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Uganda’s mineral potential requires a clearer regulatory framework

25th Sep 2013 Filed under: Mining

Adapted from:

This interview was conducted as part of the research conducted on African mining jurisdictions by Global Business Reports (GBR) as part of our partnership with African Mining Indaba LLC. Denis Kusaasira, Managing Partner, represented ABMAK Associates in this interview.

Could you provide us with a brief overview of ABMAK Associates and its involvement in the mining sector?

DK: ABMAK Associates is a law firm specializing in natural resources and tax law. In Uganda we serve a number of companies engaged in the resource sector, and we service the Namekara vermiculite mine, the only operating mine in the country at the moment, which hosts the largest resource of vermiculite in the world. We also represent East African Mining, which is a subsidiary of East African Gold and is carrying out exploration in Karamoja in the northeast part of the country.

Karamoja has been neglected in its development, mainly because of problems between the Masai and Karamajong, but East African Gold holds over 2,500 square kilometers of licenses there. We also advise a Chinese company that is part of the consortium developing the Kilembe mines, and we work with a couple of local indigenous prospecting companies that serve as a link between junior exploration companies and the Ugandan mineral sector.

The issue of speculative tendencies and prospecting licenses is something we have seen emerge in Tanzania as they have raised rent fees and in Kenya as they have placed a moratorium on new mining licenses. As the mining policy here is currently under review, what is your perspective on the exploration climate and licensing regime in Uganda?

DK: There is a certain disconnect in Uganda between what the mining law says on paper and how it is carried out in practice. On paper, it is up to the commissioner to grant licenses on a ‘first come, first served’ basis to those companies which meet all the requirements set forth by the government. In practice, however, we are seeing a ‘first come, first considered’ basis where licenses are being granted to the first companies that peg the land, regardless of whether they meet requirements or not. This disconnect has caused a problem in how mining licenses are being awarded. We need to work on the perception that our mining sector is organized and that our laws are properly implemented.

At the moment, we also do not have the right people pursuing mineral rights. We have local entrepreneurs who are competing with each other for land rights without any real knowledge of how to develop them; they need to partner with junior exploration companies. Even if we address the mining laws and bridge the disconnect, there is only so much we can do if we do not have the right ears paying attention.

The licensing regime certainly needs work, but the exploration climate needs promotion. How can we expect attention if we do not market ourselves? The government has carried out geophysical surveys on over 80% of Ugandan land, which is another fact that remains under publicized. Uganda is not a country where grassroots mining operations have happened in the past; we are a young industry and need to market ourselves better.

What changes can we expect to see, and what changes do we need to see, as the mining law is put under review? Besides marketing itself better, how can Uganda encourage juniors to come here and take on the preliminary work that is needed?

DK: The national development plan in 2010 identified land allocation as a big problem. In addition to addressing the disconnect between the mining law on paper and in practice, we need to look at how the mineral sector is allocated land alongside other key sectors, and what the perception is in this regard. From the outside, the junior perspective is that any land that is identified as having mineral potential is automatically owned by the government. This is simply not true.

The mineral estate is severed from the land estate in Uganda; mineral-rich land does not belong to the government, but it does have to be acquired properly by the interested parties. From the inside, Uganda does not have a long mining history. For mining to displace other uses of the land—such as agriculture and human settlement—it has to prove its merit.

The economics must work out to everyone’s benefit. The rules regarding access and ownership of land and adequate compensation for land allotted to mining companies must be addressed as the mining policy is reviewed.

From a tax perspective, how does Uganda look to potential investors?

DK: We need to examine how competitive our tax regime is. In order to compete regionally with Kenya, Tanzania and Sudan, we have to structure our tax policy more favorably and provide better incentives for exploration. Exploration companies pay an 18% VAT on any services they contract. Since exploration companies in turn are not providing any services or supplying and goods, they are paying this VAT out of pocket and it becomes a cost that they cannot recover. If the government can relax VAT and other taxes during the exploration phase, then we can provide better incentives for juniors to operate in Uganda.

As a young mining jurisdiction, Uganda is seeing its share of growing pains. What is your opinion for the country’s medium-term outlook in the mineral sector?

DK: The mineral potential of Uganda is not in doubt. The boundaries between us and our mineral-wealthy neighbors are superficial; we lie on the same plate. In the short-term, we need to address the imbalance between land laws and mining laws and improve our tax regime. With the right marketing and proper attention to legal development, we can attract the attention of junior companies and take the industry to the next level.

This interview was conducted as part of the research conducted on African mining jurisdictions by Global Business Reports (GBR) as part of our partnership with African Mining Indaba LLC. The aim of this partnership is the production of the single most comprehensive intelligence report on the continent’s mineral sector. The Official Mining in Africa Country Investment Guide, will be launched next February 2014, as the only official publication providing country-specific information at Africa’s top mining event, the 2014 Investing in Africa Mining Indaba™ held in Cape Town, South Africa.