How mining entities cheat Ugandans out of royalties

Mining companies have for long been taking advantage of Uganda’s weak regulatory environment to dodge paying full royalties to deserving local communities, affected local governments have revealed. 

It is estimated that even as they duck from paying royalties, these companies are quietly pocketing billions of shillings considering their collective contribution to the country’s Gross Domestic Product (GDP), which stood at an eye-watering Shs2.626 trillion in 2020/2021. 

The Uganda Extractives Industries Transparency Initiative places the value of revenue realised by the government from the extractives sector at Shs241.35 billion, accounting for 0.6 percent of the total domestic revenues in the same period. 

While the national statistics may appear attractive, the interests of mining-affected communities across the country are reportedly being ignored, resulting in community-investor wrangles. 
A recent investigation by this newspaper found that since the country’s legal framework on mining did not provide clear mechanisms for community engagement or finding consensus, communities were not benefitting from royalties as warranted by law. 

Mr Henry Damba, the chief administrative officer of Buhweju District, says: “We have not been getting royalties from mining activities in Buhweju and the problem has been declaration. Those who are doing the mining do not declare [the proceeds].”

He is now pushing for the regularisation of ownership because “most of the activities are informal and it has been very difficult to know that this gold is from Buhweju District or any other place”.

The official complains about a lack of clarity on the ground about who owns what. 
“People who are mining have exploration licenses yet on the ground, they are doing real/actual mining when you look at the volume of what is extracted. We are engaging the ministry about this as well,” he says.

No tangible rewards
If the sector was properly regulated, Buhweju would be raking in high revenues in royalties. Mining activities are carried out in the sub-counties of Engaju, Bihanga, Bisitya, and Nsika Town Council by five companies. They include Buhweju United Mining Co Ltd; Wagagai Co Ltd, Shining Mining Co Ltd, FEA Asian Co Ltd, and West Peak Mining Co Ltd.

“The district is losing too much yet royalties would help us in improving service delivery. We do not even know how much because we cannot know how much gold is mined. This is purely the work of the Ministry of Energy to do a mineral inspection,” Mr Damba says. 

Whereas Uganda’s extractives industry is growing exponentially and attracting both foreign and domestic investors, Advocates for Natural Resources and Development (ANARDE), a non-governmental organisation, says too often, mineral-rich communities fail to benefit.

Recently, ANARDE published a report in which it detailed how community development agreements signed between the mining companies, government and communities turned out to be non-binding.

Such an agreement is supposed to be a legal arrangement between the investors and the host communities through which to enhance community welfare and equitable revenue-sharing. Once signed, it should also ideally help the community to decide where royalties can best be invested. 
Instead, says the ANARDE report, “most dealings are only voluntary or optional arrangements and are treated as corporate social responsibility or certification requirements rather than obligations”. 

In Kisoro, the district chairman, Mr Abel Bizimana, says his district has not received any money in form of royalties from the central government for nearly a decade. 

“We have gold, tin, iron ore and wolfram. I do not know the companies involved in mining these minerals in my district because it is the central government that gives them a license to operate. For the last eight years, my district has never received royalties,” Mr Bizimana says.

Like other local leaders, Mr Bizimana proposes that for the local governments to get their rightful share of the local mineral wealth, they should be involved in licensing.

“By giving mining licenses to the miners without engaging local authorities, it will remain a big problem as it is looked at as the central government smuggling minerals from the local governments,” Mr Bizimana adds.

In neighbouring Kanungu, his counterpart, Mr Sam Arineitwe Kajojo, has a similar experience and says they are “engaging the government to establish an iron ore processing plant so that our people can get direct employment besides getting taxes and royalties from the investors”.

Silver lining
In Rubanda District, authorities say it is only investors in the wolfram extraction business who have started paying royalties, even though the amounts are negligible. 

Mr Stephen Ampeire Kasyaba, the district chairman, says K13R Mineral Co Ltd has paid Shs12 million to Rubanda District as royalties.

“Although the amount paid seems to be little compared to the wolfram mineral deposits we have, the company has promised to increase it, besides promising to give us money to buy fuel for the periodic maintenance of the roads leading to Nyamuriro mines where they operate from,” he said.

But amid all the gloom, in Buhara Sub-county, Kabale District where Sino Minerals Investment Ltd is digging out and processing iron ore, the local chairman, Mr Joseph Baryamujura, says the people are gaining a lot.

“The price of land, especially where the iron ore deposits are located, has appreciated. In 2012, before Sino Minerals Investment Ltd started mining the iron ore, an acre of land was Shs300,000 but in 2019, it increased to over Shs10 million, and currently is at Shs45 million,” he said.
Under the corporate social responsibility arrangement, Sino Minerals Investment Ltd has built a two-classroom block at Kinjonjo Primary School. 

It has supplied medical equipment to Buhara health centre III worth Shs45 million and also offers periodic maintenance services for Rwakihirwa-Buhara-Habutare road (10km),” Mr Baryamujura said.

The company’s operations manager, Mr Brian Munanura, also says they employ about 300 locals as casual, technical workers and truck drivers “and spends approximately Shs50 million per day in paying for their services.”

Government efforts
In December 2021, the Energy ministry launched Artisanal and Smallscale Miners (ASM) bio-metric registration to streamline operational inconsistencies, including royalty payments and revenue collection.

The ministry says government is reviewing a minerals revenue strategy (royalty-tax regime) to ensure optimal benefits for all and profit-sharing across the value chain for both the investor and the country.

“The proposed initiatives may include production sharing, state-equity participation or a levy-tax structure. Other initiatives shall include zoning ASM areas, formalisation and regularisation, training and provision of extension services,” Ms Ruth Nankabirwa, the Energy minister, said in a statement recently.

The Mining and Mineral Act, 2022, which came into force on October 28, 2022, puts into practice bits of Uganda’s mining and mineral policy drafted in 2018, the minister says.

“The new law is expected to address critical challenges and increase revenue from the mineral sector. It introduces a comprehensive, stable, transparent, efficient and effective legal and regulatory framework...”

It provides for competitive bidding for licenses; exploration for geothermal resources and their direct uses, and also establishes mineral production sharing, local content, international treaties’ domestication and ASM regulation, she adds.

Rough around the edges
Ultimately, the law formalises Community Development Agreements as part of the mining industry architecture. It is hoped that this will lead to more intentional local community development.

Previously, most of these agreements were often non-binding or merely memoranda of understanding that are not legally binding, often unplanned and lacked transparency since they varied from project to project, with little means of enforcement.

Furthermore, it provides for the formalisation of ASM through licensing and regulation while ring-fencing specific areas for this sub-sector.

The new regulations are timely as the country’s mining potential rapidly grows. For example, new and huge gold deposits have been identified in Buhweju, Mubende, Namayingo, Karamoja, and Zombo districts. 

Wagagai Mining Limited is a large-scale gold project established in Busia, eastern Uganda, scheduled for commissioning in December. Exploration work by Wagagai confirmed 30 million tonnes of gold ore in a greenstone belt in Busia. 

More than 500 million tonnes of Rare Earth Elements have also been confirmed in near-eastern Uganda by the Makuutu Rare Earth Project. Known reserves of high-quality vermiculite at Namekhara in Manafwa district have subsequently increased from five million tonnes to the current 54.9 million tonnes.

Disturbing scenario

Section 98(1) of the Mining Act, 2003 states, with a few exceptions, that all minerals shall be subject to the payment of royalties on the gross value of the minerals based on prevailing market price. However, a 2022 audit by the Auditor General (AG) in Busia pointed to a lack of data regarding the value of minerals mined, and the absence of a Memorandum of Understanding (MoU) between the district and the Ministry of Energy.

The audit also unearthed failure by mining companies to submit monthly returns to the ministry; non-verification of monthly returns by the ministry and non-participation of the Chief Administrative Officer in licensing and lease approval processes.

“I noted that the district lacked records regarding the volume and value of minerals mined by the various mining parties in the district,” the AG reported.

“This rendered the district a dormant stakeholder in the mining process and as a result, the local government was only at the receiving end of royalties determined by other parties,” the report stated, noting that local “interests tend to be suppressed” in cases like this.

In the absence of this information, it becomes impossible to assess royalties due, which affected district planning and budgeting processes, which in turn negatively affected service delivery, it concluded. 

An MoU would have clarified relationships regarding monitoring, inspection and sharing of information and records. 

While the audit attributed the failure to submit monthly returns to deliberate non-compliance and the ministry’s failure to enforce compliance, it also blamed Busia district administration for being uninvolved in applications for mineral rights.

Studies conducted in 2018 on the exploitation of minerals in Uganda found that artisanal miners can potentially contribute more than three percent of GDP if well regulated. For now, artisanal mining has remained largely unregulated and its contribution is not accounted for, partly explaining the less than one percent contribution of the sector to GDP. 

The Baseline Assessment of Development Minerals in Uganda, 2018, report says illegal mining in Mubende, Buhweju, Busia, Namayingo, Nakapiripirit, Amudat, Kaabong, Abim and Moroto, accounts for an estimated 200kgs of gold taken out monthly. At current prices of $40,000 (Shs148m) per kilogramme, this represents up to $8 million (Shs30b) with nothing going to royalties. This situation highlights the extent of the problem.

*Compiled by Tobbias Jolly Owiny, Feliz Ainebyoona & Robert Muhereza