Plans are at an advanced stage to establish Kenya’s first Sovereign Wealth Fund to enable prudent management of revenue from mineral resources and open doorways for county governments to receive their share of royalties from mining activities.
A Sovereign Wealth Fund is intended for better collection, management and utilization of revenues generated from extraction of resources.
Mr. John Omenge, the Principal Secretary (PS) for the state Department for Mining in the Ministry of Petroleum and Mining, said the formation of the fund will define the modalities of how revenues will be shared between and among counties endowed with mining resources.
He added that the communities’ share of royalties will also be distributed accordingly once the Fund became operational.
Speaking in Kishushe area on Saturday, during a meeting with residents to address the rows over the iron ore mining by an investor, the PS said that the constitution and other laws defined the percentage of sharing of royalties. He however pointed out counties and communities have not received their share from mining revenues due to absence of a framework on how to distribute the royalties.
The proposed Sovereign Wealth Fund will have a comprehensive framework backed by law for sharing royalties among all stakeholders.
“The fund will open up avenues of how the monies from mining will go back to counties and communities in mining zones,” he explained.
The Mining Act stipulates that the national government receives 70 per cent of royalties from any mining activity. County governments receive 20 percent while communities living in the mining zones get 10 per cent. However, lack of a mechanism on sharing the money with devolved units has seen the national government holding on to the monies estimated to run into billions.
With the discovery of oil and other high-value minerals in the country, the government saw the need for a wealth sovereign fund that will guide how revenue from natural resources are ploughed back into the economy.
Currently, revenues from minerals in Kenya are paid under the Consolidated Fund and distributed during budgetary allocation. Consolidated Fund also receives monies from all other government sources of revenue.
Most countries endowed with minerals have set up such funds which are considered as strategic for economic growth. With anticipated discovery of more minerals and petroleum in Kenya, there are concerns that the county might generate revenue beyond its absorption capacity thus the need for such a Fund.
Monies from this Fund can be used to finance infrastructural project in addition to cushioning the economy against macro-economic shocks. The fund also is viewed as a necessary investment for future generations given that minerals are exhaustible and non-renewable resources.
On February 8 this year, the National Treasury released a draft policy for establishment of the Sovereign Wealth Fund highlighting the importance of the fund.Mr. Omenge said the Fund would be a big boost for mining sector in the country.
There has been complains by county government over the delay in disbursement of royalties by the National Treasury.
Last year, Deputy Governor Majala Mlagui said the county needed its share of revenue from mining activities for development. She added that the money would boost the revenue the county was already generating from local sources.
“The firms doing mining here have dutifully paid their dues to national government. We are expecting our share which is not coming,” said the deputy governor who was also in-charge of mining docket.
The PS remarks on Sovereign Fund come at a time mining activities are gathering pace in several counties. Kwale County is home for Base Titanium while Turkana is home to Tullow Oil which is drilling petroleum. Taita-Taveta County has Samruddha Resources which is mining iron ore at Kishushe in Wundanyi constituency.
In March this year, Samruddha directors disclosed that the company had paid royalties of sh36.5 million from mined iron ore to National Government. There are other firms doing gemstone mining in the region that are expected to have paid royalties to government.
The county is also expected to earn more royalties once Universal Resource International, firm mining manganese, starts large-scale extraction works at Mariwenyi area in Mwatate sub-county.