Online system disregard exposes ministry to revenue loss - Beaking Kenya News

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Sunday, 1 December 2019

Online system disregard exposes ministry to revenue loss

Stakeholders in the mining industry have blamed massive graft, mismanagement and bypassing of an elaborate online system for the loss of billions of shillings in potential revenue.
This comes as the Kenya Chamber of Mines warns that if President Uhuru Kenyatta does not intervene urgently to address the challenges bedevilling the industry, it might be too late to save the sector.
“Things are not moving well. This might be the worst situation that the mining industry has found itself in since independence,” Moses Njeru, the CEO of the Kenya Chamber of Mines told the Sunday Nation.
The stakeholders are citing delayed issuance of mineral dealers’ licences, bypassing of an automated system aimed at sealing gaps and general lethargy at the ministry.
Infighting among the ministry’s top brass has almost crippled the operations of the Ministry of Petroleum and Mining.
Senior ministry officials who confided in the Sunday Nation said that Cabinet Secretary John Munyes is largely unavailable and rarely addresses pressing office matters.
“His phone is most of the times switched off or he doesn’t pick phone calls or reply to text messages,” a senior ministry official who sought anonymity said.
The Director of Mines, one of the most important officers in the department, has also been acting for the past three years, further affecting operations in the sector.
For the past three months, we have unsuccessfully sought responses from Mr Munyes and the Principal Secretary in charge of Mining, Mr John Omenge, over issues bedevilling the ministry.
The ministry’s communication department also failed to address issues raised.
Key among the concerns is that the country could be losing billions of shillings annually in illicit financial outflows as government officers and mining companies deliberately sidestep an online mining management system that was meant to arrest graft.
The online mining management system, which has now been rendered useless, was procured at a cost of Sh60 million to deal with issues of manual and undocumented operations.
The online management system, known as the Mining Cadastre Administration System (MCAS), a web-based software application, was launched in February 2015 to enable the government to regulate and obtain value from mining operations.
The system formally records all applications for various types of licences and issues titles for them, registers all changes to the titles and checks against overlapping with existing claims or other impediments.
It also initiates the procedures for modifying or cancelling a licence if needed, maintains a register and a map of the licences as a technical reference in case of dispute and facilitates submission of statutory fees for licences.
“The goal of this Mining Cadastre Portal is to provide an electronic platform for all stakeholders in the mining sector in Kenya to engage directly with the Ministry of Mining,” the ministry says in its website.
Despite the investment in the online system, senior ministry officials have gone back to using the manual system, which has been cited as the main culprit in circumventing follow-up for correct licensing procedures during the issuance of licences for mining activities.
Insiders say that the manual system facilitates fraudulent schemes aimed at avoiding tax payments and false export declarations, a scheme through which miners and government officials defraud the country of billions of shillings in tax revenue.
Due to the chaotic nature of the mining and prospecting licensing regime, it is estimated that up to 60 per cent of proceeds from minerals exported from Kenya are not declared, insiders said.
Mr Munyes and Mr Omenge are blamed for giving out illegal verbal orders or letters allowing prospective miners to join the trade or extending terms for those whose licences have expired.
In some of the documents in our possession, in June, Mr Munyes bypassed the Mining Cadastre Administration System (MCAS) when he unprocedurally allowed a company called Ready Consultants Ltd the use of gold tailings in Nyatike through a letter Ref: MOM/CR/15/42.
“ … This office is in receipt of your letter dated June 14, 2019 requesting the use of tailings in the old Macalder Mines, located in Nyatike, Migori County. Your request had earlier been approved vide a letter dated May 16, 2019 and you can continue operations as earlier authorised,” wrote the CS.
Ordinarily, Ready Consultants should have logged onto the Cadastre online system to make the application instead of request by writing to the CS.
The mechanics of the Cadastre system, now embroiled in controversy, are quite simple.
It is designed such that details of all minerals mined in Kenya are captured at the time of export and then tracked along the supply chain.
This way, the ministry and by extension the KRA has an insight into a miner’s inventory and is able to identify the point(s) of revenue loss in case of any.
It was launched in line with the World Trade Organisation’s requirement for simplification and harmonisation of international trade procedures.
Besides helping with licensing procedures, it also involves submitting export or import documents into a single-window system and is projected to reduce clearing time significantly.
The automated valuation-benchmarking feature is designed to enable the ministry to use inbuilt values to interrogate declarations that fall outside tolerable limits.
This substantially addresses the problem of cargo undervaluation, which is a major source of revenue leakage.
Experts say the system has interactive capabilities that can help eliminate redundant processes and automate all manual processes currently employed at the Ministry of Petroleum and Mining.
In the Cadastre, traders are required to submit manifests for both imports and exports and should allow the Kenya Revenue Authority to track minerals being exported or imported into the country.
The intention behind the implementation of Cadastre was that it would increase the mining sector’s contribution to state revenue.
This made sense. So far, government income from the industry has been below its potential.
The 2019 Kenya Year Book puts Kenya’s revenue from mines in 2017 at Sh23.8 billion.
“Revenues from mining grew 2.1 per cent to Sh23.8 billion in 2017, but Kenya has yet to come close to exploiting its full potential in this sector,” the book points out.
Worryingly, about 50 per cent of mining revenue comes from only the titanium mines in Kwale, despite the country having deposits of oil, gas, rare earth metals, coal, iron ore, gold, limestone, gypsum, soda ash, gemstones, manganese ore, fluorspar, diatomite, titanium, zircon, chromite, niobium and silica sand.
Not long ago, CortecMining Kenya Limited announced that Mrima Hills in Kwale County has one of the largest rare earth mineral deposits in the world with a potential in-ground value of up to $62.4 billion.
The United Nations Development Fund (UNDP) estimates that there were about 250,000 artisanal miners in Kenya in 2017, a figure it reckons has grown.
Artisanal mining refers to small-scale as well as medium and large-scale mining that may be illegal or legal, formal or informal.
Artisanal mining accounts for over 60 per cent of annual gemstone production in Kenya.
But according to records at the Mining ministry, none of Kenya’s artisanal miners is licensed – a pointer to underutilisation of the Cadastre system, through which the miners are supposed to be profiled for tax purposes and to apply for operating licences.
Due to lack of financial capital, most artisanal miners work under some ‘landlord’, who supplies them with the much-needed food, water and shelter and whatever mineral they recover is shared out, with the landlord taking the lion’s share.
The desperate circumstances they work in make them easy targets for exploitation by predatory middlemen or brokers.
A good example of misuse of resources can be found in Migori County, where up to 60 companies operate as miners, yet only five are licensed.
Those operating illegally have cited a verbal moratorium issued by Mr Omenge in December 2018, allowing them to operate without licences.
Rather than unlocking Kenya’s massive resource potential, the inability of ministry officials to use Cadastre now underscores the deterrents to investment, from crippling neglect to bureaucracy and corruption that can only thrive with the massive paperwork system that ministry officials are unwilling to let go of.
For the experts, the reluctance by ministry officials to implement the use of Cadastre to manage all mining activities in the country could be deliberate to further the culture of secrecy and non-documentation of records, which has enabled companies with interests in mining to exploit Kenyans.

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