Dec. 9 (Bloomberg) -- Kenya plans to sign a concession accord this week with Fenxi Mining Industry Co. of China to develop a coal deposit of 400 million metric tons, ending a two-year delay and enabling the state to tender 31 more blocks.
A Benefits Sharing Agreement may be signed by tomorrow for blocks C and D at Mwingi, 143 kilometers (89 miles) northeast of the capital, Nairobi, John Omenge, chief geologist at the Energy Ministry, said in an interview on Dec. 3. Signing of the concession accord has been delayed since Fenxi won the tender to explore the blocks in 2011, after local residents demanded a share of income from the project.
“Signing the first agreement will send a positive signal to investors, and open the way for us to tender the other blocks” by the end of the first quarter of 2014, Omenge said.
Kenya, East Africa’s biggest economy, plans to add 5,500 megawatts of electricity output to its grid in 40 months, almost 2,000 megawatts of that from coal, to help accelerate annual economic growth to more than 10 percent from a projected 5.5 percent to 6 percent this year. Kenya targets starting coal production within 30 months, which would enable the country to rely on domestic supplies instead of imports to fuel a 900-megawatt plant in Lamu county on Kenya’s northern coast, the development of which was tendered in September.
Block C, which may contain 400 million tons of coal, covers 131.5 square kilometers (51 square miles) and Block D 120 square kilometers (36 square miles), according to Omenge. Preliminary studies show Block D also has commercially viable coal deposits, Omenge said, declining to mention estimates for the resource.
The 31 blocks set for auction are spread across counties in northern and southern Kenya including Kwale, Kilifi, Taita Taveta, Tana River, Garissa, Kitui, Tharaka, Meru, Makueni, Isiolo, Samburu, Turkana and Baringo, according to the Energy Ministry.
Representatives of residents of the Mui coal basin in Kenya’s southern Kitui county took the government to court after the concession was awarded to Fenxi, accusing the state of ignoring their concerns. Residents wanted to acquire title deeds for their land, which is now confirmed to have coal underneath, and be compensated at market rates for the property.
The Mwingi Central Constituency Development Forum and Liaison Committee “indicated” this week that they’ve withdrawn the case, Omenge said.
“We have had several meetings with the locals, and have agreed they will be compensated at market value of the land,” Omenge said. The government also allowed residents to study the Benefits Sharing Agreement in a confidence-building campaign for the project, he said.
“Government has listened to the people, and addressed their concerns,” Joe Mutambu, a member of the National Assembly representing Mwingi Central constituency, said in an interview from Nairobi. “Those who were blocking the project are now on board.”
The agreement to be signed by the Energy Ministry, the National Treasury, Mining Ministry and Fenxi gives the government a 23.6 percent share of gross revenue from Block C, and 22.1 percent in Block D, according to Omenge. “We have an option of taking that percentage of coal or revenue,” he said.
In addition to the share of revenue, the government also has an 11 percent stake in project, Energy Secretary Davis Chirchir said in an interview on Dec. 3.
“We have not yet decided what to do with the 11 percent, but it could be a window for county-government ownership in the project,” he said.
Fenxi will pay the government a concession fee of $3 million for Block C and $500,000 for Block D, amounts that are commensurate with the amount of data the Energy Ministry collected in preliminary exploration, according to Omenge. The company is expected to finish resource-confirmation studies for Block C in three months, and Block D in nine months, he said.
The company will also conduct environmental and social-impact studies, and a resettlement plan based on World Bank guidelines, both to be approved by government, before mining starts, according to Omenge.
“We will let them conduct environmental and social impact studies for every component of the project, but gradually as stages of such components near, instead of doing everything at a go,” he said.
Fenxi will build a coal-fired power plant to run the mine, and sell extra electricity generated to the state government under a power-purchase agreement, Omenge said.
The government plans to involve the community as much as possible to avoid a scenario like in Turkana, northern Kenya, where Tullow Oil Plc last month suspended exploration work for almost two weeks after residents of the area held protests to demand better benefits.
“We have opened a field liaison office to take any complaints, and have had several meetings with locals,” Omenge said. “We don’t expect to see what happened in Turkana here.”
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