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Daily Nation : February 15th 2014
SATURDAY NATION February 15, 2014 45 BUSINESS The government tried to raise royalties Australian firm should pay to 10pc from 2.5pc before awarding export licence in vain BY JOSHUA MASINDE @masindej email@example.com bargained for even as Base Titanium started exporting minerals from Kenya on Thursday. How much royalty Base Titanium should pay remains unclear. The Special Mining Lease Q The 2.5 per cent royalties are a legally binding commitment and disregarding this would set an unfortunate precedent with significant implications for both Base and the government” Base Titanium CEO Tim Carstens (SML) issued to the company in 2004 notes that Base Titanium is to pay 2.5 per cent of the gross revenue of the minerals sold to the market. The government, in a letter to the company, contested an earlier agreement in what appeared to be a contravention of a contract signed nearly 10 years ago, paving the way for development of the Kwale mineral sands project. The Australian miner has so far invested Sh30 billion in the project. In the letter seen by the Na- tion, the Mining ministry told Base Titanium that it is now a requirement that all mining deals should get Parliament nod before being executed. The letter also noted that the constitutional requirement of equitable share of returns between the national and county governments and the local communities necessitated raising of royalty payable by Base to at least 5 per cent. “It is against this backdrop that the government feels obliged to raise the rate of royalty from the minimum rate prescribed in the SML in order to allow for the said sharing,” the letter stated in part. The government was ap- uestions are still lingering on whether the government got what it EABL CONTEMPLATES CLOSING SENATOR KEG BEER BUSINESS Sky-high taxes have eroded commercial viability of low cost alcohol arm. Page 47 PENALTY | Any delay in awarding export permit would have meant payment of Sh1.3m daily in demurrage fees Questions still linger on royalties Kenya will get in titanium export New Isuzu pick-up model is launched BY NATION REPORTER General Motors East Africa has launched a new model of Isuzu DMax pick-up in the highly competitive commercial segment. General manager Rita Kavashe said the pick-up is suitable as a work-horse and for leisure. Sales of commercial and public transport vehicles such as pick-ups, trucks and buses account for 40 per cent of new sales. There have been new entrants in the trade from Toyota through its Hino brand and Foton but it is still dominated by established players such as CMC, General Motors, Simba Colt and DT Dobie. The 4x4 Isuzu double cabin will LABAN WALLOGA | NATION Mining cabinet secretary Najib Balala (left) meets Australian ambassador to Kenya, Mr Geoff Toot, at Base Titanium jetty in Likoni to officially flag off export of the first 25,000 tonnes of Ilmenite to China. parently trying to enforce this requirement before awarding an export licence to Base Titanium to ship 25,000 tonnes of Ilmenite to a client in China. Mining cabinet secretary Najib Balala met Base Titanium officials in Cape Town, South Africa on February 5 for export permit talks. The company anticipated being given the licence without having to agree on the increase in royalty fees. The government’s stand was that the royalty should be raised to 10 per cent from 2.5 per cent before the award of an export licence. Base contested this. “I reiterated the legal position that the 2.5 per cent royalties are a legally binding commitment and that disregarding this would set an unfortunate precedent with significant implications for both Base and the government,” Base Titanium CEO Tim Carstens told Mr Balala in a letter dated February 7, 2014. The 2.5 per cent royalty as set out in the SML only applies for the first five years of business, after which the company and the government can review the rate. Going by the current mineral prices, 2.5 per cent royalty translates to about Sh340 million in revenue per year. The firm had indicated that it would spend a similar amount on community projects in the mineral-rich area. “I requested that this com- munity development spend be considered by you as an effective additional 2.5 per cent voluntary royalty when you are considering your position in relation to Sh340m Amount Kenya would get per year going by current mineral prices and 2.5pc royalty. BY NATION CORRESPONDENT KenGen has unveiled one of the largest geo- thermal well in the history of exploitation with a potential to generate 30 megawatts of electricity, enough to supply power to half of Nakuru town. The three kilometre-deep well is located at Olka- ria IV field and it took 46 days to complete. “This is the largest well to be tested since we started opening up Olkaria fields in 1956. The well can supply twice the requirements of Naivasha town or half of Nakuru town,” said Albert Mugo, Kenya Electricity Generating Company Limited (KenGen) managing director while touring the fields on Thursday. “Getting 30MW from one well will accelerate our plans to add more geothermal power in the national grid,” he added. Considered to be Africa’s biggest, the previous well to come closer had a production capacity of 18MW. But this at 30MW is among the largest, coming second to two other wells, Indonesia (40MW) and US’s Imperial Valley at 45MW. At US7 cents a kilowatt hour, geothermal is considered the second cheapest to hydro’s US5 granting our export permit,” Mr Carstens wrote to Mr Balala. If the royalty had been set at 5 per cent, Kenya would get Sh680 million annually and Sh1.36 billion per year if set at 10 per cent. Demurrage fees The company was, however, awarded an export licence a day before the scheduled loading of Ilmenite on MV African Eagle on Thursday, February 13. Any delay would have meant payment of Sh1.3 million ($15,000) daily in demurrage fees according to a senior official. For the first 25,000 tonnes ex- ported, Base Titanium will pay 2.5 per cent royalty. A copy of the invoice indicates that each tonne of Ilmenite will go for Sh15,910 ($185). A total of 25,000 tonnes would be shipped out, bringing the total sales to Sh397.8 million. Royalties will be paid within 90 days of export. KenGen unveils huge 30MW geothermal well cents per kwh. This is nearly five times lower than diesel engines which cost US36 cents per unit of power. “This is significant by KenGen to help realise the government’s goal of 5,000MW in the next 32 months,” Mr Mugo said. Through an ambitious geothermal power production programme, KenGen seeks to commission 280MW units of the geothermal power by September this year. Another 20MW of wind and hydro (24MW) are also planned under the clean energy drive to be scaled up to 744MW in the next three years. retail at Sh4.5 million while the 4x2 single cabin will go for Sh2.5 million. Data from the Kenya Motor Industry show vehicle sales last year grew 13.1 per cent to 14,542 units, surpassing the previous peak of 13,135 vehicles recorded in 2008. GM remained the top dealer with a 27 per cent stake ahead of Toyota (24 per cent), Simba (15 per cent), DT Dobie (13 per cent) and CMC with 7 per cent. Farmers hit as diesel price goes up in review BY NATION REPORTER Kerosene consumers got a re- prieve yesterday when the Energy Regulatory Commission slashed the price of the fuel by Sh2 per litre. However, this being the planting season, farmers will be hit as the regulator increased the price of super petrol and diesel in Nairobi by Sh0.96 and Sh1.07 respectively. The ERC attributed the price increase to a mixed behaviour in the average price of crude oil in the global markets and the value of the shilling against the dollar. “The price of murban crude oil posted a decrease of 3.6 per cent in January from $113.85 in December. Over the same period, the mean monthly exchange rate deteriorated marginally by 0.02 per cent,” said ERC in a statement. Kenya has discovered oil but the ministry of Energy is yet to announce commercial viability of the find. If Kenya joins the league of oil producers, consumers expect to be relieved of high fuel costs.
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