An overview of Uganda’s new mining law 

Highlights

• Mining and Minerals Act, 2021, repeals the Mining Act, 2003.
• Introduces a competitive licensing regime for brownfields (existing mining projects) and retains first come, first served model for greenfields (new mining projects).
• A model mining agreement for large-scale mining businesses is introduced. 
• Prospecting, exploration, and retention licences are retained, and the location licence is replaced with the small-scale and artisanal mining licences.
• A National Mining Company, more like the Uganda National Oil Company, is created.
• A traceability and certification scheme to eliminate smuggling of tin, tungsten, tantalum, and gold is established (3TGs), and will enable direct access to lucrative international markets.
• Royalty sharing revised with owners of land with minerals getting 5% instead of the old 3%. 
• The Mineral Protection Unit is abolished.
• The ministry of energy and mineral development will publish on its website information about actual owners (beneficial owners) of mining businesses.
• Offenders of the law will pay fines ranging from Shs60–500 million or serve imprisonment terms of between 2 and 7 years or both. Some consider this harsh.
• Building substances (development minerals) such as sand, murram, clay to be regulated under a separate law. 

Introduction

On 17 February 2022, parliament passed the Mining and Minerals Bill, 2021, into law. Once signed by the president and gazetted, the new law will repeal the Mining Act, 2003, which promised much but delivered little to elevate the mining sector as one of Uganda’s key economic engines. Modern mining was introduced in the country by the colonialists who established several gold and tin mines in the southwest. A large mine established in the 1950s produced blister copper as well as cobalt. In the following decade, small-scale semi-mechanised mines for lead, tin, and wolfram opened in the same region. At its peak in the 1960s and early 1970s, mining was the number three contributor to Uganda’s GDP after coffee and cotton; and it made up 35% of foreign export earnings. In 2020/21, the mining and quarrying industry contributed 2.3% to GDP. The new law offers an opportunity for new beginnings in the country’s mineral sector. 

Historical overview of policy and regulatory framework

The Mining Act of 1964 had weaknesses such as granting absolute discretionary powers to the government’s head of mining, and poor licensing and taxation regimes. The 2001 reforms sought to address these shortcomings through the 2001 Mining Policy, the Mining Act, 2003, and attendant regulations of 2004. Although some complained that the law was enacted based on inadequate consultations, it was lauded by others such as the United Nations Environment Programme as being aligned with international “best practice” and for enabling Uganda to compete for investment by creating a liberalised, stable, and conducive environment. 

However, this legal regime yielded little in form of attracting foreign direct investment and in addressing the failings of the 1964 law. The sector remains characterised by corruption, underfunding, understaffing, mineral smuggling, political interference in the award of mineral rights, limited knowledge of the country’s commercial reserves, predominance of informal mining activity, weak monitoring and enforcement of the law, environmental degradation, and human rights abuses and violations by security agencies. Consequently, the mining sector has remained at the bottom of Uganda’s economic table. Besides, the 2003 law was found to be inadequate in dealing with emerging developments in the sector. And it is not aligned with the country’s Vision 2040 and related national development plans. It is therefore hoped that the new law will facilitate the unlocking of the backward, lateral, and forward linkages associated with the sector so that it can contribute to transformation of the economy.

A new licensing regime 

New developments in the law include the introduction of a competitive bidding licensing regime for brownfields (existing mining projects). The first-come, first-served model of licensing in the Mining Act, 2003, has been retained for greenfields (new mining projects) to encourage private sector investment. A mineral cadastre department has been created under the Directorate of Geological Survey and Mines (DGSM) to carry out (online) licensing. This is separate from the regulation function retained under the mines department. The law gives the minister responsible for energy and mineral development powers to grant and revoke mineral rights (“ownership rights to underground resources such as oil, silver, or natural gas”), licences, and permits. These powers previously belonged to the head of DGSM. The minister can also enter mineral agreements with investors for and on behalf of the government. And the finance minister, in collaboration with the ministry of energy and mineral development, has powers to give incentives such as tax waivers to investors in the sector. 

The law introduces a model agreement for large-scale mining businesses. It requires community development agreements between mining companies and owners of land where minerals are found. It retains the following licence types: prospecting, exploration, and retention. The mining lease under the 2003 law was broken down into four to take care of the different categories of mineral enterprises based on financial, technical, and other competencies. The new mineral rights are large-scale mining licence, medium-scale mining licence, small-scale mining licence, and artisanal mining licence. The location licence in the 2003 law has been replaced with the small-scale and artisanal mining licences to provide for local participation in artisanal mining that has been ring-fenced for Ugandan citizens. Ugandans can operate small-scale mining enterprises with majority shares alongside foreign investors for purposes of raising capital. This is designed to further incentivise local participation. Minimum mineral rights range from five years for a small-scale licence to 21 years for a large-scale mining licence. 

Creation of a National Mining Company

The National Mining Company (NMC) has been created to handle the commercial interests of the government. Its funding shall come primarily from the Consolidated Fund. Yet NMCs structurally tend to be cash hungry, drawing away resources from other government priorities. Most of Uganda’s mineral commodities have not been quantified to establish their commercial value and mining as a business requires fiscal and financial management discipline which public entities tend to lack.

Regulation of building substances (development minerals)

The MPs debated provisions on the licensing, exploration, and extraction of building substances (development minerals) and decided that a different law be enacted for that purpose. Proceeding under the mining law would have run counter to Article 244(5)&(6) of the Constitution. In a judgement in February 2022 on the same issue, although not emanating from parliament, the Supreme Court shared the same view as the MPs. Building substances include sand, murram, clay. 

Illegal exploitation of natural resources

The law domesticates the 2010 International Conference on the Great Lakes Region (ICGLR) Regional Initiative Against the Illegal Exploitation of Natural Resources (RINR) and the ICGLR (Implementation of the Pact on Security, Stability and Development in the Great Lakes Region) Act, 2017, and related regulations. It provides for the implementation of a mineral traceability and certification scheme to eliminate mineral smuggling and illegal exploitation of designated conflict minerals such as tin, tungsten, tantalum, and gold (3TGs). This will enable miners and exporters of 3TGs to have direct access to lucrative international markets, which are otherwise averse to minerals sourced from regions where proceeds fund armed conflict. DGSM is charged with regulating the certification process. This is a welcome development for the miners and exporters of 3TGs. They have always cited the lack of a certification mechanism as the reason for smuggling of the 3TGs to neighbouring countries such as Rwanda to access international markets.

Fines and penalties

The new mining law introduces a prohibitive penalty-and-fines regime. A person who commits an offence under this law is liable to fines ranging from Shs60–500 million or imprisonment terms of between 2 and 7 years or both. Offences attracting these punishments range from prospecting, mining or exploration operations without a valid mineral right, licence or permit; carrying out refining, smelting, processing, trading, storage or any other activity without a valid mineral right, licence or permit; aiding or assisting illegal operations, trespassing on mineral rights of other mineral rights owners; and undertaking quarrying activities for commercial purposes without a quarry licence.  Critics say that these penalties are extreme and amount to criminalisation of mining activities instead of deepening and promoting legal and responsible mining practices. And that such penalties and fines will serve to entrench and promote corruption in the sector.  

Mineral Protection Unit abolished

There will be no special police unit to enforce compliance within the mining sector on account of the poor track record of the current Mineral Protection Unit. Sector regulator, DGSM, will rely on the general police force for enforcement of compliance with any policies, laws, and regulations. 

Changes in the fiscal regime

The law revises the royalty sharing proportions by giving the central government 65%; district local government 20%; sub-county/town council 10%; and registered or customary owners, lawful or bonafide occupants of the land 5%. In the 2003 law, the central government took 80%, local governments 17%, and owners or lawful occupiers of land with minerals 3%. 

The new law also allows state participation of up to 35% in some medium to large-scale mineral projects. Controversially, the law permits the government to transfer its shares to a third party without asking the mining company, which has majority stake, whether it would like to take the said shares. 

There are limited checks on non-compliance and under-declarations by a mining company. This could be improved by ensuring that all mine gates have a standard compliance audit process involving all parties to the royalties declared. These include the state (Uganda Revenue Authority), the local government, and representatives of landowners/trusts or community land associations/committees.

The law allows the minister and cabinet to waive royalty payment. Local governments and representatives of landowners are not part of that decision. This is improper because it takes away the right to raise revenues for local development. This provision also contravenes Article 26 of the Constitution on the right to property.

Local content

The law seeks to ensure that Uganda benefits more from the mining sector. It, therefore, demands technology transfer; research; recruitment, training and promotion of Ugandans and to prioritize the use of goods and services available in Uganda. This is a welcome new development. 

Beneficial ownership disclosure

The government will publish on the ministry website information about actual owners (beneficial owners) of mining businesses, and failure to provide the right information will lead to cancellation of the licence. This is applaudable. However, the definition of a beneficial owner should be expanded beyond a natural person to include a legal entity as well. Qualification to be a beneficial owner should be further expanded beyond the narrow and restrictive 5% interest in the company in issue. 

Access to land rights, valuation and compensation 

Owners of mining businesses will act in a way that does not antagonise owners of land under which a mineral exists. They will negotiate. But, as a departure from the Mining Act, 2003, which requires a negotiated acquisition of surface rights, the new law provides for compulsory acquisition of private land where the exploration or mining operation is significant to the government. The law makes provision for dispute resolution in relation to land valuation and compensation. For example, anyone dissatisfied with the decisions of the regulator and or the minister may appeal to the Minerals Disputes Tribunal. This is good because it will quicken resolution of disputes and facilitate business by avoiding long and costly court processes. 

Conclusion

Overall, the new piece of legislation is progressive. It largely aligns with Uganda’s Vision 2040, the national development plans, the Africa Mining Vision, and is sensitive to trends in the international minerals market. It benchmarks several regional and international mineral sector best practices. However, the new regulatory framework on its own will not address all issues. The government will have to dedicate to the mining sector the same resources, both technical and financial, that have been allocated to the petroleum and energy sectors for it to realise its ambitions.  

This ACME explainer is made possible with support of the Natural Resource Governance Institute

Image by hangela from Pixabay