Uroko Luke Agada Esq. FIPMA, Notary Pubic
The Nigeria mining sector continues to draw increasing investor interests, particularly foreign, resulting from its evident role as a viable alternative to the country’s oil-based economy. It therefore becomes imperative to understand the basic legal framework governing the sector.
In doing so, this paper seeks to do a general overview of the legal regime of the Nigerian Mining Sector, keep readers informed with the proposed changes to the principal enactment, picture recent developments in the mining sector, outline the challenges or problems associated with mining development in Nigeria and indicate the incentives for investors, particularly foreign Nationals’ seeking to acquaint themselves with the current trends as regards the extractive industry in general and more particularly the mining sector in Nigeria. In the end, we will see that the laudable incentives put in place by Government, most of which incentives which have been recognized by our laws is mainly done to encourage strategic investment and development of the mining sector.
THE LEGAL FRAMEWORK:
The 1999 Constitution of the Federal Republic of Nigeria (as amended) (CFRN) is the primary law of the land (the Grundnorm) and prevails over all other laws in Nigeria. It renders any law found to be inconsistent with its provisions as absolutely null and void to the extent of its inconsistency. Accordingly, the CFRN vests primary ownership and control of all mineral resources (mineral rights) in any land situate in Nigeria on the Federal Government. The Second Schedule of the CFRN also includes mining in the Exclusive Legislative List under Item 39, Part 1. In other words, mineral rights in Nigeria are solely vested in the FG, whose exclusive reserve is to transfer said rights to third-parties (investors) subject to extant laws.
One of the key legislations enacted for the purpose of encouraging enterprises in Nigeria is the Nigerian Investment Promotion Commission Act (“NIPC Act”), 1995 (Cap N117, Laws of the Federation of Nigeria (“LFN”) 2004). The Nigerian Investment Promotion Commission (the “NIPC”) is established by the NIPC Act as the agency of the Federal Government of Nigeria charged with the duties of encouraging and promoting investment in the Nigerian economy and for other related matters (See generally Section 4 of the NIPC Act).
The Nigerian Minerals and Mining Act 2007 (NMMA) is enacted by the National Assembly pursuant to its constitutional mandate, the NMMA is the principal law governing the mining sector. It is the primary sectoral law which also vests ownership and control of mineral resources in the Federal Government, to hold and manage same on behalf of the citizenry, with rights to transfer said rights to qualified third parties. The Act therefore prohibits unauthorized exploration or exploitation of minerals and makes further provisions for the roles of the Minister (of Mines and Steel Development), establishment of the Mining Cadastre Office (MCO), Mines Inspectorate Department (MID), Mines Environmental Compliance Department (MECD) and the State Mineral Resources and Environmental Management Committee (MIREMCO).
Section 21 of the Act empowers the Minister to make regulations in order to give full effect to the provisions of the Act. As such, the Nigerian Minerals and Mining Regulations 2011 (the ‘2011 Regulation’) was created by the Minister on 13th May 2011 to further streamline the provisions of the Act including issues regarding the process of obtainment of titles from the MCO; operationalities of the MID, MECD and MIREMCO; dispute resolution arising from mining activities; activities of Artisanal and Small-scale miners; Royalty rates and fees, standard forms and other sectoral templates and stock applications.
Mineral rights/titles provided under the Act include:
a. Reconnaissance Permit: This is a non-transferable, annual non-exclusive Permit granted for the purpose of reconnaissance only. It is for a term of one year only and renewable annually. It allows holders the right to access, enter or fly over any land, obtain, and remove surface samples in search for mineral sources.
b. Exploration License: Exclusive License for the exploration of all minerals for the duration of 3 years, renewable for further two periods of 2 years each. Granted over land area not exceeding 200 square kilometres and not subject to an existing exploration license, mining lease, small scale mining lease or quarry lease. Unlike Reconnaissance Permit, the right holder may excavate and conduct bulk sampling and testing of mineral resources, can export samples and sell resources within stated limits.
c. Small Scale Mining Lease: Exclusive Lease to carry out small-scale mining which covers an area greater than five acres but not exceeding 3 square kilometres. Akin to Artisanal and Small-scale miners, it is for a period of 5 years and renewable for another five years only.
d. Mining Lease: Granted for a period of twenty-five (25) years renewable every twenty-four (24) years, it is an exclusive permit granted in respect of an area not exceeding fifty (50) square kilometres and is not within an Exploration License Area or a Small-Scale Mining Area save granted to the holder of the Exploration License or Small-Scale Mining Lease covering the given area.
e. Quarrying Lease: 5-year lease or less granted in respect of any area of land not exceeding 5 hectares. Applies to all naturally occurring quarriable minerals such as marble, limestone, sand, stone, laterite, mica, pipe clay, slate, asbestos, china clay, fuller’s earth, gypsum, gravel, which may also be lawfully extracted under Mining Leases. It prohibits extracting any quarriable mineral from a quarry including sand dredging in the navigable water ways or else for industrial use without the grant of a lease or license by the Minister.
f. Mineral Buying Centre Licence (MBCL): Permits warehousing, storage and trading in mineral resources.
g. Possess or Purchase License: This right allows persons not in ownership or possession of any of the other mineral right to engage directly in mineral trading and export. The 2011 Regulations makes it an offence to possess or move mineral resources from one place to another without the requisite license.
h. Export Permit: Required for commercial export of mineral resources or export for laboratory testing.
i. Water Use Permit: Usually for the duration of the accompanying lease or license, this is the right to obtain and use water for mining operations.
The Act goes further to address the issue of right of easement (construction and use of mining roads), environmental considerations and rights of host communities, modalities for transfer, surrender and revocation of licenses and leases, offences, penalties, and sanctions, etc.
Other Laws Governing the Nigerian Mining Sector:
Other laws governing the Nigerian mining sector includes; the Land Use Act of 1978, the Companies and Allied Matters Act 2020, National Environmental Standards, Regulations Enforcement (Establishment) Act 2007, Environmental Impact Assessment Act, Mines and Quarries (Control of Building etc.) Act, Explosives Act, Foreign Exchange (Monitoring and Miscellaneous Provisions) Act, amongst others.
PROPOSED CHANGES TO THE PRINCIPAL ENACTMENT, THE NIGERIA MINERALS AND MINING ACT (NMMA):
One of the key changes is that the law will give local governments the impetus to crack down on illegal mining by devolving responsibility from the federal to the state level of government. The 2007 act is very federal government-centric, so essentially the powers and ownership of mineral rights under the act rest with the federal government.
Under the amendment, power and revenues will be shifted from the regulating body, the Nigerian Mining Cadastral Office (MCO), which is very much an arm of the federal government, to the local level, giving both the local community and the state government incentives to abide by and enforce the rule of law in the sector.
This proposition to me is indicative of the federal government’s determination to genuinely transform the all the while comatose mining sector which was mainly due to its overbearing regulatory powers. This is Moreso, as the federal government clearly lacks the well withal to properly and solely administer the enormously vast mining sector coupled with the attendant bureaucracy and corruption associated with government operations.
The states can increase their own revenue from legal and licensed mining, and that increases their incentive to combat illegal and unlicensed mining. And if local communities see that their own state is benefiting economically, again that provides further reassurance that they are benefitting from the mines thereby. This is potentially an opportunity to shift that balance in the mining sector from the federal government to the state government, and hopefully address some of the underlying issues driving the illegal mining.
Those are the two things that the proposed act is trying to rebalance and trying to address. The old act wasn’t completely unsuitable for purpose, but it clearly wasn’t providing the conditions needed to develop the sector. Whether or not the proposed act will see the light of day by been passed into law is a story for another day.
HIGHLIGHTS OF SOME OF THE RECENT DEVELOPMENTS IN THE SECTOR:
Introduction Of The Electronic Mining Cadastre System (Emc+)
The Nigerian Mining Cadastre Office (NMCO) is set to launch its Electronic Mining Cadastre System (eMC+ or “the System”) to facilitate end-to-end real time, online mineral titles administration, from application to submission, to fees payment and issuance of certificates. The NMCO has since its inception, undergone several institutional changes beginning from the use of irregular polygons to the use of AutoCAD, and more recently, computerization via the introduction of “the Computerized Mineral Cadastre System” – Systeme Informatise de Gestion des Titres Miniers” – (SIGTIM) which was in use until December 2021.
The System, which is the latest mining management automation technology, has the potential of creating a more robust, modern and flexible high-tech Cadastre system. The System is also said to have the advantage of being linked to the Ministry’s portal to further aid the management of the mining sector as well as enhance coordination between other agencies of the Federal Government and cadastral activity.
The eMC+ is expected to strengthen the transparency around property rights and security of tenure within the mining sector; enhance the transparency of the mineral licensing process and government’s regulatory capacity through improved efficiency, and information availability and management. If widely adopted, the System is capable of putting the Nigeria mining sector on the digitization journey, make it more prominent on the global mining map, boost investors’ confidence in the nation’s mining sector, attract Foreign Direct Investment (FDI) and ultimately lead to an increase in the revenue accruing to the FG.
EFCC, NSCDC Collaborate with the Mining Sector to Combat Illegal Mining & Underpayment of Royalties
Recent efforts by the Economic and Financial Crimes Commission (EFCC) and the Nigeria Security and Civil Defence Corps (NSCDC) have resulted in significant arrest of illegal miners and royalty evaders among the licensed miners. The orgy of illegal mining has been associated and said to be responsible for the woeful security situation in Nigeria. This is not far from the truth as the volatile regions are rich with both natural and industrial minerals. One may also wonder the sources of funding and the interests’ motivating insurgency in Nigeria.
The involvement of the above-named agencies is a welcome development, given the upsurge in illegal mining activities in the country. It is also a signal to other relevant agencies of the FG including the Nigerian Police Force and the Nigerian Customs Service (NCS), amongst others, to support the mining sector and to expose all forms of illegality ravaging the Sector. Stiffer penalties should be meted out to criminals apprehended in any form of illegal mining activity.
FG Revokes Some Mining Licenses
The FG in a bid to ensure operationalization of mining licenses issued to date has revoked 3,400 mining licenses within the last two years, in line with the “use it or lose it” agenda.
Mining business is capital intensive and requires investors with high-risk appetite. With this action, the FG has spoken in clear terms that only serious investors who desire to make a difference in the mining space are welcome. Therefore, the revocation of licenses held by erstwhile dormant operators is thought to be in order and should propel those in their final investment decision (FID) mode to act swiftly towards exploration and active exploitation/production of their minerals.
CHALLENGES OR PROBLEMS ASSOCIATED WITH MINING DEVELOPMENT IN NIGERIA:
Nigeria’s north, especially Kaduna, Katsina, Kebbi, Kogi, Nasarawa, Niger, Plateau and Zamfara states, are particularly hard hit by the blight of illegal mining. An estimated 80% of mining in these areas is conducted illegally on an artisanal basis, involving over two million people who depend on it for survival. Previous government efforts to crack down on illegal mining in northern Nigeria have failed, while the phenomena continue to provoke two worrying trends, says NGO ENACT Africa.
One is the trade of illegally mined gold in exchange for weapons, and the other is the use of women and girls in these illicit activities.
Unregulated mining also stokes environmental issues in these areas, such as water pollution, deforestation, poor soil fertility and limited access to land for agriculture productivity.
The Nigerian economy, like that of many other countries, continue to face headwinds – from low revenue generating capacity, high inflation, currency depreciation, high interest rates, food crisis to insecurity. These negative imprints are heightened by the aftermath of the COVID-19 pandemic (and its sudden resurgence in some parts of the world), climate change and the Russia-Ukraine War. A more robust engagement and collective action in this regard can turn the tide.
INCENTIVES FOR FOREIGN INVESTORS IN THE SECTOR:
In conceptualizing and formulating incentive packages, the Nigerian government has been driven and guided by a number of key considerations including the following:
· Support for infant industries;
· Encouragement of investment in industries which have potential multiplier effects on the growth of the economy, including but not limited to employment generation & manpower development;
· Promotion of non-oil exports, with potential attendant positive impact on foreign exchange earnings; and
· Local Content Development.
In Nigeria, some of the various investment incentives provided under the relevant laws and regulations include tax holidays; tax credits; capital allowances; investment allowances; tax exemptions; duty drawback; subsidies; export expansion grants; export development funds; double taxation reliefs; and investment promotion and protection agreements, among others.
Corporate – Tax Credits and Incentives Last Reviewed – 28 July 2022
Nigeria has various tax incentives intended to encourage investment in key sectors of the economy including the mining sector, as follows.
Pioneer companies investing in specified industrial activities may, on application, be granted a tax holiday for three years initially, which may be extended for up to two years upon satisfaction of specified conditions. A new company that engages in the mining of solid minerals is exempt from tax for the first three years of its operation.
Rural location incentives
Certain incentives are available to companies located in rural areas. The incentives take the form of tax reductions at graduated rates for enterprises located at least 20 kilometres from available electricity, water, and tarred roads. Most mining and extraction activities are located in rural areas as such, entitling investors to these incentives.
Export processing zones (EPZs) and free trade zones (FTZs) are locations within Nigeria designated by the government as free areas where export trade activities can be carried on free of tax and foreign exchange restrictions.
A company that is engaged in an approved manufacturing activity in an EPZ and incurs expenditures in its qualifying building and plant equipment is entitled to 100% capital allowance in that year of assessment. In addition, a company that is 100% export oriented but located outside an EPZ will enjoy a three-year tax holiday, provided the company is not formed by splitting up or reconstruction of an already existing business and the export proceeds form at least 75% of its turnover. Profits of companies whose supplies are exclusively inputs to the manufacture of products for export are exempt from tax. Such companies are expected to obtain a certificate of purchase of the input from the exporter in order to claim tax exemption.
Where plant and machinery are transferred to a new company, the tax written down value of the asset transferred must not exceed 25% of the total value of plant and machinery in the new company. The company should also repatriate at least 75% of the export earnings to Nigeria and place it in a Nigerian domiciliary account in order to qualify for a tax holiday.
Profits of any Nigerian company in respect of goods exported from Nigeria are exempt from tax, provided that the proceeds from such exports are repatriated to Nigeria and are used exclusively for the purchase of raw materials, plant, equipment, and spare parts. This exemption does not apply to companies in the oil and gas industry (upstream, midstream, and downstream).
In order to streamline the administration of permissible taxes within the tax-free zones, the Oil and Gas Free Zone Authority (OGFZA) has established the Free Zones Tax Administration (FZTA) Unit with effect from January 2015. Going forward, all tax matters relating to the free zones will be coordinated by the FZTA.
The tax exemption for FTZ companies is subject to such companies filing income tax and transfer pricing (where applicable) returns to the FIRS.
Export Expansion Grant (EEG) Scheme
The EEG Scheme grants the Export Credit Certificate (ECC) as an incentive that can be used to settle all federal government taxes, such as VAT, WHT, CIT, etc. It can also be used to purchase government bonds and repay government credit facilities and debts due to the Assets Management Company of Nigeria (AMCON).
To encourage export of value added and processed/manufactured products, exporters are divided into four categories with maximum applicable EEG rates as indicated below:
· Fully manufactured products: 15%.
· Semi-manufactured products: 10%.
· Processed/intermediate products: 7.5%.
· Merchants/primary agricultural commodities: 5%.
Gas utilisation incentives
Companies engaged in gas utilisation are entitled to:
· A tax-free period for up to five years.
· Accelerated capital allowance after the tax-free period.
· Tax-free dividends during the tax-free period.
Investors in gas pipelines can obtain an additional tax-free period of five years.
25% of the income derived from tourism by hotels in convertible currencies is exempt from tax if such income is put in a reserve fund to be utilised within five years for expansion or construction of new hotels and other facilities for tourism development.
Interest accruing on deposit accounts of a non-resident company is tax-exempt, provided the deposits are made by transfer of funds to Nigeria on or after 1 January 1990 and the depositor does not become non-resident after making the deposit while in Nigeria.
Interest on foreign-currency domiciliary accounts is also tax-exempt.
Interest on any foreign loans, and interest on any loan granted by a bank for the purpose of manufacturing goods for export, is exempt from tax as follows:
Over 7 years
Not less than 2 years
5 to 7 years
Not less than 1.5 years
2 to 4 years
Not less than 1 year
Interest on any loan granted by a bank to a company engaged in primary agricultural trade, fabrication of local plant and machinery, or as working capital to any cottage industry is 100% tax free if the loan has a moratorium of not less than 12 months and the rate of interest is not more than the base lending rate at the time the loan was granted, refinanced, or otherwise restructured.
An investment allowance of 10% on the cost of qualifying expenditures in respect of plant and machinery is available as a deduction from assessable profits in the year of purchase. There is no restriction to the full claim of capital allowance in any year of assessment for companies in the mining, manufacturing, and agricultural sectors.
Road Infrastructure Development and Refurbishment Investment Tax Credit Scheme
Participants in the Road Infrastructure Development and Refurbishment Investment Tax Scheme are entitled to recover the cost incurred by them in the construction or refurbishment of eligible roads as credit against CIT payable. Participants are also entitled to a single uplift, equivalent to the Central Bank of Nigeria (CBN) Monetary Policy Rate plus 2% of the project cost. This uplift will not be taxable in the hand of the participant. The tax credit can be carried forward to subsequent years until it is fully utilised. A participant may sell or transfer its tax credit to other companies, as a form of security or otherwise.
Foreign tax credit
Nigeria does not grant automatic tax credits to Nigerian companies for foreign tax on income derived from other countries. The Nigerian tax laws already provide for tax exemption for dividends, interest, and royalties.
Foreign tax credits are only granted based on the provisions of existing DTTs and partial credits as applicable to Commonwealth countries. In this regard, full tax credits are usually provided for in the DTTs. Tax credits for members of Commonwealth countries are granted at up to half the Nigerian CIT.
Solid and industrial minerals mining can offer an effective hedge against swings in oil prices, especially as investors and policymakers adapt to the global energy transition. There is a broad recognition that it is beneficial for Nigeria to diversify its economy, away from such a high-level of reliance on the oil and gas sector.
To achieve this, the government has to demonstratively sincere in blocking the revenue leakages in the Sector and tackle the inherent security challenges which is sending a wrong signal to the international community.
There is therefore the need for increased cooperation among the industry players and stakeholders in areas of policy development, capacity development, security, funding and reform initiatives, all directed towards the maximization of the Sector’s benefits and potentialities to incentivize the sector. Otherwise by merely passing the Act which specifically makes provisions for certain investor benefits including exemptions from custom duties, a 5-year tax relief period, unrestricted access to, retention and use of earned foreign exchange and free transferability of foreign exchange, tax deductible reserve for environmental protection, mine rehabilitation and reclamation/mine closure, amongst others will amount to paying lips service by the government.
However, I think the incentives pays more attention to foreign investors rather that encouraging the development of local manpower and involvement in the mining sector, by this, we are merely prolonging the dooms day if local capacity building in the sector is not encouraged and developed. All these laudable incentives by government will merely lead to capital flight and economic brain drain.
The above suggestions should be considered for implementation as they are pivotal to restoring investor confidence in the Sector and stirring it to greater heights. The Nigerian mining sector, although riddled with its fair share of upheavals, tries to create a more attractive investment climate to maximize national economic growth through its legal regime.
Resurgence of various sectoral reforms and platforms where industry experts gather to discuss and proffer solutions on issues militating against the sector shows great promise for the development of the extractive industry in Nigeria. Nevertheless, the need to implement and ensure compliance with the Mining Laws in Nigeria, likewise, the bridging of FG and State government clashes in respect of administration of land and mineral resources, cannot be over emphasized. Whilst the FG is solely vested with the right over every mineral resource underneath any land in Nigeria (mineral rights) as enshrined in the CFRN and NMMA, the Land Use Act of 1978 rests ownership of the Land itself (surface right) in the State government through the Governor of each State, which denotes the right of States over every land within their territory. As such, it is highly imperative for intending investors to note that the FG and the target State government (likewise the target host communities) must be carried along in the process of obtaining mineral rights, in order to reap the full benefits of the Nigerian extractive sector.
The FG has to lead the agenda to improve collaboration amongst various stakeholders in the mining and or solid mineral sector (“the Sector”) by creating awareness of the mineral resources in a bid to optimize the Sector’s potentials for the benefit of the country. This will in the end serve as a pungent motivating factor for strategic investment in the mining sector.
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2.https://www.mondaq.com/nigeria/mining/593610/an-appraisal-of-business-potentials-and-legal-framework-in-nigerias-solid-minerals-sector. (Accessed on the 15/1/2023)
3. https://african.business/2021/12/energy-resources/all-you-need-to-know-about-nigerias-mining-law/. (Accessed on the 15/1/2023)
4.https://banwo-ighodalo.com/grey-matter/doing-business-in-nigeria-some-of-the-incentives-available-to-investors (Accessed on the 15/1/2023)
This article is for information purposes and is not intended as a legal opinion or advice on any issue. Therefore, any usage of this article must be with the proper legal guidance as the position of the law may have changed.