Policy shift cripples solid minerals sector

Two keystones define the apparent failure of Nigeria to prosper from its multi-billion dollar worth solid minerals sector: a warped policy-making process orchestrated by bureaucrats; and a blatant disregard for the law by the presidency, as a NEXT investigation has revealed.

At the epicentre of this story of failure is the struggle for the control of the power to issue mineral licences. It’s as simple as that. Because of this, the statutory status of the Mining Cadastre Office (MCO), created for the purpose of issuing licences without the influence of a politically elected minister, has, since its inception, been a subject of controversies. Six months after its creation, the struggle to curb the power of the MCO began. In the end, the ruse of law prevailed over the imperative of the rule of law, endorsed by the Nigerian president, industry insiders say.

The Mining Cadastre Office

The MCO was established by the 2007 Minerals and Mining Act as an independent body with the exclusive responsibility for the administration of mineral titles and to be headed by a director general. It was a multi-faceted process designed to ensure the security of tenure for the title holders and transparency in the process of the grant of mineral titles. the key highlights of the legislation was that the law completely took away a minister’s discretion or involvement in the issuance of mineral titles.

“What the Cadastre Office did was to remove the discretionary powers and remove to a great extent, corruption,” says Ibrahim Garba, a professor of geology, who was the first director of the MCO.

“The MCO took the power from the political head of the ministry, that is the minister, and placed it in the hands of professionals,” says a source who declined to be named.

Sarafa Isola, who took over the ministry after the enactment of the 2007 Act, began a series of actions to restrain the MCO’s powers, raising legal arguments about the illegality of the newly established MCO. First, he stopped the office from issuing licences, and then revoked all the licences issued before his tenure. He would later take back is words, after he was made to understand that it was not in his power to revoke licences. Mr. Ishola launched an exercise to revalidate the licences, shutting down activities in the sector.

Subverting a process

In 2008, President Umaru Yar’Adua, prompted by Mr. Isola, endorsed a document which reverted the legal standing of the MCO from that of an independent agency to a department under the Ministry of Mines and Steel Development, thereby giving the politically appointed minister access to the process of mineral titles award. This not only opened up an avenue through which a minister could perpetrate corruption but was completely at odds with the law.

“(Mr.) Isola sent a petition to the president asking that the position of the director general (DG) in the MCO be scrapped and a director appointed instead. What this means is that the DG who had statutory power to approve licences was changed to a director in the ministry who only had powers to recommend to the minister who would now sign the licences,” said an official of the ministry who asked not to be named.

“Contrary to the law, the president of the Federal Republic of Nigeria approved, by administrative fiat, the breach of law. The president has no power to do that; the law may only be amended by the legislators. The signed document changed the statutory status of the MCO from an independent agency to a department of the ministry. That is clearly illegal,” said an expert with over two decades of familiarity with natural resource issues, and with vast interests in mining but who sought anonymity. “By the stroke of the pen, the independence of the MCO was removed,” he said.

The 2007 Act which repealed the 1999 Act and established the MCO was no mean document. The drafting of the document began in 2004 and kicked off with a study of global mining legislation.

“The study revealed that the mining law (the 1999 Act) was horrendously defective with respect to risks for investors,” says a lawyer who followed the drafting process. The new Act was eventually drafted based on universally accepted fundamentals and was taken round some countries – Canada, Australia, the UK, the USA, and South Africa – for assessment; it was well received by bankers (the financiers of mining projects), international lawyers, regulators, and investors in those countries.It also did a round amongst Nigerian investors, civil society groups and relevant government agencies,”

It was, therefore, curious that a politically appointed minister, with no prior experience in the sector, shortly after his appointment, began to find faults with the legal structure of the Act, and was able to convince the presidency to ignore the law and in the process create an opportunity for corruption.

Having created an argument about Section 5(1), and claiming that this section was ambiguous and not sufficient to create the office and that the office needed to have its own legal identity, the ministry went forward to the Nigerian Senate to establish the illegality of the MCO. The section states that “there shall be established within six (6) months of the coming into effect of this Act a Mining Cadastre Office”.

George Sekibo, chairman of the Senate committee on solid minerals, sees matters differently. He says, “The ministry said that the provision seemed to be futuristic and thus ambiguous but the Senate’s position was that the provision was sufficient to establish the office. The ministry was not satisfied so they took it to the attorney general’s office. That is the current situation and I have not heard of the reply from the attorney general yet.”

In response to the ministry, Femi Banwo, a lawyer of 27 years with vast interests in mining, debunked the claim. “The MCO does not need to have a separate legal personality to perform its functions because the law empowers it to do so. It is like the CAMA Act which states that there shall be established a Corporate Affairs Commission. The CAC does not require a separate law to establish it,” said Mr. Banwo who participated actively in the review of different drafts of the bill for the 2007 Act.

Of mining titles and security of tenure

The actions which saw the changes and the much advertised reforms in the mining sector have succeeded in doing the opposite of what the new Act sought to address. The security of tenure and mineral titles, which is tied to policy making and administrative processes, forms the basis for which investors are attracted into the sector. In drafting the 2007 Act during the tenure of Oby Ezekwesili, ensuring the security of tenure was a major focus.

The huge capital commitment required for this speculative business explains the need for investors to have confidence in the policies in their areas of operations. A paper presented at the recently concluded International Bar Association conference in Madrid, last month, showed that a typical mining project – from exploration to extraction – costs as much as $2 billion and can take as long as 10 years.

The sudden pause in mining activities shortly after the industry’s revamp, along with the revalidation of mineral licences, immediately created insecurity in the fragile business environment. Because mining activities were suspended, some investors, especially foreigners, began to pull out. The return of the MCO to the ministry also added to the mounting insecurity.

“The return of the MCO to the ministry just raised up the risks in the security of licences,” our source said.

“Security of tenure of licence means that the people that are investing in Nigeria are comfortable. If you’ve got a revalidation exercise going on, it is certain that under any circumstance, they cannot be comfortable because it means that something is amiss,” says Philip Pereira, a miner of at least 17 years.

As it stands, the MCO under the ministry is illegal as it clearly violates Section 5(3), Section 5(4), and Section 15, of the Minerals and Mining Act which clearly state that the MCO must be established as a sole agency, run under a director general and that the minister must ensure the independence of the office.

“Operating the MCO as a department under the ministry is an illegality. The Act clearly provides that the MCO should be a distinct and separate agency and must be headed by a director general,” another lawyer told NEXT under conditions of anonymity.

Thus, the MCO is not only being run illegally but the current situation cannot guarantee the security of tenure to an investor when the minister still has influence and thus discretionary powers over the activities of the MCO, which is now a department under the purview of the minister.

The future and the opportunities

The solid minerals sector was rightly recognised as a highly speculative sector and thus the many waivers that were granted the initial investors after the revamp of the sector between 2006 and 2007. The subsequent revalidation of the licences and revocation of some of the licences, are actions that ought to be challenged in the courts, some lawyers told NEXT.

“If the government waives its conditions and creates a set of conditions which people follow and then issues licences endorsed by the Federal Government, you cannot afterwards rescind and take back the licences. There is no concept for the revalidation under the 2007 Act. It is misconceived and an absolute illegality,” the lawyers maintained.

Nigeria’s minerals ministry has been described as a potential multi-billion industry by experts who were also quick to point out that the policies on the ground would determine how much investment the sector receives; “This is an international business and we are trying to compete with other established countries.There is nothing special about our country’s minerals. Why should an investor bother himself with the hassles of mining gold in Nigeria when Ghana and Mali both have gold?” moans one of the experts.

“The real value of the sector goes beyond the royalties paid on the minerals. It is in the collateral industries, what is called the multiplier effects. You can create so much more employment with mining than with oil. This is the real poverty alleviation programme that the country should be pursuing,” says one of Nigeria’s most influential lawyers in the mining sector.