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Outcry, bribery claims over mining licences recall

Saturday August 10 2013
kwale

Workers at a multi-billion-shilling titanium factory which is under construction at Maumba in Kwale County, in Kenya’s coastal region. Mining company heads cite unpredictability of government as biggest threat to business. Photo/FILE

Mining firms and oil and gas explorers in Kenya are warning that concerns over the sanctity of contracts signed with the government will create uncertainty in the business environment.

This follows the cancellation of dozens of mining licences in a row that could drag the government into costly legal battles.

Executives of major firms cited government unpredictability as the biggest threat to doing business in the country despite its new profile as a hotspot for minerals, oil and gas exploration.

On Monday, Kenya revoked licences of 43 companies that were issued between January 14 and May 15 this year, sending jitters through the mining industry which has seen an increase in the number of firms and individuals seeking to tap into the country’s mineral wealth.

On Friday, however, it emerged that Cortec Mining Company — one of the affected firms — had written to the Ethics and Anti-Corruption Commission (EACC) accusing a senior government official of soliciting a bribe over the licence.

Cortec managing director David Anderson, in a letter dated July 29, claims that the official demanded to be paid Ksh80 million ($915,428) from the company between July 6 and 18, failing which its mining licences would be cancelled. The letter is copied to President Uhuru Kenyatta, director of the Criminal Investigations Department Ndegwa Muhoro, Cortec chairman Don O’Sullivan, Pacific Wildcat Resources managing director Darren Townsend and another Cortec director, Jacob Juma.

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“As an international mining company owned by Pacific Wildcat Resources, up to 70 per cent as majority shareholder and listed on the Toronto Stock Exchange in Canada, we do not engage in bribery in the pursuit of our objectives,” he wrote.

Contacts at EACC said they would only be able to confirm if they have received the complaint, which has details of how the official solicited the bribe, within the week.

Appear before taskforce

Mr Anderson said the solicitation was made before the revocation of the licences was announced.

“As a company, we resolved not to meet him because we do not engage in corruption in pursuit of our objectives,” Mr Anderson added. “We therefore decided to report this matter to you for immediate investigations as our licences are likely to be cancelled any time from now.”

Najib Balala, the Mining Cabinet Secretary, said at a press conference in Mombasa on Friday that Cortec would have their day before a taskforce headed by lawyer Mohamed Nyaoga after which a final decision would be made on its licences.

Licences for Dangote Kenya Ltd, a firm associated with Africa’s richest man Aliko Dangote of Nigeria, Base Titanium and Nairobi Securities Exchange-listed Carbacid were also affected by the cancellation which Mr Balala said would be in effect until they are reviewed by the taskforce.

Royalty rates on the valuable rare earth, niobium and titanium ores have been reviewed to 10 per cent of gross sales, up from three per cent, as those of gold rise to five per cent from an average of three per cent and coal attracts eight per cent.

READ: Kenya hits $100bn rare earth jackpot

Drilling fees are also expected to jump 10 times to Ksh8,000 ($91.54) from Ksh800 ($9.15) for the first 50 metres and Ksh1,000 ($11.44) for the next 50 metres up to 400 metres of depth, after which the government will negotiate what to charge. The rates were last revised in 1999.

Kenya Chamber of Mines chairman Adiel Gitari said though there were inactive licences the revocation or otherwise of a licence needs to be on merit and reasons given.

The chamber asked the government to consider the impact on the country’s competitiveness and attractiveness to investors when making changes to royalties and fees.

“The proposed royalties are out of sync with international best practice,” said Mr Gitari. “As far as we know, no country has royalty rates as proposed.”

ALSO READ: Tough capital laws for oil and gas explorers

Standard & Mutual, a mining consultancy firm, said the cancellations had the potential of making Kenya appear as an unstable investment destination before the full potential of its mining industry was tapped.

“The law allows the Cabinet Secretary to cancel licences but how the issue is handled matters as Kenya is competing for investment with other countries and investors require a predictable environment,” said Cliff Otega, Standard & Mutual’s director of mining and metals.

Investors need to be assured

Stockport Exploration, which is exploring for gold in western Kenya, said the country has the potential to maximise earnings from the industry but investors need to be assured that contracts will be honoured.

“The cancelling of licences can dent the image of the country,” said Jim Megann, the Stockport CEO.

Kenya’s action mirrors measures in Tanzania, Africa’s fourth-largest gold producer, which passed new mining legislation in 2010 to raise royalty payments on gold exports to four per cent of gross value, up from three per cent of net value.

The Tanzanian government has also said it would consider windfall taxes on mining companies if they make huge profits from the commodities.

By David Mugwe and Kennedy Senelwa

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