Kenya Cabinet Secretary for Mining Investment Briefing in London

24TH JUNE 2015

FORGING AHEAD:

INVESTMENT & MINING IN KENYA

EABN 2015

2

A report by Agnes Gitau

East Africa Business Network LTD

86 90 Paul Street,

London, England,

ECA2 4NE

T: +44 (0) 203 151 0451

E: info@eabusinessnetwork.com

W: www.eabusinessnetwork.com

EABN 2015

3

Introduction

On 24th

June 2015, Kenya's Cabinet Secretary/Minister for Mining, Hon Najib Balala, gave a talk on the

investment and mining regime in Kenya, at the Kenya High Commission in London. Hon. Balala addressed a

selection of UK companies from Banking, Accounting & Legal Sectors with an interest in Kenya Market. The

business roundtable was hosted by Kenya High Commissioner H.E Lazarus Amayo and coordinated by the

London based East Africa Business Network.

The Ministers briefing was attended by Directors & VPs from JMiles & Co, Essex Court Chambers, UK Trade and

Investment, Standard Chartered Bank, The Commonwealth Secretariat, Helios Investments, DLA Piper, Clyde &

Co, Mining Indaba, Helios LLP, Citi Bank, Adam Smith International, Trinity LLP, Delloitte and Barclays.

Opportunities for Investment in Mining Sector

Kenya's mining sector is still vastly underexplored and is dominated by the production of non-metallic

commodities. The country is the world largest producer of soda ash. Recent discoveries of world class deposits

of rare earth with an estimated value of USD 62.4 billion will propel the nation to the top 5 countries with rare

earth deposit in the world and certainly boost the economy.

Kenya has gold deposits in the Turkana Region, as the Cabinet Secretary explained, inviting those present to

explore opportunities in Kenyas Gold Mines. ''With all these prospects for Kenya, it is therefore important that

we have laws that ensure benefits from Natural resources are shared equitably amongst all the stakeholders

especially the local community''.

New mining law and licencing regime

The Cabinet Secretary highlighted developments towards establishing a new mining law in Kenya, saying that

the current applicable Mining law was passed in 1940, and therefore outdated, He stated. In November 2014,

a new mining law was approved by the National Assembly and is awaiting endorsement by the Senate and

assent by the President.

Among the issues that will be addressed under the new regime are:

(a) Ownership of mineral resources is vested in the government as a trustee of the people of Kenya.

(b) The new law states that 10% of the mining revenue will go to the local community, 20 % to the county

Government, 70% to the national government - Of the 70% revenue share for the Government, the law

states that 50% should go towards infrastructure development.

EABN 2015

4

- The law states clearly that Mining Revenue should not be used for Kenyas recurrent budget, and

should only go towards funding developmental projects.

(c) Royalties on the different minerals: Last time royalties were raised was 1982. The government recently

raised this from less than 1 percent to 5-12 percent, reflecting international best practices. Royalties

cannot be used for recurrent expenditure

(d) Approval of any contracts worth more than USD 500 million should be done by Parliament.

(e) Local shareholding not for a select few. Currently at 35% but under new law, 20% would be offloaded

to Kenyan market by floating shares in the stock market for all to participate

Other changes

- Under CS Balalas leadership, the Mining Ministry in conjunction with UKAID had established

Mining cadastral portal on the website, creating transparency where No need to make a physical

application.

- Mining strategic plan for 2013 2017 and developing mining strategy for next 20 years.

- The Minister also spoke about plans to develop Kenya's Metal Exchange to serve the region and

plans towards developing a Mineral Sovereign Fund.

- The ministry now has a mining liaison unit within the Ministry to deal with community issues.

- Plans underway to develop Kenyas Mining institute to train and build capacity for local content

participation.

- CS Hon Balala said noted that accounting firm Delloitte have been appointed to carry out scoping

for a mining laboratory in Nairobi, so that samples do not have to be tested in other countries like

Australia.

The recently cancelled mining licences

The Minister addressed concerns regarding the recent cancellation of mining licenses. 'Kenya's is not hostile to

investors, as long as all due procedures are followed', He said responding to the recent developments where a

Canadian firm, Cortec, has reportedly planned to take Kenya to investment arbitration at World Banks ICSID, for

a license cancellation back in 2013,

Licences cancelled were because of irregular allocation, just before the 2013 election. Some of the licensees had

not made applications. Almost 50 licences issued in January to May 2013 irregularly, some without applications.

One licence was issued on the day of elections. Licences were investigated by a taskforce led by a prominent

lawyer. Licensees were asked to attend hearings and make representations, and less than half attended. About

10 who made representations had their licences reinstated.

EABN 2015

5

Cortec had sued the Ministry in Kenya, and had been unsuccessful in High Court case, and the matter is now in

the Court of Appeal. They have now indicated ICSID.

Q & A

On an intervention, Roderick Cordara QC of Essex Court Chambers inquired on when the new regime will take

effect and whether there will be any degree of retrospectivity. The Minister clarified that the law is planned to

take effect by January 2016, and that within 18 months, companies must comply with the laws.

Elizabeth Karanja of JMiles & Co. asked about the interplay between the national government and county

governments, and whether there will be any overlap in the regulations, license fees and oversight, as there have

been concerns in other sectors. According to the Minister, there will be no overlap as mining falls under the

national government. However, there will be involvement of the community and liaison at county level.

Investors will also need to undertake CSR at local level.

Dr Rashmi Banga Head of Trade Competitiveness Commonwealth thanked the Minister on the important

information he gave saying , It is important not only to attract foreign investments in the mining sector but

also make sure that the linkages between foreign investments and the domestic economy is strong enough to

benefit the local community. It could be useful to include employment of locals at all levels including senior

levels in the foreign firms as local content requirement. This would be compatible with WTO rules. If the

community participation is not stepped up continuously then FDI in mining sector can lead to 'enclave growth'

which may not benefit the country.

BG Greyling of Standard Chartered Bank had a query on the USD 500 million thresholds for contracts which

required parliamentary approval. The Minister clarified that presently, there was no investment of such size, the

largest being about USD 200 million, but large size investments are expected in the future, hence the need to

legislate.

Bill Page of Delloite queried on how capital gains tax would affect the industry. The Minister noted that the CGT

rate (5%) was not as substantial as other East African countries, and in any event, it was abolished in the recent

Kenya budget speech.

Sharan Shah of Standard Chartered Bank asked whether there is adequate infrastructure to support projects.

The Minister spoke of developments in the standard gauge railway which is to be completed in June 2017, the

LAPPSET project with other Eastern African Countries (road, ports, rail and pipeline), the ambitious 10,000km

road construction plan by the Government, and the developments in the energy sector (Turkana wind,

geothermal and coal), all of which will support investment in all sectors, including mining.

EABN 2015

6

Participants Feedback

The briefing given by the Honourable Minister of Mines was of significant benefit to me, as a Trade Advisor for

UKTI. I now have a clear picture of not only the mining industry and Ministry, but the direction that the

Government of Kenya is going. The benefit is that I am now able to advise London companies who wish to

transact business in Kenya, that Kenya is open for business. Not only is it open but it will welcome British

companies and assist them. The reassurances given by the Minister regarding transparency were very important

and demonstrate the integrity of the Kenyan Government. Thank you for the opportunity to be part of this

briefing. David Billingsby International Trade Adviser at UKTI

I attended a briefing by the Honourable Najib Balala, cabinet secretary, ministry of mining, Kenya on 23 June at

the Kenyan High Commission. The cabinet secretary made an excellent, clear and succinct analysis of mining

and its regulation in Kenya and the impressive developments since 2013 when the Ministry of Mines was

established. He gave details under three main headings, predictability and stability, transparency and equality.

David Church International Development Partner DLA PIPER

Conclusion

The Ministerial briefing was an overall productive session which clarified issues relating to the new mining law

regime, and also provided useful insight on investment opportunities for UK and global business into Kenya.

Guests were provided with copies of the mining investment handbook.

The East African Business Network is proud to have worked with the Kenya High Commission and the Mining

Ministry in coordinating the ministerial briefing. It is hoped that further engaging talks will take place, as Kenya

moves forward in its quest to be a leading investment destination on the Continent.

Agnes Gitau is an International Trade & Investment Consultant based in London. She is a Partner at GBS Africa

and a Board Director at the East Africa Business Network - Follow her daily commentaries on Africa @agnesgitau