Professional Services

Solid minerals: Harnessing Nigeria’s viable alternative resource to crude oil (Pt. II)

by Banwo & Ighodalo

March 15, 2018 | 12:31 am
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Geosciences Data And Regulatory Regime

Whilst the provisions of the various mining legislation are generally consistent with international standards and provide a robust framework for solid minerals investment, investors in the sector nonetheless continue to face challenges in relation to the implementation of the laws and regulations, particularly in relation to licensing processes, and this has engendered investor apathy.

The process for administration of mining titles by the MCO is fraught with delays and generally inefficient. For instance, whilst paragraphs 44(17) and (18) of the Mining Regulations prescribe a 45 day period for the MCO to notify its approval or rejection of an application for the conversion of an exploration license to a small scale mining lease, there have been cases where the MCO’s responses to such applications were not received for nearly 2 years. The timeline for such approvals, in practice, will frustrate investors in the sector as they will be unable to proceed with the exploitation of minerals which have been proven to exist by virtue of exploratory activities carried out by such investors pursuant to an exploration license. Furthermore, the “use it or lose it” principle entrenched in the mining legislation has not been effectively enforced by the MCO. The sector is replete with complaints about mining licenses being granted by the MCO without adequate enforcement of the terms and being revoked in certain cases without compliance with the procedure specified in the body of mining legislation.

To this challenge, we advocate amendment of the Mining Regulations to accommodate new reliefs. For instance, there is need to introduce the concept of “deemed grant” in order to protect the interests of investors, who are seeking to convert their exploration licenses to mining leases where there is delay on the part of the MCO to grant such approvals after the specified period. This will provide some element of comfort to investors against any delay that may be occasioned by inaction on the part of the MCO. The government should also consider deploying additional resources at the MCO, including the creation of a virtual and seamless connection between headquarters of the MCO in Abuja and the zonal offices located across the country. This will aid and improve the process of administration of mining titles in Nigeria.

The dearth of reliable and bankable geological data on the available solid mineral resources in Nigeria discourages potential investors and poses real threat to the realization of the Roadmap. Given that mining is capital intensive, investors will typically be reluctant to expend resources unless there is reasonable basis to believe that the minerals present in a particular area exist in commercial quantities. This is important considering that financiers are generally averse to risks associated with financing the exploration phase of mining projects. As the Government has repeatedly emphasized in his various policy documents and development plans, investment in geological mapping to provide reliable data that will be useful for the participants in the sector will definitely improve the bankability of mining projects. This planned investment should be implemented through clearly drawn and well implemented PPP templates to achieve quick and efficient results. In this way, the credit rating of mining projects in the country will improve and banks will thus be confident to advance more credit to the sector.   

Also very important is the need for the Government to address the areas of conflict between the land ownership system and the regime for exploitation of solid minerals in Nigeria. Whilst the Land Use Act (1978), the primary legislation regulating land ownership in the country vests the radical title of all land in a State in the Governor of the State, the Constitution and the Act both vest ownership of all mineral deposits in the FG.  The dichotomy between States’ ownership of Lands and Federal ownership of minerals makes investors face a convoluted regime of regulations and long, time-wasting approval processes; which are not helping the ease of doing business in the Nigerian mining sector. There should thus be legislative reform of the whole legal framework to bring about a convergence of the processes for acquiring title to Land and the licensing of solid minerals’ miners.

We advocate a new regime whereby the discovery of minerals in commercial quantities on a parcel of land in any State should qualify as overriding public interest and any right of occupancy in respect of such land can be revoked by the Governor in accordance with the process specified in the Land Use Act, including prompt payment of fair and adequate compensation to the grantee of the right of occupancy sought to be revoked.

Also, the Government could consider a special regime for securing interests in land for the benefit of potential investors during the exploration phase of a potential mining project. Specifically, relevant amendments may be made to the Act to secure compulsory, but short term, interests in land for prospective investors during the exploration phase of the applicable mining project where it can be shown (by strict compliance with specified conditions) that the presence of solid minerals in commercial quantities on the land is almost certain. The proposed amendments will also specify conditions which will protect and or assure the reversionary interests of the landowner where minerals in commercial quantities are not eventually discovered on the land including requirements for payment of rents and restoration of the land to its original condition.

Whilst the Mining Regulations contain framework for a simplified licensing process for artisanal miners, some of the requirements (particularly the ongoing compliance obligations) are still onerous for small scale miners to comply with. Thus, we advocate amendment of the Act and the Mining Regulations to simplify the licensing regime for artisanal and small scale miners (“ASM”). Also, the timeline and process for the procurement of licenses as well as ongoing compliance obligations should be streamlined to reduce the administrative burden on small scale miners.

Furthermore, the FG, through the Ministry, should actively engage with State Governors to create a special mechanism for encouraging States in promptly granting the required statutory consent to Minerals titles.

Stakeholder Engagement

The Government needs to fully engage all stakeholders i.e. those engaged in Exploration & Production (Majors, Junior Explorers, ASM, and illegal miners); those engaged in Logistics & Transportation; those in the business of Refining & Processing; as well as those engaged in Trading, Manufacturing/Wholesale and Retail Activities.

For the Major and Junior Explorers, the right infrastructure, friendly operational environment, transparent and accessible domestic and export markets and seamless regulatory framework, are very vital incentives. Efforts should be made to further encourage the formalization of the ASM into cooperatives for proper integration and inclusion into the mining sector. Furthermore, the Government should consider introducing fiscal and other incentives (e.g. implementation of well-structured extension services to artisanal miners) in order to encourage them to seek licences and thereby formalize their activities. The government should also establish or facilitate the establishment of mineral buying centres (MBC) and lapidaries across the country especially in states where artisanal mining is common. This invariably would make illegal miners face difficulty in carrying out their illegal and unlicensed operations and make official joining of registered ASM groups better and more convenient with adequate beneficiation. 

The designation of Solid Minerals Mining as a priority sector in the Government’s ongoing ERGP should necessarily spur incentives to industry players. Access to stable foreign exchange and adequate financing models should be top on the agenda of Governments at all levels for the sector to grow. Whilst it is axiomatic for availability of reliable geosciences data and information to improve the bankability of potential mining projects, thus making them attractive to all manners of financiers like individual private investors, banks, private equity funds, hedge funds, export credit agencies, development finance institutions (DFIs) and the likes; we advocate, in addition, the full operation of the Solid Minerals Development Fund (“SMDF”) established under section 34 of the Act as a veritable means by which the Government can address the funding gap in the sector for the benefit of industry operators. The SMDF is meant to consist of funds appropriated for solid minerals development under the Allocation of Revenue (Federation Account) Act and the Small and Medium Industries Equity Investment Scheme (SMIEIS) as well as any fund received as grant, donations, foreign loans, bonds and long term swaps; and any sums appropriated to it in the FG budgetary allocations. Besides, the Government can also collaborate with specialized banks like the Bank of Industry (BoI) and the Nigerian Export-Import Bank (NEXIM Bank), to establish structured funding opportunities to investors in the mining sector. 

For the Host Communities, more stakes ought to be given to them in terms of derivation benefits and protection from the environmental and health hazards of mining, as well as in the payment of adequate compensation where lands are compulsorily acquired by the government for mining purposes. In preventing possible abuse, and enforcing the rights of communities and investors, there ought to be put in place specialized and reliable dispute resolution mechanisms for addressing conflicts in the sector. It is important that the skills required in mining are localized to enable community people secure jobs in mining projects and give them a sense of ownership. Adequate measures should thus be put in place to achieve a high degree of local content development while community people with their excellent local knowledge of the land should be engaged in community policing to stem the tide of insecurity at the sites of mining projects.

Institutional Reforms

Most of the organizational reforms proposed in the Mining Sector Roadmap are germane to the success of the Solid Minerals Sector and should be implemented to the letter. The proposed creation of a super regulatory agency that will merge some of the existing regulatory bodies and departments will bring about a seamless regime within the sector, leading to smooth operations for all stakeholders.

We note with commendation the establishment of the National Council for Mining and Minerals Resources Development (NCMMRD) as a national forum for policy deliberation and assessment; the Mineral Resources and Environmental Management Committee (MIREMCO) as a forum for synergy among the FG, State Governments and Local Government Areas with respect to solid minerals development, as provided in Section 19 of the Act; as well as the Mining Implementation Strategy Team (MIST) as an advisory think-tank and strategy incubator for the Ministry’s actualization of the objectives of the mining sector Roadmap.

However, it is important that the Ministry creates formidable inter-agency alliances with critical stakeholders such as the Ministry of Environment (MoE), Military and para-Military bodies, and other law enforcement agencies to ensure a sustainable mining regime with low level of negative environmental impacts and for the enforcement of the laws against illegal miners who fail or refuse to apprise themselves of opportunities available to operate through formalized mining groups.

Conclusion

The solid minerals sector is poised to catalyze the nation’s dream of diversification and industrialization on the back of the various ongoing legal and policy reforms. Whilst there are potential risks to the full implementation of the reforms and hence realization of the set goals (particularly social, economic and governance risks), it is generally expected that the quick wins, as well as the medium to long term gains of the current reforms, are able to place the country on the envisioned “Road to Shared Mining Prosperity”.

                                                                                                     

                                                                                         ___________________________ 

The Grey Matter Concept is an initiative of the law firm, Banwo & Ighodalo

DISCLAIMER: This article is only intended to provide general information on the subject matter and does not by itself create a client/attorney relationship between readers and our Law Firm. Specialist legal advice should be sought about the readers’ specific circumstances when they arise.


by Banwo & Ighodalo

March 15, 2018 | 12:31 am
  |     |     |   Start Conversation

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