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State Participation in the Mining Industry in Uganda

In Uganda Minerals are owned by the state in trust for the people of Uganda as stated in the Mining Act 2003. However, there is no requirement for state participation nor to have a company or corporation that can hold the commercial interests of the state in the mining industry.

Bearing in mind the mineral sector contributed as much as 30% of Uganda’s GDP in the early 1950s in comparison to the current situation where it only contributes less than 1%, there is need to come up with catalysts that can stimulate the development of this once captivating Industry

In the petroleum sector, the need for the formation of national companies arose from the importance accorded to petroleum.  Petroleum was seen as such an important commodity that government control was deemed a necessity. State participation in the mining sector has not had the same verve as in the petroleum sector. However there is steady increase in state control around the world.

Initially countries were comfortable with legislation and regulations. This however seems to be changing-atleast in East Africa where the new mining act 2016 in Kenya requires that a national mining corporation is put in place. The purpose of the corporation is to be the investment arm of the government in the mining sector. The functions of this corporation includes but are not limited to; engaging in mineral prospecting and mining, investing on behalf of the national government, acquiring by agreement or holding interests in any undertaking, enterprise or project associated with the exploration, prospecting and mining among others.

Tanzania’s new mining bill has a number of mechanisms the government has come up with in the mining sector these include the Ministry, a Mining Commission (supervision and regulation), the Geological Surveys of Tanzania (Geological mapping, data collection) Gem and Minerals Houses, The Government Minerals Warehouse (central custodian of all metallic mineral and gemstones won by mineral right holders in Tanzania). All interventions made to ensure adequate state control.

 

Through these recent interventions, Kenya and Tanzania are ensuring more control in the mining sector. In order to effectively talk about state involvement in the mining industry, it is important to determine two concepts; ownership and control. Ownership is determined by the fact that the minerals are owned by the citizens.  Does ownership tantamount to control? Is the setting of effective regulation and monitoring adequate control?

There is a strong correlation between the need to nationalize and the price of the minerals. When the metal process or mineral prices are high, the need to nationalize the mineral sector is fever pitch. When the prices drop, the interest in nationalization reduces as well. Demand for minerals has also increased. This has raised further national interest in the mining industry.

 

While it is easy to form a national petroleum company due to the fact that petroleum is a homogenous substance, this is not the same with the mining companies.  Minerals are varied in nature and as a result, there is a need to have different technologies for the different minerals in terms of extraction.

 

The case for a national mining company in Uganda is as follows

 

Currently, the Directorate of Geological Surveys and Mines undertakes regulation in the mining sector. The commercial aspects are left to the miners i.e. they can look for the market and undertake their own mineral processing. The closest Uganda has to a national mining company is Kilembe Mines Limited. - A company currently undertaking care and maintenance of the vast Kilembe Mine complex.

 

In Uganda, the National Mining Company would go a great extent in developing national, social economic and political objectives. However, balancing the commercial and noncommercial aspects is normally the most difficult part of any national enterprise-this does not mean that it cannot be achieved.  Section 18 of the Mining Act 2003 allows for the development of a mineral agreement. However, this seems to be an option rather than a requirement. Currently there is no model mineral agreement that Uganda could follow or apply.

 

For any mineral agreement signed, there should be a requirement for state participation in the commercial management and development of its mineral resources. This will not only ensure sharing of knowledge and technology but it will be necessary when the International companies walk out or stop production. It is a characteristic of the extractive industries that if for any reason the production companies can no longer make the required profits, they close shop even if the petroleum or mineral resources are still in the ground.

 

The technical know-how developed by the National Mining Company will be able to be used for continued development of the industry. Furthermore, this will provide an opportunity for the state to directly spur development in the sector through its direct participation.

While state participation does not necessarily lead to a spur or development in the sector, the stage in which Uganda mining industry is, state participation is welcome.

 

In order to effect state participation, it is imperative for adequate financing to be provided.

For example a number of agreements could require that the interest of the state is carried up until that time when the state is ready or up till production. In that way the carried interest is recouped during production. Additional mechanisms can be provided which mechanisms are intended to ensure that the state benefits from the mining industry. These will not be discussed further in the paper.

 

Furthermore, it would be prudent for the government to establish if it wishes to acquire the right for exploration only, refining/ beneficiation or for both these activities. Some states prefer to only get involved in the refining and beneficiation and not venture into the highly risky exploration stage.

There is a further need for priotisation. The government could choose what minerals it should best invest in on order to priotise its involvement. Uganda is endowed with more than 20 mineral capable of providing adequate economic returns for all involved.

 

 

Conclusion

As Uganda’s mining Industry is in what should be considered a ‘budding’ stage. The need to introduce a National Corporation/Company should be undertaken specifically to ensure that the commercial interests of the state are effectively managed.

There are countries where national Mining Companies have had a successful “union with privately owned companies as is the case for Botswana and Namibia with companies appropriately names Debswana and Namdeb. This could be easy in a way that they both trade in only one commodity-diamond. It is however necessary for skill development for Uganda to acquire a National Mining Company/Corporation. Its objectives and mandate should be well laid out in legislation. Direct state participation might be a much needed firip in Uganda’s Mining Sector.

 

 

Luwemba Henry Kasule

Senior Auditor

Office of the Auditor General

                       

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Saturday, 15 December 2018
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