Opportunities for Counties to Benefit from Natural Resource Revenue

By Anastasia Wanjohi

Since the advent of devolution, county governments have formed expectations and even some have budgeted for revenues from natural resources, causing unnecessary tension between county governments and mining companies. It is important that these resources are shared appropriately between the national government, county governments and the communities where mining is taking place.

Natural resources revenues, which form part of the nationally raised revenue include proceeds from royalties (A royalty refers to the payment for the right to use property, (Article 12 of the United Nations Model Convention) and other levies from extractives as guided by the legal provisions in the Mining Act 2016, Petroleum Act 2019 and the Energy Act 2019. Article 69(1) of the Constitution obligates the government to ensure sustainable exploitation, utilization, management and conservation of the environment and natural resources, and ensure equitable sharing of the accruing benefits.

The largest component of revenues from natural resources comes from cement levy which is collected from cement companies on account of use of limestone as a key raw material. However, the government does not collect royalties from extraction of limestone and therefore, counties with limestone mining will not benefit unless a framework is developed to collect the royalty at source. There is therefore need to specify the quantum of royalties within the cement levy.

Despite the fact that the various Acts (Mining Act 2016, Petroleum Act 2019 and Energy Act, 2019) have clear sharing provisions between the national, counties and communities respectively, there is need for an appropriate mode of disbursing and distributing the share of natural resources revenues due to Counties and communities.

A task force (of which CRA is a member), was constituted by the National Treasury with an objective to consider and recommend modalities of sharing mineral royalty/natural resources revenues between the two levels of Government in line with the law and best international practices.

The task-force recommended the following as the most appropriate mode of disbursing and distributing the share of mineral royalty due to Counties and communities:

¨ That each financial year, the Ministry of Petroleum and Mining shall prepare and submit to the National Treasury forward estimates of mineral royalty collections and where possible, for the medium-term. The estimates will be used for purposes of budget preparation.;

¨ That each financial year, mineral royalties collected by the Ministry of Petroleum and Mining shall be forwarded to the National Treasury together with a schedule indicating:

¨ The County Governments from which the royalties were collected (where the specific mine is located); Minerals against which the payments were collected; and, amounts due to each County.

¨ That pursuant to section 130 of the PFM (National Government) Regulations, 2015, the schedule mentioned in 2 above be accompanied with written instructions from the Accounting Officer, Ministry of Petroleum and Mining, authorizing the National Treasury to transfer the royalties to respective County Revenue Fund (CRF) accounts;

¨ That in the financial year immediately following the one in which the royalties are collected (i.e., period t + 1), the National Treasury shall cause to be transferred from the Exchequer to respective County Revenue Fund  (CRF) accounts the amounts contained in the schedule received from the Ministry of Petroleum and Mining;

¨ Pursuant to section 17 of the PFM Act, 2012, the transfer of royalty payments to County Revenue Fund Account shall be done in accordance with a payment schedule prepared by the National Treasury in consultation with the Intergovernmental Budget and Economic Council (IBEC), with the approval of the Senate and published in the Gazette by the Cabinet Secretary;

¨ That in relation to sharing mineral royalties (10%) with communities, that the Ministry of Petroleum and Mining be tasked with formulating an appropriate framework, based on the existing Mining (Community Development Agreement) Regulations, 2017.

The Commission recommends that the National Treasury, the Ministry of Petroleum and Mining and Parliament expedite the enactment of the proposed funds flow framework for sharing natural resources revenues. The National Treasury should formulate procedures for receiving royalties into the Exchequer and disbursement of the same to the beneficiary counties and communities.

Ms Anastasia Wanjohi is the Natural Resources Manager in the Commission on Revenue Allocation (CRA)

This article first appeared in the CRA Newsletter for July-December, 2021. Download a copy of it here: https://cra.go.ke/…/CRA-Newsletter-July-December-2021.pdf\

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