1

1.1 Facts and Figures on Kenya (Kenya Chamber of Miners) The mining sector contributes 14.2% of the GDP and

employs 200,000 people, It contributes 3% of Kenya’s total export earnings and it is anticipated that this may rise to 10% by the year 2030 Potential for growth of the mining industry led to the creation of a fully fledged Ministry of Mining in 2013.

The Government collected Kshs.1.25 billion (approx. USD 11.9 million) in 2014/15 and the total production by the industry for 2014 was worth Kshs. 20.9 billion (approx.USD 199 million).

2

The Mining Act vests ownership of mineral resources in the Government as the trustee of the people of Kenya.

The Cabinet Secretary administers the right to explore and exploit mineral resources and appoints the Commissioner of mines and geology to implement the provisions of the Act.

In order to carry out mining activities, an investor would apply to the Commissioner for:

- Exploration – prospecting right or exclusive prospecting licence

-Exploitation – mining lease or special mining lease

3

3.1 Creation of the Ministry of Mining Kenya did not have a Ministry dedicated solely to

oversight of its mineral sector until 2013 when the Ministry of Mining was established. Prior to this, the Mining industry was overseen by the Ministry of Environment and Natural Resources through its mines and geology department.

The Ministry is mandated with the implementation of Article 69 of the Constitution which gives the State the responsibility for ensuring sustainable exploitation, utilization, management and conservation of the environment and natural resources, and equitable sharing of the accruing benefits.

4

3.2 Achievements of the Mining Ministry Roll out of targeted initiatives geared at improving the

contributions of the mining sector to the national economy -significant example is airborne geo-physical surveys for mapping of resources

Collaboration with tertiary institutions to develop and strengthen professional and skills capacities for mining/extractive industries(geosciences, engineering)

Revocation of numerous prospecting licenses which were granted without regard for due process.

Preparation of the National Mineral and Mining Policy to guide statutory and regulatory reform in the mining sector – to increase transparency in granting of licenses, attract investment and increase Government income.

5

4.1 The Mining Bill – Key InstitutionsThis will replace Kenya’s 1940 Mining Act - it has been passed by the National Assembly and is awaiting presidential assent The Bill proposed to establish the following institutions: A National Mining Corporation to be

managed by a Board and act as the investment arm of the national government in respect of minerals.

6

A Minerals and Metals Commodity Exchange to facilitate efficiency and security in mineral trade transactions.

A Mining Tribunal which shall hear matters relating to mineral Rights .

The institutions are intended to increase the commercialization of the mining sector.

7

5.1 Pertinent provisions of the Mining Bill Under the Bill, the awarding of mineral rights may be

done through competitive bidding for large scale operations over land designated for such tendering.

The Bill provides for ‘strategic minerals’ for socio-economic development and national security purposes.

Counties to gain from new sharing formula of any government revenue from the mining industry: 70% shall be allocated to national government, 20% to county government and 10% to local community.

8

Cont…Pertinent provisions of the Mining Bill Environmental protection measures: holders of

mining permits and licenses must exploit the land in accordance with designated terms and conditions in order to ensure sustainable development. Licensees will have to provide a bond or other form of financial security sufficient to cover any costs associated with their environmental and rehabilitation obligations. They will additionally be required to formulate rehabilitation plans.

9

5.2 Mining RightsThe Mining Bill recognizes the following categories of mining rights:For Large scale operations Prospecting license Retention license Mining licenseFor Small scale operations Prospecting permit Mining permitMineral dealers permits which are issued for the sale and purchase of minerals locally shall only be issued to Kenyan individuals or companies whose ownership consists of at least 60% Kenyan shareholding.

10

Local Ownership•The Mining (Local Equity Participation) Regulations, 2012 prescribed a local shareholding stake of at least 35% in every mining company to which a mining license is issued.• The implication of this directive was that foreign mining companies would have to progressively divest up to 35% of their equity to locals.

11

..con..ed Local Ownership• The Mining Bill provides that: for large scale mining and strategic minerals, the

State shall acquire 10% ‘free carry’ – no financial contribution shall be paid by the state.

The Cabinet Secretary shall prescribe capital expenditure limits- a mining company whose planned capital expenditure is over the prescribed limit shall, within 4 years after obtaining a mining license, offload at least 20% of its equity at a local stock exchange

12

Under the Environmental Management & Coordination Act (EMCA) 1999, the fee payable for an environmental impact assessment report is pegged at 0.1% of the project cost.

EMCA, the Environmental Management and coordination (Deposit Bonds) Regulations, seek to require any person intending to undertake mining activities to submit a Deposit Bond Assessment Report as an integral part of the Environmental Impact Assessment (EIA) report prior to the commencement of facility operations.

13

This will form the basis for assessment for payment of a deposit bond amount which may be refunded once it is established that the operator has observed good environmental practices.

14

Taxation of income from Mining is provided for in the Ninth Schedule to the Income Tax Act (ITA) entitled “Taxation of Extractive Industries,” which was brought into effect by Kenya’s Finance Act 2014.

The following are some of the significant provisions of the revised Schedule that will affect taxation of stakeholders in the mining industry:

15

Licensees are subject to income tax in the manner provided in the ITA for other persons- subject to any modifications made by Ninth Schedule.

Losses from mining operations may be carried back for up to three years; and may be carried forward indefinitely against income in subsequent years provided that the income relates to the same license area.

16

Capital deductions relating to the prospecting phase are available at the rate of 100% as opposed to the previous rate of 40% in initial year and 10% in subsequent years.

When computing taxable income, interest expenses can only be deducted to the extent that the company’s debt to equity ratio does not exceed 2:1

17

Fees paid by a licensee to a non-resident sub-contractor are subject to withholding tax at the rate of 20%. This provision was however amended by the Finance Act 2015 which brought the rate down to 5.6%

18

Withholding tax will also accrue with respect to outflows made to non-residents: dividends- 10%; interest- 15%; royalty on a natural resource- 20%; management and professional fees- 12.5%.

Additionally, any service fees paid by a licensee to a non-resident subcontractor with no permanent establishment in Kenya are subject to withholding tax at the rate of 20%

19

Having recognized the great potential that mineral resources have in contributing to poverty alleviation and to national and regional economic development, the Partner States have decided to harmonize their mineral laws and policies. The areas to be considered during the harmonization process are: Access to and ownership of land, Access to and ownership of minerals, Mineral royalties to Government and Communities, Procedures to follow for environmental Impact

Assessments and monitoring of environmental plans, taxation regimes.

20

21

THANK YOU

22