CHAPTER FOUR
NATIONAL POLICY ON SOLID MINERALS AND MINING INCENTIVES
4.1 Policy Evolution and Governance of the Sector
To a large extent, the performance of the solid minerals subsector has depended on the evolution of government policies over the years. Organised mining activities began in Nigeria between 1902 and 1923 following the commissioning in 1903 and 1904 of mineral surveys of the Southern and Northern Protectorates by the then British Secretary of State for the colonies. Modern mining of tin ore (cassiterite and associated minerals) was initiated by the Royal Niger Company in 1905. The mining of gold began in 1914 in areas located within present day Niger and Kogi States. Coal mining began at Enugu in 1916. By 1919, the Geological Survey of Nigeria was established as a department of government to take over and continue mineral surveys of the country.
The Minerals Ordinance of 1946 and the Coal Ordinance No. 29 of 1950 provided the legal basis for the development of solid minerals in Nigeria. The former vested ownership of all minerals in the British crown. It provides that “the entire property in land and control of minerals and mineral oils, in or under or upon anylands in Nigeria, and of rivers, streams and water courses throughout Nigeria, is and shall be vested in the state”. The Minister of Mines and Power was empowered to grant prospecting and mining rights and leases to individuals and/or corporate organizations on application and payment of appropriate fees.
From the foregoing it is clear that the original cardinal principle of government’s policy on prospecting and extracting mineral resources of the country on commercial basis was non-investment of public funds in the risk of mining investment. It was believed that investment in mining activities involved large sums of money on prospecting without any certainty of remunerative returns. The policy engendered a situation whereby large-scale foreign companies and small-scale indigenous miners concentrated their efforts on the production of minerals with export potential, neglecting minerals meant for local industries. Apart from coal which was mined by a government department, the mining of solid minerals was entirely in the hands of private expatriate and indigenous companies and entrepreneurs.
Prior to 1971, British mining companies dominated the scene with up to 120 companies at the peak of tin mining. These companies were well equipped. They employed qualified staff and paid detailed attention to efficiency considerations. All these combined contributed to large-sized output and employment. The Minerals Ordinance of 1946 and allied regulations which were re-enacted as the Minerals Act of 1959 applied globally to the exploration and exploitation of minerals without any particular distinction to special sets of minerals singly or in groups. However, as years passed, the development of mining particular minerals necessitated special regulations and led to the enactment of special Acts to govern the exploitation of special minerals. Such Acts included the Nigerian Coal Mining Act of 1950, the Gold and Diamond Trading Act, the Explosives Act of 1964, the Tin Act No. 25 of 1967, and the Quarries Act and Allied Regulations of 1969.
In 1971 the government policy on solid minerals was drastically reviewed. Government decided to act as catalyst in the mining sector through the establishment of mining corporations which would use government funds for mining. The main policy thrust was the rejection of the concept of private-sector-led development of the solid mineral subsector. Government was of the opinion that the objective of that ensuing mining policy would be to secure the development, conservation and utilisation of the mineral resources of Nigeria in the best possible manner so as to bring about economic benefit for the largest possible period, and that there was no reason to suppose that the private investor was the best instrument with which to achieve the objective. It thus meant that if prospecting and exploitation of minerals were to remain solely in the private sector, the country would be at a disadvantage.
To achieve the objectives of the new policy, government which had hitherto refrained from direct participation decided to participate directly in the mining industry. It established the Nigeria Mining Corporation (NMC) in 1972 to engage in direct investment in the exploitation of known economically viable minerals other than coal and marble. Through subsidiaries, the NMC engaged in the exploitation of kaolin, barytes, cassiterite, columbite, limestone and clays. The Nigerian Coal Corporation (NCC) was responsible for mining coal. Later the Nigerian Uranium Mining Company (NUMCO) was incorporated to mine and develop uranium.
Government direct involvement in the solid minerals’ subsector has been conducted through three parastatal organizations and an agency. Minerals like coal, iron ore and bitumen have always been under the complete control of government both in exploration and exploitation. In addition to the above parastatals (under the Ministry responsible for solid minerals) through which government exercised control and direct involvement, there are other parastatals whose activities interface with those of the former but which report to other Ministries. These include the Nigerian Iron Ore Mining Company (NIOMCO) which mines iron ore at Itakpe, the National Steel Raw Materials Exploration Agency (NSRMEA) which concentrates on exploration of iron ore and coking coals, the National Metallurgical Development Centre (NMDC) whose focus is on research in mineral processing and downstream utilization studies on minerals, all of which report to the Ministry of Power and Steel, and the Raw Materials Research and Development Council (RMRDC) located in the Ministry of Science and Technology to source local raw materials – agricultural, forest, minerals and chemical – for domestic industries.
Despite the heavy public expenditure involved in the maintenance and operations of the above corporations, the expected economic advantages that informed the 1971 review of mining policy were still far from being realized.
With the exit of multinational companies and their expatriate professionals following the Indigenisation Decree of 1972, the bulk of mining operations by the private sector rested on the shoulders of small-scale indigenous miners. The surface, near surface and shallow depth deposits of the minerals had by then been variably depleted. These factors were largely responsible for production decline particularly in the metallic minerals. As a consequence, there was a shift of the tempo of mining activities to industrial non-metallic minerals needed for construction, building and industrial application for domestic industries. Furthermore, the downturn of the country’s economy adversely affected the exploration as well as exploitation of even the non-metallic minerals. The Inspectorate Department of the Ministry of Mines and Power (as it was then known) was ill-equipped. It lacked adequate and suitable manpower to carry out surveillance of the minefields with a view to ensuring compliance to safety standards and to man the exit points to identify mineral commodities being exported. Illegal mining and speculative pegging by legal title holders were rife. These problems were further compounded by administrative bottlenecks which included cumbersome procedures in processing mining applications leading to long delays, difficulties in obtaining consent to enter land for the purpose of prospecting and mining, and procedural reports necessary for the approval of applications.
The Nigerian Minerals and Mining Act6 (the "Act" or "Mining Act") is the principal legislation which regulates the Nigerian mining sector. The Act has made provisions in relation to licensing, ownership and control of minerals, and implementation. There are other legislative and policy instruments which further regulates Nigeria's mining sector in addition to the primary.
The quest for the diversification of the Nigerian economy towards activating other sources of revenue, given the country's vast human and natural resources and against the backdrop of the decline in oil revenue is currently on the upswing. One key sector which offers great potential in achieving diversification is the solid minerals sector. Consequently, the government of Nigeria has affirmed its commitment to the exploration and development of solid minerals and metals by approving a N30billion financial intervention, and prioritized for exploitation seven strategic minerals of vital importance to the economy, i.e., coal, bitumen, iron ore, barites, gold and lead/zinc which are available in ample qualities to sustain mining activities.
The potential of the Mining sector to significantly contribute to Nigeria's economy cannot be over-emphasized. An attestation to this fact is the increase in the contribution of mining and quarrying to the nation's Gross Domestic Product (GDP) which now stands at 23.54% as at Q1 2018. In addition to this, international investor interest in the sector continues to improve by the day with the federal government also recognizing the sector as a potential prime income generator away from oil. Given the large mineral deposits in the country, Nigeria has the potential to be a market leader in the mining sector. The Roadmap for the Growth & Development of the Nigerian Mining Industry of 2016 highlights the potential for increase in the sector's contribution to GDP from 5% in 2015 to 10% by 2020, thus supporting forecasts that a concentrated exploration of Nigeria's solid minerals wealth may in the short term exceed her oil wealth. It is envisaged that this shift would translate to increased public and private sector investment, more employment creation for the citizenry and overall economic and financial stability for the economy.
The use of Incentives as a veritable tool in sustaining investors' interest has become increasingly recognized globally, as most countries of the world, irrespective of their stages of development, now employ a wide variety of inducements in pursuing their economic goals. The application of incentives now exists virtually in all sectors of the economy like industries, agriculture, manufacturing, petroleum, solid minerals, energy, tourism and others. There are different kinds of incentives; and the three basic categories are financial, fiscal, and regulatory which are variously employed by most governments. The financial incentives are public-support mechanisms in the form of grants or repayable subsidies. It is common with developed countries, while developing countries prefer fiscal incentives because of the fact that they are easily affordable in promoting investment and do not require up-front utilisation of government funds. Regulatory incentives on the other hand are in the form of concessions, exemptions from labour or environmental standards and subsidized infrastructure which are also applicable in most countries.
4.2 Mining Incentives
The Act provides for the following fiscal and tax incentives.
In determining its total profits, a license holder is entitled to deduct from its assessable profits a Capital Allowance of 95% of Qualifying Capital Expenditure incurred in the year in which the investment was made on all- certified exploration, development and processing expenditure including feasibility study and sample assaying cost. - Infrastructure costs incurred regardless of ownership or replacement.
The amount of any loss incurred by a license holder shall be deducted as far as is possible from the assessable profits of the first year of assessment after that in which the loss was incurred and in so far as it cannot be so made then from such amounts of such assessable profits of the next year of assessment and so on up to a limit of four years after which period any unregistered loss shall become lapse.
All operators shall be granted the following benefits: Exemption from payment of customs and import duties in respect of plant, machinery, equipment and accessories imported specifically and exclusively for mining operations Expatriate quota and resident permit in respect of the approved expatriate personnel; and Personal remittance quota for expatriate personnel, free from any tax imposed by any enactment for the transfer of external currency out of Nigeria. The machinery, equipment and accessories to be imported shall be approved by the Mines Inspectorate Division. The plant, machinery, equipment and accessories imported pursuant to this section may be disposed of by the holder of Mineral Title upon full payment of customs and import duties in respect thereof.
The Central Bank of Nigeria (CBN) may permit a holder of a Mineral Title who earns foreign exchange from sale of his minerals to retain in a foreign exchange domiciliary account a portion of his earnings for use in acquiring spare parts and other inputs required for the mining operations which would otherwise not be readily available without the use of such earnings.
The Act also guarantees free transferability of funds through the CBN in convertible currency of - payments in respect of loan servicing where a certified foreign loan has been obtained by the holder for his mining operations- the remittance of foreign capital in the event of sale or liquidation of the mining operations or any interest therein attributable to foreign investment.
The Act provides a tax relief period of 3 years for any company granted a Mineral Title under the Act. The tax relief period may be extended for a further period of 2 years by the Minister on the fulfillment of certain conditions. The tax relief period commences on the date that the license holder commences operations. Under the Companies Income Tax Act (CITA) mining companies are only granted a tax relief period of 3 years without an option for an extension. There are ongoing debates over the validity or otherwise of the extension period granted under the Mining Act. This is however beyond the scope of this paper.
Section 30 of the Act provide for deductibility of environmental cost. It specifically states that: “A tax deductible reserve for environmental protection, mine rehabilitation, reclamation and mine closure costs shall be established by companies engaged in the exploitation of mineral resources, provided however, that the appropriateness of the reserve is certified by an independent qualified person considering the determination made under the provisions of this Act: - (a) the reserve is recorded in the audited financial statements of the companies. (b) Tax deductibility will be restricted to actual amount incurred for the purpose of the reclamation; and (c) a sum equivalent to the reserve amount is set aside every year and invested in dedicated account or trust fund managed by independent trustees appointed pursuant to the provisions of the Act.
A tax-deductible amount established in accordance with the applicable rate set out in the Pension Reform Act shall be imposed on mining companies or enterprises, towards the payment of pensions to each employee. Section 32 provides for Annual Capital Cost Indexation. It states that the unclaimed balance of capital cost shall be increased yearly by 5 percent for mines that start production within 5 years from the date of enactment of the Mining Act.
The Act provides that any mineral obtained in the course of exploration or mining operations shall be liable to pay royalty as prescribed in any regulations made under the Act. However, the Minister may also defer the payment of royalty on any minerals for a specific period, on the approval of the Federal Executive Council.