AJUMOGOBIA & OKEKE Nigerian Mining Sector: Legal & Regulatory Overview (2015)
INTRODUCTION Nigeria has a variety of mineral deposits creating a basket of as yet undeveloped reserves across the country ranging from Tin, Columbite coal, Barite, Bentonite, Gold, Bitumen, Limestone, Iron ore, Tantalite, Granite, Gem stones, Lead, Silver, Lithium, Gypsum, Marble. Mining and mineral exploitation will receive increasing attraction from government policy makers as the push to diversify the economy away from Hydro carbon reliance continues. The relative underdevelopment of the sector in industry terms creates an opportunity for foreign and domestic investment. 4 5
LEGAL & REGULATORY FRAMEWORK Relevant Policy Statutes Minerals and Mining Act No. 20 of 2007 (the MMA): The Act is the principal legislation that regulates the Nigerian mining sector. The Act vests the control, regulation and ownership of all mineral resources in the Federal Government of Nigeria (FGN). The National Minerals and Metals Policy 1 Nigerian Minerals and Mining Regulations 2011 (the Regulations) 2 : The Federal Ministry of Mines and Steel Development (the Ministry) recently issued new mining regulations titled the Nigerian Minerals and Mining Regulations 2011 (the Regulations) which is intended to establish a more coordinated and accountable solid minerals sector in the country and to stamp out the discretionary grant of mineral titles. The Regulations were issued for the purpose of setting out the rules, procedures and processes for the acquisition of mineral titles, and to give effect to the Minerals and Mining Act No. 20 of 2007 (the MMA) The Company and Allied Matters Act Cap 20 Laws of the Federation of Nigeria 2004 (CAMA) This is the law that regulates company formation and operation in Nigeria, no foreign company may carry on business in Nigeria unless it incorporates a local subsidiary in the country. The MMA also states that no person shall be qualified for the grant of any mining title unless the person is a body corporate duly incorporated under CAMA. Companies Income Tax Act (CITA) 1 After the Nigerian Minerals and Mining Act was enacted in 2007, by the National Assembly, it was followed with the launch of the National Minerals and Metals Policy by the Ministry of Mines and Steel Development (MMSD), in January 2008. 2 The former Minister of Mines and Steel Development, Arc. Musa Mohammed Sada announced the commencement of the Regulations on 24 May 2011, when he delivered a presentation of Nigeria s Minerals and Mining Regulations to investors, stakeholders and members of the public in Abuja. The May 2011 event marked the completion of Nigerian Mining programme geared towards the provision of the required regulatory framework for mining in Nigeria. The Minister stated that the Regulations were aimed at meeting the yearnings and aspirations of all stakeholders, prospective indigenous and foreign investors since their inputs were taken into consideration in the formulation of the document. 6 7
PUBLIC AUTHORITIES: THE MINISTRY OF MINES AND STEEL DEVELOPMENT (MMSD) AND THE MINING CADASTRE OFFICE The administration of the mining industry is vested in the Ministry of Mines and Steel Development (MMSD) and the Mining Cadastre Office. The Minister The administration of the mining industry is vested in the Minister of Mines and Steel Development. The functions of the Minister include, amongst other things, ensuring the orderly and sustainable development of Nigerian s mineral resources, creating an enabling environment for private investors, both foreign and domestic by providing adequate infrastructure for mining activities etc. The Minister is also empowered within his ministry to establish the following departments: 1. Mines Inspectorate Department; 2. Mines Environment and Compliance; and 3. Such other departments as he deems fit 3 Cadastre Office The Act creates the Mining Cadastre office. Its headquarters are located in Abuja and with a number of zonal offices for administrative convenience 4. It is a body corporate with perpetual succession and a common seal given the responsibility of the administration of mineral titles and the maintenance of the cadastral registers 5. The Cadastre office considers applications for mineral titles and permits, issue, suspend and upon the written approval of the Minister revoke registers 6. These registers include a register of Reconnaissance Permits; Exploration Licenses; Mining Leases; Small-Scale Mining Leases; Water Use Permits; and Quarry Leases 7. It is also required to grant property rights on the criteria of priority where there are competing applications for the same exclusive area 8. Minerals Minerals include any substance whether in solid, liquid, or gaseous form occurring in or on the earth, formed by or subjected to geological processes including occurrences or deposits of rocks, coal, coal bed gases, bituminous shales, tar sands, any substances that may be extracted from coal, shale or tar sands, mineral water, and mineral components in tailings, and with waste piles but with the exclusion of petroleum and waters without mineral content 9. 3 Section 6 MMA 2007 4 Section 6 MMA 2007 5 Section 5(2) MMA 2007 6 Section 5(5) MMA 2007 See also Section 10 and 11 for grounds of revocation 7 Section 7 MMA 2007 8 Section 8 MMA 2007 9 Section 164 MMA 2007 8 9
Mineral Operations The operation and works carried out in the course of mineral exploration, inclusive of the search for and exploration of minerals, beneficiation, processing and contract mining all qualify for mineral operations 10. Legislation deals with matters incidental to the exploration of minerals such as the proprietary titles for exploration 11 and their respective durations 12, qualifications for obtaining such titles 13, rights and obligations of title holders 14, limits to such rights 15 persons disqualified from having exploration titles 16, discovery of radioactive materials 17 in mining areas as well as discovery of minerals not specified in licenses 18 and the duty of non-disclosure of confidential information by officers or former officers with respect to exploration 19. Excluded, however, are certain types of land from exploration purposes. These include land set aside for military purposes except with the approval of the president, land within 50 metres of an oil pipeline, license areas issued under the Oil Pipeline Act, lands over which mineral titles had previously been granted by the Cadastre office and still subsisting, etc. LICENCES The Minerals and Mining Regime 20 Under this, the available property titles available include Mineral Titles and Licenses. Part V of Chapter 1 of MMA prohibits any person from prospecting for minerals except with a Prospecting or Exclusive Prospecting License granted by the Minister 21. 10 Ibid 11 Section 46 MMA 2007 12 Sections 57, 62, 66 MMA 2007 13 Section 47-52 MMA 2007 14 Section 60, 61, 66, 68, 70, 74, 78 MMA 2007 15 Section 69 MMA 2007 16 Section 53 MMA 2007 17 Section 44 of the MMA 2007 makes radioactive materials under the operation of the Nuclear Safety and Radioactive Act Cap N19 LFN 2004 18 Section 64 of MMA 2007 19 Section 45 of MMA 2007 20 See Section 46 of MMA 2007 21 Section 26(1) of MMA 10 11
The various types of licenses under the Regulations include: Reconnaissance Permit (RP) Reconnaissance Permit is issued for a period of 1 year and may be renewed upon satisfactory application. The grant of a Reconnaissance Permit enables the holder to carry out reconnaissance on a non-exclusive basis, conduct reconnaissance activities in an environmentally and socially responsible manner. The holder shall however, not engage in drilling, excavation or other subsurface techniques. Reconnaissance Permit terminates upon expiration of the term granted unless it is revoked. Reconnaissance Permit shall not be granted over any land that is or has become subject to an exploration license, small scale mining lease, mining lease or water use permit. In fact, this permit is awarded to individuals, incorporated companies and mining co-operatives. Its duration is for one year and is renewable annually. The permit confers on the holder the non-exclusive right to search for mineral resources and the area covered is not limited. However, drilling and other subsurface activities are not permitted. A holder is allowed to obtain and remove samples in small quantities only. This permit is not transferable. Applying for Reconnaissance Permit Processing Fees: N10,000 (Approx. $45) Pre-grant conditions Duly completed application forms; Description of the work area and activities to be carried out; Attestation of non-conviction of criminal offences; Receipt of payment of processing fee; Evidence of technical competence; and Evidence of financial capability Exploration Licence (EL) The holder of an exploration license has exclusive right to conduct exploration upon the land within the area of his license. An exploration license is granted in respect of an area not exceeding 200 square kilometres. The duration of an exploration license is for 3 years and it may be renewed for two further periods of 2 years each so that the term and any renewal do not exceed 7 years. An application for exploration license will be accepted unless the area is already under existing titles or closed to mining operations. In the case of partial overlap, an applicant will be given an opportunity to redefine the areas applied for. Successful applicants will be issued the exploration license if it is shown that they have paid the Annual Service Fee specified in the Schedule. A title holder may apply to the MCO to suspend the work obligation for a particular year. Where the application for suspension is granted, this will in turn have an impact on the amount of fees and royalty payable by the title holder under the Regulations. To reiterate, the licence is awarded to incorporated companies, mining co-operatives and holders of RP in respect of a mining area. This has a duration of 3 years, renewable for 2 further periods of 2 years each (i.e., it shall not exceed 7 years). It confers on the holder the right to explore [discover, determine the characteristics and evaluate the economic value of mineral resources] on an exclusive basis for all mineral resources within the title area (established zone only). The mining activity is restricted to specified minerals. The holder is allowed to remove, conduct bulk sampling and testing, export and sell mineral resources not exceeding established limits and the mining area is not more than 200 sq km consisting of one contiguous polygonal area. Applying for an Exploration Licence Pre-grant conditions In addition to the mining pre-grant conditions, there is a requirement to submit a detailed work program (with COMEG stamp signature) Mining Lease (ML) A mining lease confers on the holder (among other rights) the right to obtain access and enter the mining lease area, the exclusive use, occupation and the carrying out of mineral exploitation within the mining lease area. 12 13
The duration of a mining lease is usually for the term applied for by the applicant but not exceeding 25 years in the first instance. Renewal may be granted for a further term not exceeding 25 years for each renewal, subject to the holder complying with the minimum work obligations and commitments. There is no limit to the number of times that a mining lease could be renewed. The applicant is required to identify the mineral resources located in the area being applied for and list the type to be mined. The application must also be accompanied by a prefeasibility study which shall include: A general description of the proposed mining scheme; The planned commencement date of commercial mineral resources production; The planned production profile and capacity; and The characteristics and nature of the final product. Mining operations can be conducted in all areas within the land borders, the territorial waters, the continental shelf and in the exclusive economic zone of Nigeria, except areas that are already under existing mineral titles or closed to mining operations by virtue of the Act, Regulations or any other law in force. A Mining Lease is awarded to an incorporated company or any legal entity that has met the conditions for the issuance, in respect of a subject area of application, holders of EL and SSML. All mining leases are for 25 years, renewable for a maximum period of 20 years. The holder has the exclusive right to carry out all mining operations within the mining lease area. The land area is determined in relation to the orebody defined in the feasibility study and additional area for working of materials. The holder also has the right to market, sell, export or otherwise dispose mineral products from mining, and the right to use water, wood, etc found on land. Applying for a Mining Lease (ML) Processing Fees: N50,000 (Approx. $225) Pre-grant conditions Duly completed application forms Pre-Feasibility Report (with COMEG seal and signature) Prospective plan / Reserve estimation Extant exploration licence Evidence of financial capability Evidence of technical competence Irrevocable consent from land owner(s) / land occupiers(s) Attestation of non-conviction of criminal offences under the Act Evidence of payment of processing fee Certified true copy of certificate of incorporation Mineral(s) to be exploited Area specified to be surveyed in accordance with provisions of Survey Co-ordination Act Notice to land owner(s) with a response on rate to be paid Pre-Development Conditions / Post-grant Conditions Environmental Impact assessment Community Development Agreement. A copy to be submitted to the MCO and all relevant departments in the Ministry Compensation Mine closure / rehabilitation plan Reports from state bodies Small Scale Mining Lease (SSML) This license gives the holder the right to conduct artisanal operations which does not involve the use of extensive and continued use of explosives, toxic chemicals or agents. The holder will usually not employ more than 50 workers and would not have underground workings more than 7 metres below surface nor galleries extending more than 10 metres from a shaft. An applicant holding an exploration license may apply for a small scale mining lease or make a fresh application for issue of same. Small scale mining lease is granted for a period of 5 years and may be renewed upon application for another term of 5 years. The SSML is awarded to individuals, incorporated companies, mining co-operatives and holder of exploration license in respect of a mining area. The holder of the lease has the exclusive right to carry out small-scale mining operations [mining operations involving low level technology or methods not requiring substantial expenditure] within the title area. The mining area is greater than 5 acres but less than 3 Km. 14 15
Quarry Lease (QL) Quarrying under the MMA applies in relation to all naturally occurring quarriable minerals, such as asbestos, china clay, fuller s earth, gypsum, marble, limestone, mica, pipe clay, slate, sand, stone, late rite, gravel, etc. which may also be lawfully extracted under mining leases. A quarry lease is granted in respect of a land area not exceeding 5 square kilometers and covers a 5 year period unless renewed. A quarry lease confers on its holder the right to carry out quarrying operations on the land within the area of the lease and to remove and dispose of any quarriable mineral specified in the lease. Water Use Permit (WUP) Exclusive right to obtain and convey water and/or occupy land for the conveyance of water. The permit is usually granted to holders of EL, ML, QL and SSML. The WUP is for the duration of the original licence granted. An individual or a company can make an application to the MCO for a licence to explore for a particular mineral of interest. The requirements for applying for a mineral title are summarised in the Appendix below. An application must be accompanied by a prefeasibility study and a receipt of payment of quarry lease application processing fee. To cap, a Quarry Lease (QL) is usually awarded to individuals, incorporated companies, mining cooperatives and construction companies that need to extract minerals for own use and holders of EL. Minerals usually quarried include gravel, asbestos and gypsum amongst others. QL confers the exclusive right to carry out quarry operations within the lease area. The holder has the right to remove and dispose any quarriable mineral specified in the lease. The quarry area is less than or equal to 5 sq km. Applying for Quarry Lease / Small scale mining lease (QL / SSML) Pre-grant conditions Processing Fees: N20,000 (Approx. $90) The same conditions as ML will apply with the exception of the two below: Prospecting plan / reserve estimation; Extant exploration licecse 16 17
REQUIREMENTS FOR APPLICATION FOR MINERAL TITLES A mining title can be granted to an individual, a company or a co-operative. The grant of exploration license or mining lease could be by competitive bidding or on individual request. In competitive bidding, the government consolidates various mineral locations into blocks, and offer the blocks for sale to international and local investors with sufficient financial and technical capabilities to carry on mining operations. The bidding procedure will normally include: An advertisement in both local and international Media Data room due diligence process Receiving Expression of Interest (EOI) Selection of preferred investor Communication of selected investors to the National Assembly Committee on Solid Minerals Offer of the mineral title The last bid round was conducted in 2006. It is likely that the government will offer new blocks/mineral concessions for competitive bidding in the near future. Priority The MCO maintains a register which is strictly administered for competing applications for the same exclusive area. In situations where there are several applications for the same area or overlapping areas, the first-come, first-served approach will be used to determine which person will be regarded as an applicant for the purpose of granting an exploration licence or a mining lease; provided the application is complete and properly submitted. Technical Competence All applicants for an exploration licence and reconnaissance permit shall have in its employment persons who possess adequate qualification and experience in exploration and registered with the Council for Mining Engineers and Geoscientists (COMEG) and any other relevant professional body. Applicants for a mining lease shall have in its employment person(s) who possess adequate qualification and experience in mining and who is registered with COMEG and any other relevant professional body. Applicants for a quarry lease or small scale mining lease shall have in its employment persons who possess a minimum qualification of a certificate in mining or quarrying or related fields. 18 19
Minimum Work Obligations The Mines Inspectorate Department ( MID ) prescribes minimum annual work obligations for mineral title holders. Mineral title holders are required to submit for approval details of work to be carried out under the supervision of personnel from COMEG to the MID. In addition Mineral title holders are required to submit reports and obtain approval from MID when needed on the quantity and means of production. Transfer and Assignment of Mineral Titles The holder of any of the mineral title except a Reconnaissance Permit may apply to the MCO to transfer or assign the ownership of the mineral title. A Reconnaissance Permit title holder may not transfer or assign such permit to any party. In the event of death or mental incapacity of an individual titleholder, while all other mineral titles may be transferred or assigned subject to the provisions of the Regulations, a reconnaissance permit shall be revoked. Transfer of Mineral Title: Mineral titles, with the exception of RP, are transferable under the Act, subject to the approval of the Minister and registration of the transfer with the MCO. Rights arising from a mineral title that are transferable under the Act can be wholly or partially assigned, sub-leased, pledged, mortgaged, charged, hypothecated or subject to any security interest. The approval of the MCO shall not be required for an assignment to an affiliate, where the obligations of the affiliate are guaranteed by the assignor or by a parent company. Reporting Requirement Mineral title holders are expected to meet the prescribed reporting requirements in line with the Regulations. Failure to meet the reporting requirements may lead to the revocation of the mineral title by the MCO upon receipt of notice to that effect from the MID. Registration of Agents for Movement of Minerals An application for registration as an accredited agent shall be made by the holder of a mineral title to purchase and possess minerals on behalf of the agent to the MID. A qualified and accredited agent of a company shall be issued with a letter of identity by the MID to possess minerals on behalf of a lessee or licensee or holder of a licence to purchase and possess mineral. Confidentiality of Information Information submitted in reports by mineral title holders shall not be disclosed for a period of six months from the expiry or revocation of the mineral title except with the prior written consent of the mineral titleholder. All information submitted in support of applications and renewal for a mining lease, small scale mining lease quarry lease, water use permit shall be kept confidential. Obligations of Mineral Title Holders Mineral title holders are required to pay rents due under the mineral title, use the land for mining purposes only, report details of discovered minerals, comply with all conditions and obligations in the Act and the Regulations applicable to mineral titles, comply with terms of any Community Development Agreement to which he is a party, observe all environmental, health and safety provisions stated Regulations. They are also required to comply with all directives issued by the Ministry, agencies or authorised officers and allow authorised public officers to carry out inspection on the land or mining area. Sanction for Breach of the Act and Regulations The MCO may revoke a mineral title for any reason under the Act that requires revocation. A revocation becomes effective upon receipt of the Minister s written permission to the MCO and after 30 calendar days notice of intention to revoke the mineral title. The notice will contain details and grounds for the revocation and give the holder an opportunity to remedy the breach complained of. 20 21
FISCAL REGIME Taxes, Royalties & Fees Companies involved in mining activities are required to pay tax under the CITA. However, individuals and partnerships engaged in mining activities are required to pay tax under the Personal Income Tax Act. Corporate Income Tax (CIT) The profit of a company engaged in mining activity is liable to CIT at the rate of 30%. The tax is applicable on the total profits of the company, after adjusting for nontax-deductible items, unutilised losses from prior years and capital allowances (tax depreciation), if any. The CIT is payable to the Federal Inland Revenue Service (FIRS). If a mining company s turnover is below N1million within the first five years of commencement of business, it will be liable to tax at the rate of 20%. However, this provision would not apply where such mining company is granted a pioneer status (0%). Education Tax (EDT) 22 Nigerian companies engaged in mining activities are also liable to education tax (EDT) at the rate of 2% of their assessable profit. The EDT is also payable to the FIRS. Personal Income Tax (PIT) An individual or partnership carrying on mining activities is liable to PIT on any profit or gain from such activity in line with the provisions of PITA. The effective applicable tax rate is about 19% on the total income or profits. PIT is payable to the States Boards of Internal Revenue (SBIRs) where the individual or the partners is resident. 22 The Education Tax (Amendment) Act, Cap E4 LFN 2004 22 23
Valued Added Tax (VAT) 23 A mineral title holder is expected to charge VAT at the rate of 5% on all minerals sold locally. Minerals exported from Nigeria are, however, zero-rated based on the provision of the VAT Act. Royalty Royalty is payable by companies engaged in mining activities in Nigeria. It is calculated on ad valorem basis. The applicable royalty rates range from 3% to 5% depending on the type of mineral. The Minister may grant a concession to a mineral title holder to defer payment of royalty on any mineral for a specific period, subject to the approval of the Federal Executive Council. Annual Service Fee Holders of a mineral title, other than the holder of an RP, shall pay an annual service fee to the MCO equal to the number of Cadastral Units that comprise the title area multiplied by the fee per Cadastral Unit for that type of title. This fee is payable on the anniversary of the issuance of the mining title. Annual Surface Rent Holders of a small-scale mining lease, mining lease, quarry lease, or water use permit shall pay annual surface rent to the owner or occupier of the land, subject to the approval of the Minister. It is also subject to review by the Minister at intervals of five (5) years. Other Application and Licence Fees Other fees/levies may be imposed by the MCO and relevant state or local government authorities. However, in the interest of certainty, Federal Inland Revenue Service (FIRS) will be required to clarify certain issues around these incentives. For example: 23 The Value Added Tax Act, Cap V1 LFN 2004 (VAT) Tax Holiday Period MMA grants an initial period of 3 years, which is renewable for an additional 2 years. CITA grants new mining companies a tax holiday period only tax holiday for a period of 3 years from commencement of mining operations. No reference to a renewal was mentioned by CITA. The grant of a tax holiday under MMA and that granted by the IDITRA provisions are similar. Given that the MMA is a specific legislation focused on the industry and it came later in time to the CITA and IDITRA, the applicable rule of interpretation would suggest that MMA provisions would override both. However, there is the risk that the FIRS may restrict the mining company s ability to enjoy the incentives to the regime of the MMA. So clarity is required. Incentives for the mining sector (Applicable Incentives) The key incentives available to companies engaged in mining operations are summarized below: Under the Mining Act Tax holiday for an initial period of 3 years from commencement of operations and renewable for additional 2 years. Exporters of mineral products may be permitted to retain part of their foreign exchange earning in a domiciliary account for the purpose of acquiring spare parts and other mining inputs. Exemption from customs and import duties in respect of plant, machinery equipment and accessories imported exclusively for mining operations. However, the plant and equipment can only be disposed of locally upon payment of the applicable customs and import duties. Free transferability of foreign currency through the Central Bank of Nigeria (CBN) for the following: - Payment for servicing of certified foreign loan - Remittance of foreign capital in event of sale or liquidation of the business. Grant of personal remittance quota for expatriate personnel free from any tax imposed by any enactment for the transfer of external currency out of Nigeria. All infrastructure cost provided by the mining company and approved by the MCO 24 25
to be capitalised and capital allowance claimed at 95% in the first year of operation. Annual indexation of unutilised capital allowance carried forward by 5% for mines that commenced production within 5 years from the date of enactment of the Act. Accelerated Capital Allowance on mining expenditure (95% initial allowance and retention of 5% until asset is disposed). The Minister may grant a concession for the royalty payable on any mineral to be deferred for a number of years, subject to the approval of the Federal Executive Council. Actual amount incurred out of reserves made for environmental protection, mine rehabilitation, reclamation and mine closure cost shall be tax deductible, subject to certification by an independent qualified person. Pioneer status Pioneer Status is a tax holiday granted to qualified (or eligible) industries anywhere in Nigeria and the grant is aimed at enabling such a company achieve significant capital expenditure and returns during its nascent years. The IDITRA provides for the grant of tax holiday for a period of 3 years which may be extended at the end of the initial 3 years for a period of 1 year and thereafter for another period of 1 year or for one period of 2 years upon satisfactory compliance with certain conditions. Tax incentives In addition to the numerous incentives already provided in our various tax statutes, the Federal Government, with a view to encouraging foreign direct investment, has released certain regulations providing various tax reliefs to companies. The Companies Income Tax (Exemption of Profits) Order 2012 issued by the President confers three categories of tax relief on companies doing business in Nigeria. These are: 1. Employment Tax Relief (ETR), which exempts a company from income tax on 5% of its assessable profits in an assessment period, provided 60% are employees without any form of work experience, and must have a minimum of 10 employees. 2. Work Experience Acquisition Programme Relief (WEAPR), which grants exemption from income tax on 5% of assessable profits, provided the company retains five new employees for a minimum of two years from the year in which they were employed. 3. Infrastructure Tax Relief (ITR), which grants income tax exemption on 30% of cost incurred in providing infrastructure or facilities such as roads, water and electricity of a public nature. 26 27
Summary of Capital Allowances for a Mining Company is provided below: Initial Allowance 24 Annual Allowance Mining Expenditure Motor Vehicle Mining Expenditure Motor Vehicle Companies 95% Companies 50% Companies 0% Companies 25% Individuals 20% 25 Individuals 25% Individuals 10% Individuals 20% Furniture & Fittings Companies 25% Building & Leasehold (not Industrial Buildings) Companies 15% Furniture & Fittings Companies 20% Building & Leasehold (not Industrial Buildings) Companies 10% Individuals 15% Individuals 5% Individuals 10% Individuals 10% 24 Companies are entitled to additional investment allowance of 10% on plant and machineries purchased for use in their operation. 25 Although the PITA stipulates that individuals engaged ibn mining would be entitled to initial and the annual allowance of 20% and 10% respectively on qualifying mining expenditures, the Mining Act provides that the accelerated initial allowance of 95% is applicable to all entitles engaged in mining, whether individuals or limited liability companies. 28 29
A new company engaged in mining activities shall be exempted from tax for the first three years of its operation The profits earned by a mining company after the initial tax holiday period may be exempted from income tax under the following circumstances: a) If the minerals are exported from Nigeria, and the proceeds from such exports are repatriated to Nigeria and used exclusively for the purchase of raw materials, plants, equipment and spares. b) If the minerals produced are exclusive inputs for the manufacture of products for exports, provided the exporter gives a certificate of purchase of input to the company. Potential exemption of interest on foreign loan from income tax, subject to the conditions stipulated under CITA Where a mining company records a turnover below N1million within the first five years of commencement of business, it will be liable to tax at the rate of 20%. Grant of Investment Allowance of 10% on qualifying plant and machinery. A company may also be entitled to claim an additional rural investment allowance on its infrastructure cost, depending on the location of the company and the type of infrastructure provided. PROTECTION OF FOREIGN INVESTMENT IN MINING Capital Allowances Under CITA 30 31
The Nigerian Investment Promotion Commission (NIPC/Commission) is a Federal Government Agency in Nigeria established to encourage, promote, and coordinate investments in Nigeria. The Agency provides services for the grant of business entry permits, licences, authorisations and incentives. The services are provided in a coordinated, streamlined, efficient and transparent manner to meet the needs of investors. The Nigerian Investment Promotion Commission Act (NIPC Act) is an Act to establish the NIPC, to encourage and promote investment in the Nigerian economy, and for related matters. The NIPC Act provides that a non-nigerian may invest and participate in the operation of any enterprise in Nigeria. However, for an enterprise in which foreign participation is to be allowed will have to be incorporated or registered under the Companies and Allied Matters Act (CAMA) before it can commence business. Once registration has been done with CAMA, such enterprise shall apply to be registered with NIPC before it can also commence business. The Nigerian Export Promotion Council (NEPC/Council) is the government agency responsible for regulation, promotion, recording and monitoring of export trade in the country. It is the organ which the government uses to implement its export policies and strategies. The Nigerian Export Promotion Act (NEPC Act) is an act to establish the Nigerian Export Promotion Council to promote the development and diversification of Nigeria s export trade, assist in promoting the development of export oriented industries in Nigeria, and other related matters. The NEPC was established as a service unit to offer funding and support to indigenous manufacturing companies and other companies that produce exportable products so that they can get their products into the export market easily. They make it easier for exporters to access the foreign market, identify products that can be exported, understand standardization, specifications and packaging requirements. Every exporter is required to register with the NEPC. This will entitle the exporter to qualify for the available incentives upon satisfying the prescribed requirements. Some of the existing incentives include: to diversify export products and market coverage. The EEG is granted to eligible exporters that have repatriated in full, the proceeds from their export transaction, as confirmed by the Central Bank of Nigeria (CBN). Currency Retention Scheme The Foreign Exchange Act enables exporters to open and maintain a foreign currency domiciliary account into which their export proceeds can be paid and retained. Funds in the account can be sold in the inter-bank foreign exchange market or utilised by the exporter to pay for export related activities as may be prescribed by the NEPC in consultation with the CBN. Rediscounting of Short-term Bills This entitles an exporter to discount bills of exchange and promissory notes with his bank in order to increase his liquidity and minimise cash-flow problems before export proceeds are realised from overseas buyers. Standards for Measuring Violations of Investment Agreements Under the NIPC and under Customary International Law, Nigeria is obligated to protect FDI subject to a number of standards including MFN 26, FET 27, and NT standard. Thus, in order to facilitate and protect FDI and enhance the protections which may be available under national law, a number of standards or measures have evolved and have become an intrinsic element of several trade and investment treaties whether bilateral or multilateral 28. Export Expansion Grant (EEG) The EEG is a government policy tool to stimulate export activities that will lead to significant growth of non-oil exports in Nigeria. The objective is to facilitate increase in export volume and enable exporters 26 See United Nations Conference on Trade and Development (UNCTAD), Most-Favoured-Nation Treat ment, UNCTAD Series on Issues in International Investment Agreements, (New York & Geneva: United Nations, 1999) 27 See UNCTAD, Fair and Equitable Treatment, UNCTAD Series on Issues in International Investment Agreements, (New York & Geneva: United Nations, 1999) 28 Ibid. at Page 7 32 33
These standards include: the Most Favoured Nation (MFN) standard 29 the Fair and Equitable Treatment (FET) standard 30 the National Treatment (NT) standard Prevention of Arbitrary and Discriminatory Measures Impairing Investments Full Protection and Security standard Free Transfer of Funds Relating to Investments No expropriation Without Compensation Compliance With Specific Investment Undertakings DISPUTE RESOLUTION Derogation from the above gives rise to liability and triggers international dispute resolution mechanisms outside local municipal judicial system and uncertainties which may be associated with submission to its jurisdiction 31. 29 See United Nations Conference on Trade and Development (UNCTAD), Most-Favoured-Nation Treat ment, UNCTAD Series on Issues in International Investment Agreements, (New York & Geneva: United Nations, 1999) (UNCTAD FET) 30 Ibid. per UNCTAD FET 31 See generally Aderemi Ogunbanjo, The National Treatment Standard in International Investment Law, unpublished LL.M thesis, University of Birmingham School of Law, 2008 34 35
Under the Minerals and Mining Act 2007, any dispute arising between the holder of a mineral title and the Government in respect of the interpretation and application of the Act, its regulations and the terms and conditions of mineral titles shall be resolved, in the first instance, on an amicable basis. Where the dispute is in the nature of a bona fide investment dispute, and such dispute is not amicably settled as stated above, it shall be resolved in accordance with the provisions of the NIPC Act. Any other dispute not settled within these parameters and any offence under the Act and regulations shall be resolved and tried in the Federal High Court. It is clear that ICSID will provide protection based on NIPC and the ICSID Convention to an investor in cases of expropriation or other interference with the investment. In fact, in a number of ICSID cases, such as Southern Pacific Properties (Middle East) Ltd. v. Arab Republic of Egypt (Decision on Jurisdiction) 32 ; Inceysa Vallisoletana S.L. v. Republic of El Salvador (Award) 33 ; and Zhinvali Development Ltd. v. Republic of Georgia (Award) 34, it is evident that the ICSID is always ready to interpret International Investment Agreements (IIAs) expansively towards making a finding that the host country had intended to arbitrate investment disputes with a foreign investor before the ICSID. Under the NIPC Act, where a dispute arises between an investor and any Government of the Federation in respect of an enterprise, all efforts shall be made through mutual discussion to reach an amicable settlement. Any dispute between an investor and any Government of the Federation in respect of an enterprise to which this Act applies which is not amicably settled through mutual discussions, may be submitted at the option of the aggrieved party to arbitration as follows: In the case of a Nigerian investor, in accordance with the rules of procedure for arbitration as specified in the Arbitration and Conciliation Act; or In the case of a foreign investor, within the framework of any bilateral or multilateral agreement on investment protection to which the Federal Government and the country of which the investor is a national are parties; or In accordance with any other national or international machinery for the settlement of investment disputes agreed on by the parties. Once registered under the NIPC, the investor is protected and can institute an action for recovery for any injury to its investment interests. Even without a Bilateral Investment Treaty (BIT) or a Multi-lateral Investment Treaty (MIT), the injured investor can always recover for the injury done to it. In this regard, ICSID Convention, Article 25(1) provides: The jurisdiction of the Centre shall extend to any legal dispute arising directly out of an investment, between a Contracting State (or any constituent subdivision or agency of a Contracting State designated to the Centre by that State) and a national of another Contracting State, which the parties to the dispute consent in writing to submit to the Centre. When the parties have given their consent, no party may withdraw its consent unilaterally. Where in respect of any dispute, there is disagreement between the investor and the Federal Government as to the method of dispute settlement to be adopted, the International Centre for Settlement of Investment Disputes Rules shall apply. Protection Under International Investment Law Even at Customary International Law, an investor can succeed with a claim for compensation based on indirect expropriation. At Customary International Law (and independent of BITs), a state must pay compensation to a foreign national whose property has been expropriated. Compensation must be made notwithstanding that the expropriation was for a public purpose, in the public interest or for legitimate social or economic reasons. A state can be held responsible for expropriation even if it does not intend to expropriate property. A formal act of expropriation, such as a transfer of title or confiscation, is not required in order for state responsibility to arise. The form of the government measure is unimportant. Rather, the focus is on the effect of the government measure on the property owner. The majority of international legal authorities suggest that a state is responsible for expropriation if a government s measures substantially deprives the foreign national of the use, enjoyment, management and control of property, whether or not the state has obtained anything of value. The incidental effects of regulatory action can be expropriatory. A state is liable for outright seizures or appropriations of property. A number of cases have proved indirect expropriation as a ground for compensation: Interhandel Case (Switzerland v. US), [1959] I.C.J. Rep. 6, Barcelona Traction, Light and Power Company, Limited (Belgium v. Spain), [1970] I.C.J. Rep. 4 and; Case concerning Elettronica Sicula S.p.A. (US v. Italy), [1989] I.C.J. Rep. 15 32 ICSID Case No. ARB/84/3 (14 Apr. 1988), p60 33 ICSID Case No. ARB/03/26 (2 Aug. 2006), p212 213 34 ICSID Case No. ARB/00/1 (24 Jan. 2003), p339 36 37
Arbitration Nigeria is home to some of the world s most respected Arbitrators and practitioners; with a number of arbitral bodies represented in the country. The Arbitration & Conciliation Act and the Arbitration Law of Lagos State are the main statutes with the Lagos Court of Arbitration at the International Centre for Arbitration and ADR as the preferred choice. DISCLAIMER: This legal overview is intended to provide only general, nonspecific legal information as at July 2015 and does not purport to give a legal opinion or advice on specific facts or situations. You should consult and seek legal advice from Nigerian qualified legal practitioners before engaging any matters contained in this publication. (C) Ajumogobia & Okeke 2015 38 39
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