Kenya is seeking an equity stake in all mining operations, under the new regulations to be tabled in parliament this month for enactment.

Where a mineral right is for exploitation, the national government will acquire a 10 per cent interest in operations; but Kenya will not make any financial contribution for the stake, says the draft Mining Bill, 2013.

The current law states that the government does not have a direct stake in mining deals.

The proposed law seeks to retain the current arrangement where granting of licences is on a first-come first-served basis, an approach that has been criticised because it gives mining rights to well-connected speculators who then sell them to real investors.

Kenya has taken a different route for oil and gas contracts, where it is will adopt open tendering in awarding exploration licences. This is in accordance with recommendations by a team hired by the Ministry of Energy to review the Petroleum Exploration and Production Act of 1986.

Kenya’s Constitution requires all new oil and gas exploration rights that are negotiated with the Ministry of Energy to be ratified by parliament.

Under the proposed law, the Mining Cabinet Secretary will also establish a sovereign fund account at the Central Bank of Kenya to provide support in times of economic stress as well as finance expenditure on pensions among other issues.

At least 25 per cent of all mineral rights revenues including royalties, royalty sales proceeds, mineral revenue-sharing payments and bonuses received will be paid into this fund.

The regulations are the latest proposed policy changes in the wake of increased exploration and mining interest in the East African region.

In Uganda, a ban on issuance of new mining licences announced in 2012 is still in place. In Tanzania, firms are now required to pay at least 0.3 per cent of their annual turnover, up from the previous ceiling of $200,000, in rules adopted two years ago.

Rwanda has been renegotiating expired mining licences; the review could result in some companies losing lucrative contracts.

In Kenya, a separate draft Bill, the Natural Resources (County Royalties) Bill 2013, aims to give 20 per cent of mining royalties to the county governments to avert the perception of economic exclusion and avoid the resource curse.

Some 75 per cent of royalties will go to the government, and 5 per cent directly to community projects in the area where the mining is carried out.

READ: Kenyan Senate crafts Bill on sharing of natural resources

“The new rules the ministry is working on will encourage local and foreign investor participation, raise capacity in resource development as well as promote best practices in the minerals and mining sector,” Mining Cabinet Secretary Najib Balala said.

The challenge facing the Kenyan government is to strike a balance between its national interests and encouraging investment.

“The government must make money on behalf of the people of Kenya, and investors must get a return on their investments,” said Monica Gichuhi, the CEO of the Kenya Chamber of Mines.

The proposed mining regulations also introduce a penalty that companies will forfeit to the government money budgeted for prospecting if they do not complete their work on schedule; the provision has been opposed by investors.

“Why risk declaring a large budget for exploring when any savings you make shall be government property? This is an unjust punishment for efficiency and innovation in prospecting,” said investors who asked not be named.

According to the African Development Bank (AfDB), Kenya can become a hub for the extractive industry, but is still underexplored as mining is limited to a few minerals like soda ash, fluorspar, diatomite, limestone and gold.

AfDB’s regional director Gabriel Negatu said the bank’s multi-donor secretariat will engage stakeholders to identify solutions to explore the potential of developing the sector.

“The oil, gas and minerals sector has potential for generating revenues for the country,” Mr Negatu said.

AfDB will help the government build the capacity required to manage the flow of revenues, and address environmental and social issues regarding community resettlement and compensation, he said.

Standard and Mutual’s director of mining and metals Cliff Otega said the multiplier effect of local spending on goods and services by the extractive industry is an immediate benefit from exploration to exploitation.