Kenya: Recent Developments In Mining Law

Last Updated: 17 July 2013
Article by Ken Kamaitha

On 12 October 2012, the Minister for Environment and Mineral Resources promulgated The Mining (Local Equity Participation) Regulations, 2012 under the Mining Act which essentially sought to introduce mandatory equity participation of Kenyan citizens in the mining sector.

The operative provision of the Regulations states that "It shall be a condition of every mining licence that the mineral right in respect of which the licence is issued shall have a component of local equity participation amounting to at least thirty five per cent (35%) of the mineral right." The Regulations define "local equity" as the share of interest in a mining right which should be held by a citizen of Kenya.

The Regulations are poorly drafted. For instance, it is not clear what the terms "mineral right" or "mining right" refer to as these have no specific meaning under Kenyan law. It is also not clear what is referred to in the Regulations as a "mining licence" as the Mining Act only provides for grant of prospecting rights, exclusive prospecting licences, registered locations and mining leases.

However, if these are to be construed as the "mining licences" referred to in the Regulations, there are inconsistencies with the provisions of the Mining Act that would impede the implementation of the Regulations from a legal perspective.

First, with regard to prospecting rights and exclusive prospecting licences - according to the Act - any minerals obtained pursuant to prospecting rights or exclusive prospecting licences would be the property of the Government and accordingly there would be no "mineral right" or "mining right" to which the Regulations could apply.

Secondly, with regard to registered locations or mining leases, the Act provides that holders of mining leases or registered locations will have exclusive rights to prospect/mine and therefore to the extent that the Regulations have the effect of depriving existing holders of registered locations or mining leases of such exclusivity, the Regulations would be inconsistent with its enabling legislation (the Mining Act) and in our view, void.

There has also been uncertainty on the possible retroactive effect of the Regulations with respect to "mining licences" issued before the Regulations came into force. Under Kenyan law, unless specifically stated, legislation in general is presumed not to have retroactive effect.

The Regulations do not include any language making them retroactive and we therefore do not think that they would apply to "mining licences" in existence before the Regulations were made.

We understand that the Attorney General has recently confirmed this position in advice provided to Base Titanium Limited, one of the affected investors who have been seeking clarification on the application of the regulation to its existing Special Mining Licence.

We would add that there are Constitutional restraints on retroactive legislation, particularly where the retroactive application seeks to deprive a person of property rights and insofar as the Regulations have the effect of depriving existing holders of "mining licences" of their exclusive rights, we would consider the Regulations to be contrary to the Constitution and therefore void.

We are not aware of any steps taken to seek judicial guidance on the application of the Regulations. However, as the drafting of the Regulations is so poor, it is it difficult to say with any certainty how a Kenyan court would apply them in any particular circumstance.

We also consider that the Regulations may be open to challenge

for other reasons. Section 92(1)(ix) of the Mining Act which grants the Minister power to prescribe regulations only empowers the Minister to prescribe the applicable "working and any other conditions" of licences, locations and mining leases. Applying the usual rules of interpretation, we consider the power of the Minister in this regard to extend to only prescribing working conditions and other conditions of the same nature. We do not consider that equity participation is of the same nature as working conditions. Accordingly, it can be argued that the Regulations are also void on the grounds that they are beyond the powers of the Minister (ultra vires) under the Act.

At the same time, there have been consultations among stakeholders and the Government on a new Bill for the mining sector which is intended to replace the current Mining Act. However, the draft Bill was not presented for debate before expiry of the term of Parliament and it is expected that the Bill will be introduced in Parliament after the General Elections in March 2013.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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