Kenya smallholder tea farmers earn Sh63.6 billion from tea exports
Can Kenya avoid the resource ‘curse’ as it develops mining sector?
Written by Today Financial News Saturday, 10 August 2013 09:35
By Ben Kinyanjui
The impending showdown between mining Cabinet Secretary Najib Balala and Cortec mining company over cancelled licenses is likely to trigger heated public debate on the future of mining in the country.
The creation of a stand-alone mining portfolio by President Uhuru Kenyatta when he formed his government in May was a clear signal that it would not be business-as-usual where prospecting mining companies come in, get licenses and start operations.
Mr Balala who besides being a cabinet secretary is also a key member of Jubilee Coalition is on the spotlight after cancelling 42 mining licenses that were issued between January and May for what he terms as ‘irregular allocation’.
Already, Cortec Mining, which is one of the largest companies affected by his move, has threatened to challenge the revocation of its licence issued in March this year in court. Many more may follow.
Mr Balala says permits were given before the expiry of the 30-day window period given to members of the public to raise any objections.
Mr Juma on his part says Mr Balala demanded Sh80 million bribes from his company but the secretary has denied it.
Mr Bala has suspended commissioner for mines and geology Moses Masibo for the breaches.
“Any attempts to unfairly or unconstitutionally revoke the company’s license will be vigorously challenged in the Kenyan courts,” said Mr David Anderson, Cortec’s managing director, in a statement.
Cordec director Mr Jacob Juma, said Wednesday that it could also “pursue the option of challenging the revocation” at the France based International Chamber of Commerce or at the Dispute Resolution Tribunal in the United Kingdom where its other shareholder, Sterling Securities Limited, is registered.
This comes amid reports that the cancellation of a firm’s licence for mining of minerals in Kwale has wiped 59 per cent of the share price of another company associated with the mining firm.
According to data posted on the Toronto Stock Exchange, Canada, the share price of Pacific Wildcat Resources dropped by 58.8 per cent to close at 0.035 Canadian dollars.
Pacific Wildcat Resources owns 70 per cent of Cortec Mining Kenya, a company that had been licensed to explore and mine niobium and rare earth metal deposits in Mrima Hills, Kwale County.
Following the news of the cancellation, the management requested the Investment Industry Regulatory Organisation of Canada (IIROC), which controls the country’s capital markets, to suspend trading of the share to avoid price meltdown. Yesterday’s trading was the first since the suspension.
“We requested the Canadian authorities to withdraw trading of the Pacific Wildcat Resources Share until we resolve the current issues,” businessman Jacob Juma, a shareholder of Pacific Wildcat Resources, told journalists on Wednesday.
On July 29 when Cortec announced that it had revised its valuation of the rare earth deposits at Mrima Hills from Sh5 trillion to Sh52 trillion, the share gained 28 per cent, having opened at 0.07 Canadian dollars and closed the day’s trading at 0.09 Canadian dollars.
Experts have accused mineral exploring companies of releasing unverified information to create a share price rally meant to help the companies raise capital. This has forced the government to issue strict guidelines on the release of such information.
Though it is not yet clear who among Mr Balala and his colleague in Energy and Petroleum Mr David Chirchir will handle the exploitation of newly found oil, experts say the issue is likely to get messy unless the government develops transparent policies to govern the entire mining sector including petroiluem.
The World Bank has in its past reports argued that millions of people in sub-Saharan African countries that are rich in natural resources have not fully benefited from its exploitation.
The DR Congo is the one of the countries cited regularly due to its abundant mineral resources that has only helped to fuel civil conflict in the Great Lakes Region. The country remains one of the poorest countries in the world.
“Continued demand for Africa’s natural resources as well as the recent discoveries of oil, gas and minerals in, among others, Ghana, Uganda, Kenya, Tanzania and Mozambique, together with an improved macro-economic environment, sustain prospects for robust economic growth.” says the bank in its Pulse report released in April.
“The pertinent question is how more of the new found resource wealth can be converted into fiscal revenues and effective public spending to foster sustainable development, improve human welfare, and generate more rapid income poverty reduction. In other words, how can we avoid another “resource curse”
Probably, the government should adopt the “Publish What You Pay” and the “Extractive Industries Transparency Initiative” (EITI) where mining companies and governments disclose mandatorily or voluntarily what they pay and what they earn.
Nineteen African countries are now part of the EITI, of which eight are compliant with all the requirements.
Luckily, Mr Balala already knows that the affected companies would challenge his decision and the appointment of a taskforce headed by lawyer Mohamed Nyaoga to relook at the licences is likely to diffuse that tension.
However, experts say the secretary must take a step further and raise public participation not only in licensing but also in the way revenue earned is spent.
“Prior to making any public analysis, projections or estimates the mining company should seek approval from the ministry 21 days before the date of announcements,” Mr Balala noted saying this would ensure unnecessary expectations are not created.
Several people have advocated mechanisms by which citizens, especially poor citizens, can better share in their country’s mineral wealth.
Among these is cash transfers to all citizens, along the lines of the practice in the U.S. state of Alaska or the Canadian province of Alberta.
“These proposals need to be examined more closely, but they offer the possibility of increasing transparency and accountability for public spending—arguably the weakest link in the chain in resource-rich countries,” says the bank.