ALARMING RESOURCE THEFT

Miners cash in as watchdog agency slumbers

Audit shows companies operate under minimum or no supervision

In Summary

• Firms abuse laws on royalties, dump poisonous chemicals with impunity.

• Department of Mining indicted for failure to monitor operations in sector.

Auditor General Edward Ouko
Auditor General Edward Ouko
Image: FILE

Mining companies are having a field day as the government agency tasked to monitor them snores away.

The firms are abusing laws regulating the payment of royalties, dumping of poisonous chemicals, CSR and skills transfer to locals.

The findings, in a bold performance audit report, paint an upsetting state for communities that expect government protection from the usually exploitative miners.

Auditor General Edward Ouko indicts the State Department of Mining (SDoM) for not monitoring the operations of the mining sector to the required standards.

Staff shortages at SDoM – including drivers, and lack of facilities to monitor mining operations among them weighing scales - has worsened the situation.

This, he says, has opened the door for illegalities, citing smelting operations as creating an avenue for the illegal sale of gold.

Operations of Kilimapesa Gold, Karebe Gold, Base Titanium and Tata Chemicals were studied as a representative sample of the 258 mining companies operating in Kenya.

In Karebe – operating in Nandi - the audit revealed that tailings generated after processing gold using mercury and cyanide were dumped in an open place.

During the review, there were no mechanisms in place to ensure that the harmful chemicals are not spread after heavy rains.

In Migori, locals accused Kilimapesa of dumping refuse containing cyanide and mercury into nearby water resources, causing livestock deaths.

SDoM relies on weights declared by mining companies, hence, cannot determine the quantities of minerals being exported – yet the same is used to compute royalties.

The auditor, after a review of operations of four companies, cited this as the reason the mining sector, with a potential of contributing 10 per cent to the GDP, is doing a measly one per cent.

SDoM is tasked with ensuring that mining companies adhere to provisions of the Mining Act, 2016, and licensing conditions.

The auditor queried why Tata Chemicals continued its operations despite failing to remit royalty on due dates.

Section 187 of the Mining Act says licences for non-compliant firms should be revoked within 60 days of their failure to remit royalties.

During the audit period, Tata was found to owe the government Sh16 million in royalties for financial years ending 2016 and 2017.

“There was minimal follow up from the department with regards to the arrears,” the auditor said in the report which showed that Base Titanium, Karebe, and Kilimapesa had paid due royalties of Sh1.2 billion.

Ouko further pokes holes on the payment, citing discrepancies on the amount paid by the firms and the data maintained by the Mining department.

Documentary review showed some companies paid royalties to counties contrary to the law requiring them to pay dues to the national government.

Further to this, the audit revealed that there inconsistencies in the timelines for payment of royalties by Karebe and Kilimapesa yet they extracted the same mineral.

The review revealed that Karebe paid royalties before export based on the quantity, level of purity and price of gold in the international market.

Kilimapesa, on the other hand, pays royalties based on the selling price of gold determined by the purchasing overseas company after export.

“SDoM is therefore not involved in the determination of the level of purity of gold, which is a major variable in the determination of the amount of royalties payable,” the report reads.

“There is a risk of mining companies colluding with the buyers to undervalue the mineral so as to pay less royalty to the government,” Ouko said.

Owing to this detachment, the auditor held that the Mining department is not in a position to advise the government on how much revenue is expected from the sector.

On matters staffing, the department was found to be lacking data on indicating the number of Kenyans employed by the mining companies.

This has seen the companies continue relying on expatriates, hence denying Kenyans an opportunity to work in the industry.

A number of the companies are also not linking with universities to offer course relevant to the sector as required by Section 47 of the Mining Act.