until now, Kenya suffered a chronic disinterest in extractive industries. Suddenly, we are all talking about them, legislating on them, dreaming of them, and almost counting the chicks before they hatch.
This sudden interest is no chance. Abundant and largely untapped non-renewable natural resource wealth has recently been found in Kenya.
Most of these discoveries happen to be in remote or marginalised areas. For example titanium and rare earths in Kwale, oil in Turkana and Lamu, coal in Kitui and iron ore in Taita-Taveta. The list is getting longer.
The extractive industry is expected to contribute up to 10 to 15 per cent of the country’s GDP in a relatively short period of time. It will play a key role in the country’s development.
'MIXING SUPERGLUE'
Article 69 (1) of the Constitution says that “The State shall—(a) ensure sustainable exploitation, utilisation, management and conservation of the environment and natural resources, and ensure the equitable sharing of the accruing benefits.”
The growing dilemma is how to make Article 69 a reality. The balance between investors, government and communities is like mixing superglue. Too much of one tube and too little of the other spoils the mixture and makes it useless.
Melba Kapesa Wasunna and Santana Monda recently visited several mines in Kenya and met corporate top management on site as well as community leaders. They are building a "best practices manual" for investors and communities involved in extractive industries.
In Kwale, they visited Base Titanium and invited me with them. My first impression was good; my last impression was even better.
THE MAGADI SODA MODEL
There is a sharp contrast between mining in Kwale and what is going on in some areas of Taita-Taveta or Kitui.
Communities around Kwale’s titanium mines seem grateful for what Base Titanium has done for them: roads, schools, power, water dams, and even a cemetery. It seems to be very robust community participation and empowerment, which is still very much ongoing.
Matching expectations is never rosy, but in Kwale both the community and mining company really seem to be on the right track.
Base Titanium appears to have followed a community consultative model similar to Magadi Soda or what is today known as Tata Chemicals Magadi.
Michael F. Odera, Magadi’s former CEO and current chairman, says, “Magadi Soda and the community cannot survive without each other. It is like a marriage, and we have been married for 100 years.”
Extractive projects are associated with a myriad of local adverse effects. It is not only the community as spouse, but also the home itself, the environment, that will suffer.
HUGE CONFUSION
Negative environmental effects need to be offset by the investor while ensuring the investment is still attractive, but offsetting is not possible without understanding what these benefits are and how they can be shared out equitably among stakeholders.
The new proposed bills, i.e., the Mining Bill of 2014, the Energy Bill of 2014, the Natural Resources (Benefit Sharing) Bill of 2014 and more recently, thePetroleum Exploration, Development and Production Bill of 2014,propose different regimes of benefit sharing between the two levels of government and local communities. The confusion is huge as to what law applies where and in what circumstances.
The Natural Resources (Benefit Sharing) Bill of 2014 establishes a system of benefit sharing in resource exploitation between mining companies, the national government, county governments and local communities.
The Bill applies to the exploitation of petroleum, natural gas, minerals, forest structures, water resources, wildlife resources and fishery resources.
It also establishes a Benefit Sharing Authority, which has the power to extend application to any other natural resource. The Authority also has the power to determine and review the amounts of royalties payable.
'MINERAL MERCENARIES'
The Mining Bill of 2014, which is now awaiting presidential assent, states that royalties payable are to be distributed to the national government (70 per cent) and to the county government (20 per cent).
The remaining 10 per cent is to be distributed to the community where the mining operations occur.
In contrast, the Energy Bill of 2014 in Clause 112(3) stipulates that the royalties received by the national government from fluid produced through renewable energy shall be apportioned between the national government, county government and the local community as follows: 5 per cent to the local community, 20 per cent to the county within the boundaries of which the licensed areas or geothermal resources are or were exploited, and 75 per cent as national revenue.
This political and legal uncertainty needs to be addressed, or else no investor will agree to venture into mining in Kenya unless they come in as mineral mercenaries who "get in, mess up, ransack and get out".
'PRACTICAL AND REALISTIC'
Dr Wasunna has done well to venture into this analysis on the extractive industries. She has invited stakeholders from industries, communities and government to sit down and put their heads together to come up with sensible proposals, something practical and realistic, that can help harmonise the legal debacle now mushrooming.
This is the time for constructive dialogue by experts and wananchi alike on how benefits, both economic and non-economic, can be integrated in the Kenyan legal context.
It is also a fantastic opportunity for key stakeholders with differing viewpoints to engage in robust and constructive debate on the nation’s benefit-sharing regime.
After all, as Michael F. Odera told me, it is like a marriage, and according to Renee Morad of MoneyTalk News, there are ten money mistakes that can ruin a marriage.
Five of them apply squarely to the extractive industries: Not talking enough about finances, hiding purchases or debts, believing you need to split up financial responsibilities traditionally, failing to recognise that money matters carry emotional weight and, finally, not enjoying your money together.
Let’s help save this marriage!
Dr Franceschi is the dean of Strathmore Law School. [email protected], Twitter: @lgfranceschi
