BY LYDIAH WERE
The battle for billions of titanium revenues in Kwale has heightened, with the county government staking a claim to the mineral through a new levy that has touched off a storm. In May the county passed the Finance Act, which imposed a mining levy of Sh5, 000 for every tonne of titanium exported.
Just a few days after the gazettement of the Finance Act, Base Resources, the company licensed to mine titanium in the region, received a Sh378 million invoice from the Kwale county government for “titanium cess”. The company perhaps thought the government was pulling its leg.
So when it recently sent a new invoice with an updated figure of Sh500 million, it dawned on the managers that the county government led by Governor Salim Mvurya was serious about getting a cut of the titanium pie. Base Resources has flatly opposed the move, arguing that it goes against the law and contractual agreements with the national government.
It cites Article 62 of the Constitution, which vests the administration of minerals under the national government and thus raises questions over the legality of the cess that the county government has imposed. It has since sought the intervention of the Transition Authority, which directed the county government to suspend the levy.
The chairman of the Transition Authority (TA), Mr Kinuthia Wamwangi, said the Constitution does not list mining as a county function, and the levy was therefore, unconstitutional.
“The Constitution is the supreme law and binds all persons and state organs at both levels of government. No person may claim or exercise state authority except in accordance to the Constitution,” said Mr Wamwangi in a letter to the governor Mvurya.
Tension has been brewing in the county over Base Resource’s opposition to the new levy. Demonstrations have been planned to intimidate the company into yielding to the government’s demands. Base Resources said the purported levy has been imposed on exports of ilmenite and rutile from the company’s Kwale Mineral Sands Project.
“Base disputes the constitutional validity of the levy and is currently working with the Kwale County and the national government to rectify this matter by having the invoice withdrawn and the levy repealed,” the company said in a press statement.
It reiterated that all rights to manage and administer minerals were held by the national government. “Base is confident that this matter will be resolved shortly. However, in the event that the Kwale county government invoice is not withdrawn or the levy is not repealed in a timely manner, Base will assess its options further, including taking the necessary legal action to have the levy declared unconstitutional and therefore void,” it said.
There are strong indications that the matter could end up in court. This will certainly disrupt mining activities in Kwale and poison the relationship between the county government and Base Resources.
In fact, under Part IV of the Public Finance Management Act, Section 161 provides that the county shall ensure that the tax or measure conforms to Article 209(5) of the Constitution and any other legislation and shall seek views of the Treasury Cabinet Secretary and the Commission on Revenue Allocation (CRA) before executing them. This procedure was not followed by the county leadership, according to the Transition Authority.
Challenging the legality appears to be the only option for Base Resources to deflect these overtures. If the county government has its way, it will be a major blow to Base Resources, as the levy will gnaw away a huge chunk of its revenues every time it exports titanium.
Counties have lately been on the spot over illegal levies they have introduced to raise revenues, and which have been termed as non-tariff-barriers (NTBs) in the region. A similar tactic has been used by the Mombasa County government in its own Finance Act by introducing cess on “undefined products entering the county”. This contravenes Article 209 of the Constitution, which states that “the taxation and other revenue-raising powers of a county shall not be exercised in a way that prejudices national economic policies, economic activities across county boundaries or the national mobility of goods, services, capital or labour.”
National, community and investors interests form the strategic triangle that determines the success or failure of mining enterprises. Each has his own set of interests, but, to be truly successful, these interests must be balanced and harmonised, investment experts say.
“In order that each stakeholder gets what it requires, the key success factors for each interest group are identified and defined. Only when these interests are balanced will a country’s minerals sector have a chance to grow and succeed. Conversely, without a careful balancing of stakeholder imperatives, the sector will be stillborn,” according to a brief prepared by Base Resources.
Given the sensitivities associated with land use, the often isolated and underdeveloped locations of mineral deposits and their non-renewable nature, it is imperative that the State and the people receive a fair return from the extraction of its mineral endowment.
Some key benefits that governments seek from their mineral resources include revenue from royalties and taxation, economic growth and development and foreign direct investment. Mining FDI combined with increased foreign exchange earnings from exports can be a catalyst for improving credit ratings and attracting long-term loans.
Local direct investment is important to encourage local participation in the minerals sector, while export earnings assist in closing the balance of payments gap.
Community development and poverty reduction benefits local communities through trade, employment opportunities for local workers and technology and skills transfer.
