Uganda: Mining Industry Experts Speak Out On State Participation Under New Bill of 2019

The Draft Minerals and Mining Bill 2019 proposes that in addition to being a regulator and guarantor of mineral rights, the State will become a participant in mining projects undertaken by private investors through a national mining company to be established under the Companies Act.

State participation by governments in mining projects is motivated by profit sharing or for non-economic reasons like nationalistic sentiments, pursuing technology transfer or exerting more direct control over project development.

Developing countries like Uganda are constantly engaged in a worldwide fierce competition for scarce capital to develop mineral sectors whose prospective geology, reasonable tax, acceptable legislation, and political stability determine their prospects to attract and repel investors.

Often, Irene Muloni, the then minister for energy and mineral development touted all the above while wooing prospective investors to the country and the legal and regulatory framework is being revised to attain the same.

Denis Kusaasira, a lawyer in mineral law and policy, and partner at ABMARK Associates argues that the fierce competition for scarce mining capital limits governments' freedom to enact any form of legislation or offer any contract and fiscal terms as they wish.

"Governments must find out what is happening in other countries and regions with similar circumstances. Knowledge of how such countries have fared with certain contract terms and fiscal regimes can shed light on the appropriateness of host countries' proposed laws, contracts, and fiscal terms," he argues in his analysis of the subject that runs in the Uganda Chamber of Mines and Petroleum Mineral Wealth Conference 2019 magazine.

He argues the provision of a National Mining Company is new in the bill and does not specify the level and form of State participation in any of its numerous forms as compared to other countries where the State has the right to exercise participation that is specified in the law.

Uganda is struggling to attract investments in the minerals sub-sector which is just getting back on its feet, but Don Binyina, another mining legislation expert says, we are not handling critical issues in the sector head-on.

"The State, which is the custodian of the minerals, hardly carries out any monitoring operations so the industry is overrun by quacks and conmen. Capital flight is prevalent as well, with foreign nations walking in and out of Uganda at will because regulation is lax," he says.

Kusaasira also notes that there is a risk in the bill that state participation may be retrospectively applied to exploration and mining leases issued prior to coming into force of the new law. It also does not stipulate at what level state participation will take place, whether during exploration or actual mining. This would consequently result in an unpredictable and unfair law, making Uganda uncompetitive for investors.

Henry Luwemba, a senior auditor in the Office of the Auditor-General and a member of the Working Group on Audit of Extractive Industries (WGEI) however argues that there is a steady increase in state participation in the mining sector around the world.

He cites examples like Kenya's new Mining Act 2016 that provides for a national mining corporation as the investment arm of government in the sector and Tanzania's new mining law that has a number of interventions to ensure state control including a Mining Commission to supervise and regulate among others; geological survey, mapping and data collection; Gem and the Minerals Warehouse for central custody of all metallic minerals and gemstones by mineral rights holders.

Luwemba makes a case for state participation arguing that it will enhance the country's commercial management of developments of its mineral resources. "There is a strong correlation between the need to nationalize and control the price of minerals. When the metal or mineral prices are high, the need to nationalize the mineral sector is fever-pitch and vice versa. Demand for minerals has also increased which has raised further national interest in the industry," he writes on www.wgei.org.

He argues that state participation would also ensure knowledge transfer to nationals that would be used to further develop the industry in case the international companies walked out or production stopped.

He cites countries like Botswana and Namibia that have had success stories of national mining companies. He however cautions that there is need for skill development for Uganda to acquire a National Mining Company whose objectives and mandate should be well laid out in the legislation.

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