Nairobi, Kenya — 01 July 2013 – Under plans for the new mining bill of 2013, Kenya plans to replace punitive local equity shareholding rules with a 10% free carry.

Kenya only introduced rules requiring 35% local equity shareholdings in its mining licences in 2012, but the country’s new government plans to revoke those terms under a new mining bill, which will replace the existing, outdated Mining Act of 1940 this year, reports

The draft Mining Bill of 2013 proposes replacing existing local equity requirements with a 10% ‘free carry’ investment by the government in all mining companies.

Local ownership regulations are aimed to help citizens benefit from resource endowments, but have also opened up a host of African countries – chief among them Zimbabwe – to criticism over resource nationalism. By looking to cut local shareholdings, Kenya bucks a broader trend among its African peers, many of whom are targeting higher rents and larger stakes in foreign-owned miners.

“The 35% local equity rule was perceived as being not the right way to promote Kenya as a competitive investment destination,” says Monica Gichuhi, CEO of the Kenya Chamber of Mines. “Also it has been a very high requirement for entrants at the point of exploration, with all the risks and the costs. How many Kenyans would be willing to buy that 35% stake?"

Under a free carry investment, a government owns a stake but does not incur its share of operational or capital costs. Governments in certain mining and oil and gas regions – amongst them, Ghana – have preferred the approach over a larger equity interest because it does not incur the huge upfront costs involved in exploration.

“We are trying to ensure that both locals and investors benefit from resource endowments. The question is whether free carry is a less punitive option for local investors, while still benefiting the people of Kenya,” Ms Gichuhi says.

The draft bill, tabled by the new mining cabinet secretary Najib Balala, also mandates the creation of a state-owned mining company to act as custodian for the free carry investments.
Additionally, the bill proposes changes to licensing procedures which, according to the Chamber of Mines, “shall be made effective and transparent by setting clear timelines in the regulations and streamlining the process.”

The draft legislation could still be subject to changes, but will be presented to Kenya’s cabinet in the coming days, and could be fast-tracked through parliament within three months, Ms Gichuhi says.

Existing investors can expect the rules to apply to them, as well as newcomers. While previous local equity rules did not specify whether or not they applied to existing mining leases, the draft bill suggests giving all existing investors 18 months to comply with its requirements.

Interest in the country’s nascent sector has been growing over recent years following the discovery of reserves of gold, niobium and rare earth, which are expected to draw significant foreign investment.

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