Co-authored by Anne Kadima (Legal Assistant)
Introduction
The Mining Act, 2016 (the Act) was signed into law by the President on 27th May 2016. The purpose of the Act is to give effect to the provisions of Article 60 of the Constitution of Kenya, 2010 which sets out the principles of land policy. Plus, Article 62(1)(f) which provides that all minerals and mineral oils form part of public land and shall vest and be held by the national government in trust for the people of Kenya and Article 66(2) that requires parliament to enact legislation to ensure that investments in property benefit local communities and their economies. Also, Article 69 that sets out the obligations of the state with regards to the environment, in particular, the use of the environment in a sustainable manner and Article 71 of the Constitution which requires Parliament to enact legislation to ensure that investments in property benefit local communities and their economies.
Background of the Legislation
The Act replaces the pre-independence Mining Act Cap. 306 of 1940. The 1940 law was criticized by investors as having been out of date and out of touch with the times. The previous Act did not make any provision for technological, economic and environmental advancements.
The new Act seeks to provide clear guidance on mining activities in Kenya. It introduces amongst other things legalisation of Artisanal Miners and Transparency and Accountability through use of the Online Mining Cadastre portal for licensing and for management of mineral rights and permits. It also introduces Community Development Agreements, mandatory for all holders of large scale mining rights, and sharing of royalties among the national government, the county governments and the local communities.
Principle Objective of the Legislation
The Act is intended to streamline the country’s mining sector and open the gates for its development as well as ensure environmental conservation and sustainable development in the mining sector. It also seeks to address the key gaps in the Mining Act of 1940, and align the sector to the latest global trends such as value-addition and the use of technology to spur investor interest. The Cabinet Secretary for Mining has termed the Act as one of the most “progressive mining laws in the continent.”
To whom does the legislation apply?
The Act applies to the Ministry of Mining headed by the Cabinet Secretary, the National Mining Corporation and its board, the Directorate of Mines, the Directorate of Geological Survey, the Mineral and Metal Commodity Exchange, the Mineral Rights Board, the applicants of mineral rights, the holders of mineral rights, mineral dealers and any other person or body referred to in the Cat. The Act does not however apply to matters relating to petroleum and hydrocarbon gases.
Key highlights
Pre-emptive Rights
Section 8 of the Act provides that the State has the right of pre-emption over all strategic minerals raised, won or obtained within Kenya before they are sold. This means that the National Government will enjoy a “first option to buy” minerals extracted in Kenya before the holder of the mineral right can offer them to other potential buyers in the market.
All radioactive minerals are strategic minerals. The Cabinet Secretary can also declare certain minerals to be strategic minerals, but only after seeking the approval of the Cabinet.
The Cabinet Secretary may make Regulations to provide for the exploration, mining, processing and export of strategic minerals and strategic mineral deposits.
Institutions and Bodies
The Act establishes several institutions which in essence breaks the concentration of decision making in the office of the Cabinet Secretary. The previous Act only made provision for a Commissioner of Mines and Geology, who carried out most of the duties and decision making that is now carried out by the different institutions and bodies established under the new Act.
National Mining Corporation
The National Mining Corporation is established under Section 22 of the Act to be the investment arm of the national government in respect of minerals.
The Corporation shall be a body corporate with perpetual succession, and a common seal and shall, in its corporate name, be capable of suing and being sued; taking, purchasing and disposing of movable and immovable property; borrowing money with the approval of the National Treasury in accordance with the relevant law; entering into contracts; and doing such other things as may be necessary for the proper discharge of its functions under this Act, which may be lawfully done or performed by a body corporate.
Its functions shall include to engage in mineral prospecting and mining; and any other related activities; invest on behalf of the national government; acquire by agreement or hold interests in any undertaking, enterprise or project associated with the exploration, prospecting and mining; acquire shares or interest in any firm, company or other body of persons, whether corporate or unincorporated which is engaged in the mining, prospecting, refining, grading, producing, cutting, processing, buying, selling or marketing of minerals; and carry on its business, operations and activities whether as a principal agent, contractor or otherwise, and either alone or in conjunction with any other persons, firms or bodies corporate.
Mineral and Metal Commodity Exchange
There is also established the Mineral and Metal Commodity Exchange, whose purpose is to facilitate efficiency and security in mineral trade transactions. The commodity exchange will act as a marketplace for minerals.
Mineral Rights Board
The Mineral Rights Board is established under Section 30 of the Act. Its function is to advise and give recommendations, in writing, to the Cabinet Secretary on the grant, rejection, retention, renewal, suspension, revocation, variation, assignment, trading, tendering, or transfer of Mineral Rights Agreements; the areas suitable for small scale and artisanal mining; the areas where mining operations may be excluded and restricted; the declaration of certain minerals as strategic minerals; cessation, suspension, or curtailment of production in respect of mining licences; fees, charges and royalties payable for a mineral right or mineral; and any matters which under this Act, are required to be referred to the Mineral Rights Board.
Directorate of Mines and Directorate of Geological Survey
The Act also establishes the Directorate of Mines to regulate the mining sector and the Directorate of Geological Survey to develop the national geological database and promote interest in the mining sector.
Mineral Rights
A mineral right is defined under Section 4 of the Act to mean a prospecting licence, a retention licence, a mining licence, a prospecting permit, a mining permit or an artisanal permit. Section 32 of the Act which falls under Part VI of the Act that deals with general provisions on mineral rights categorizes mineral rights into two: Large Scale Operations and Small Scale Operations.
The power to grant, deny or revoke a mineral right is vested on the Cabinet Secretary. However, such powers can only be exercised after the recommendation of the Mineral Rights Board.
Artisanal Mining
The Act makes provision for artisanal mining. Artisanal mining is defined under Section 4 of the Act, as traditional and customary mining operations using traditional and customary ways and means. The Cabinet Secretary is tasked with establishing offices in the Counties headed by a representative of the Director of Mines. This representative shall have the function of granting, renewing and revoking artisan mining permits amongst other duties.
An Artisan Mining Committee shall also be established in every County. This Committee shall be tasked with advising the representative of the Director of Mines in the granting, renewal or revocation of the artisanal mining permits.
Free Carried Interest
The Act provides for government participation in the mining licence by providing that where a mineral right is for a large scale mining operation, the State shall acquire 10% free carried interest in the share capital of the right in respect of which no financial contribution shall be paid by the State.
Community Development Agreement
The Act makes it mandatory for a holder of a large scale mining licence to enter into an agreement with the community where the mining operations will be carried out. This agreement is known as the Community Development Agreement.
Employment and Training
The Act seeks to ensure employment opportunities are created for Kenyans, ensure skills transfer and capacity building for the citizens. Section 46 thereof provides that each mineral right holder is required to submit to the Cabinet Secretary, a program detailing how it shall recruit and train Kenyans.
Furthermore, the holder of a mineral right is required to give preference to members of the community and Kenyan citizens when it comes to employment and only engage non-citizen technical experts in accordance with such local standards for registration as may be prescribed in the relevant law.
Local Equity Participation
The Act protects local participation with provisions for equity participation in large mining operations. The Act also provides for the prioritization of local procurement of goods, services and workforce.
Mineral Agreements
The Act provides that the Cabinet Secretary in consultation with the National Treasury may enter into a mineral agreement with the holder of a mining licence where the proposed investment exceeds USD 500 million. It is a requirement that all mineral agreements entered into shall be public and made accessible to the public. This is in line with the Constitutional provision for access to information.
The mineral agreement shall set out the terms and conditions for minimum activity and minimum expenditure in respect of prospecting and mining operations amongst other provisions. All mineral agreements shall be submitted to the National Assembly and the Senate for ratification.
Environment Management
The Act has enhanced the provisions on the environment, health and safety. Section 176(1) states that a mineral right or other licence or permit granted under the Act shall not exempt a person from complying with any law concerning the protection of the environment. Section 176(2) further provides that a mining licence shall not be granted to a person under this Act unless the person has obtained an environmental impact assessment licence, social heritage assessment and the environmental management plan has been approved.
Land Use, Water Rights Laws and Pollution
A holder of a mineral right is also required to comply with the prevailing laws on water rights and use the land in accordance with the terms of the permit of licence. In doing so, the holder of the permit or licence will ensure that the land is used in a sustainable manner.
Section 179 of the Act which deals with land use requires the holder of a permit or mining licence to ensure the sustainable use of land through restoration of abandoned mines and quarries; that the seepage of toxic waste into streams, rivers, lakes and wetlands is avoided and that disposal of any toxic waste is done in the approved areas only; that blasting and all works that cause massive vibration are properly carried out and muffled to keep such vibrations and blasts to reasonable and permissible levels in conformity with the Environmental Management and Coordination Act, (Cap. 387); and that upon completion of prospecting or mining, the land in question shall be restored to its original status or to an acceptable and reasonable condition as close as possible to its original state.
Land Restoration
After completion of the prospecting or mining, the mineral right holder will ensure that the land in question is restored to its original status or to an acceptable or reasonable condition as close as possible to its original state.
Environmental Protection Bonds
Environmental protection bonds are also provided for under the Act. This requires an applicant for a prospecting licence, a retention licence or a mining licence to provide a bond or some other form of security sufficient to cover the costs associated with the implementation of the environmental and rehabilitation obligations of the holder under the Act.
Health and Safety
The Act has provisions to ensure the health and safety of persons working at the mines. It provides that the holder of a mineral right will comply with the Occupational Health and Safety Act, 2007 with regards to the safety of workers and mine operations.
Technological Developments
The Act embraces technological advancements by providing for a computerized mining cadastre and registry system which includes an online transactional facility to enable applications for the granting and renewal of mineral rights to be submitted online.
Royalties
The Act provides for the payment of royalties by a holder of a mineral right to the State. The royalty payable as per the Act will be determined by the gross value of the sales. The Act provides that the Cabinet Secretary will prescribe the rates of royalties payable.
Section 255(2) of the Act provides that any Regulations made under the laws repealed by the Act shall continue to be in force, so far as they are consistent with the Act until such time as they are revoked by the Cabinet Secretary.
On 16th August, 2013, the then Cabinet Secretary for Mining, Hon. Najib Balala, via Legal Notice No. 187 made the Mining (Prescription of Royalties on Minerals) Regulations of 2013. These Regulations will apply on the royalties payable by holders of mineral rights.
Revenue Sharing
The Act makes provision for the sharing of the royalties that are payable under the Act. Section 183(5) provides that the National Government will be entitled to 70%, the County Government 20% and the community where the mining operations occur will be entitled to 10% of the revenue.
This provision has been viewed as being probably one of the most progressive provisions in the Act, if not the environmental provisions. It embodies the spirit of the Constitution that requires equitable distribution of revenue among the national and county governments and inclusion, more so, financial inclusion for the people of Kenya.
Dispute Resolution
Section 154 of the Act provides for dispute resolution. It provides that any dispute arising as a result of a mineral right issued under the Act, may be determined by the Cabinet Secretary, through a mediation or arbitration process as may be agreed upon by the disputing parties or as may be stated in an agreement; or through a court of competent jurisdiction. Section 155 sets out the disputes that may be determined by the Cabinet Secretary.
Repeals, Savings and Transitions
The Act repeals the Mining Act Cap. 306, the Trading in Unwrought Precious Metals Act Cap. 309 and the Diamond Industry Protection Act Cap. 310.
Any Regulations made under repealed laws shall continue to be in force in so far as they are consistent with this Act until such time as they are revoked by the Cabinet Secretary.
The Act also provides that mining rights under the previous law will have a transition period of eighteen (18) months.
International Best Practice on Mining
The Act generally prescribes for the carrying out of prospecting and mining activities in accordance with international best practice. Below is a discussion on some of the international best practices on mining.
Sustainable Development in Mining
Sustainable development is at the heart of international best practice on mining. There is no universally adopted definition of sustainability in the mining industry. However, there are five (5) main pillars that embody sustainable mining practices. These are Economy, Safety, Resource efficiency, Environment and Community. A brief description of each dimension follows.
Environmental Management
Environmental assessment is a process that will ensure the mineral right holder considers the potential environmental effects before they can begin the mining process. It is important that the impact to the environment is managed through specialized low impact exploration practices, water management, pollution prevention and control and the rehabilitation of mines after closure.
The Act has several very progressive provisions on environmental management, which include the requirement for a person to obtain an impact assessment licence before being granted a mining licence. The Act also requires the holder of a mineral right to comply with the prevailing laws on water and use the land in a sustainable manner.
There is also provision for rehabilitation of the mining site after completion of mining and the requirement for an applicant for a prospecting licence, a retention licence or a mining licence to provide an environmental protection bond or some other form of security sufficient to cover the costs associated with the implementation of the environmental and rehabilitation obligations of the holder under the Act.
Community Engagement & Development
Mining has an impact on communities. This impact can be a positive catalyst towards social and economic development, transforming people’s lives for the better. Unless the community is engaged and supportive of a mining operation, opposition and confrontation may ensue. This will ultimately distract management from its main focus of efficiently running the mine.
Good mining practice requires the holder of a mineral right to proactively engage with communities to build strong relationships based on trust and respect. This will minimize negative impacts and maximise benefits. It should be noted that it is important to engage the community right from the initial phases of the mining process.
The new law seeks to ensure employment opportunities are created for Kenyans, ensure skills transfer and capacity building for the citizens by requiring the holder of a mineral right to give preference to members of the community and Kenyan citizens when it comes to employment and only engage non-citizen technical experts in accordance with such local standards for registration.
The Act also provides for revenue sharing with the communities where the mining operations occur being entitled to 10% of the revenue.
Health and Safety
A mining operation should aim to prioritise safety. Characteristics of safe mines include a commitment to risk management; appropriate attitudes and behaviours; reporting systems need to be in place; a focus on education and training; and a focus on processes and equipment.
The Act has provisions to ensure the health and safety of persons working at the mines. It provides that the holder of a mineral right will comply with the Occupational Health and Safety Act, 2007 with regards to the safety of workers and mine operations.
Economy
Unless a mine is profitable, it cannot be sustainable. Holders of mineral rights need to aim at generating profit responsibly for as long as possible by keeping costs to a minimum while maximising revenue. This will in turn maximise the equitable benefits to all stakeholders including the government.
Resource Efficiency
A mine also has to be efficient in the way the resource is managed and extracted. This entails embracing good practice in the extraction of minerals that will extend the mine life and thus stakeholder benefits, without compromising the revenue stream. Efficiency also encompasses proper management of the mine site.
Conclusion
The Act seeks to align the sector with the latest global trends by embracing progressive practices in the mining sector such as environmental management, community engagement & development, health and safety, etc. We hope to see an increase in investors’ interest due to these progressive provisions and consequently greater revenue from the sector. It is noteworthy to point out that the Cabinet Secretary still has the task of putting in place the several regulations required under the Act that will that will regulate the mining institutions and activities in Kenya.
References