The third reading of The Mining Bill 2014 came up last month. The parliamentary committee on Environment and Natural Resources presented its report on the bill. Clause 198 of this Bill – which addresses the issue of repeal, savings and transitional provisions – has provisions that would have far-reaching ramifications on the industry.
During the second reading of the Bill in Parliament, a number of MPs stressed the need to protect existing investors and to honour contractual obligations. Clause 198 (2), which raises a number of issues, needs a rethink. It says: “Any right, claim, royalties or leases granted under the Mining Act shall continue to be in force as a mineral right granted under this Act until after eighteen months whereupon the size, shape and description of the relevant licences or permits shall conform to the requirements of this Act.”
Mining is a high-risk and capital intensive investment that takes long to generate returns. In the best case scenario, it takes between eight to10 years to take a project from prospecting and exploration through construction and development and into operations. It then takes three-five years to pay back creditors. Given this longevity, legislation can change during the life of a mining investment.
But this should not mean disregarding the rights of existing licences and operations. Mining is one of the few sectors in Kenya that will have a huge impact on the economy as it is export-oriented. The sector thus needs to be governed in a manner that provides stability and security of tenure. This gives assurance to investors that the rules under which an investment is made will hold until the licence expires. The wording of clause 198, however, undermines this by forcing an existing licence to conform to the new Act after 18 months, regardless of factors that rendered a project viable under the law existing at the time of investment.
If passed at it is, future investors will be scared by the fact Kenya does not have the stability required for long-term mining investment. This will introduce uncertainty and deter the much-needed investment required to develop Kenya’s young and untested mining sector. Mining agreements are aimed at providing a clear and transparent operating environment that incentivises the mining company to invest, particularly one that does not have an existing mining industry or sufficient legal and physical infrastructure to make it attractive.
Stability in its application will ensure success of the mining investments. When the law changes, the agreement must be respected and not revoked or grossly affected as to render an investment unviable. The proposed law will replace the existing Mining Act Cap 306. However, there are conditions in existing licences that have a direct impact on the nature of business being undertaken by the affected operations.
A stability clause should be included in the proposed law to ensure ensure existing licences will be allowed to continue in accordance with the terms and conditions under which they were granted.
