With Nigeria’s cash cow, the oil and gas sector, currently experiencing some strain, with declining global crude oil prices exerting pressures on the economy, Nigerians’ attention shifts to the solid minerals sector in search of alternative backing for the economy.
The Minister of Mining and Steel Development, Kayode Fayemi, in an exclusive interview with PREMIUM TIMES’ Bassey Udo, said the government’s plan to reactivate the multi-billion dollar Ajaokuta Steel Company, in particular, and the steel sector, in general, is on course. Excerpts:
PT: Government is talking about diversification of the economy in view of the negative impact of declining global crude oil prices on its revenue. But, the solid minerals sector appears not ready to move in and fill that gap. What’s holding it back?
Fayemi: There is always the wrong perception that automatically sees the solid minerals sector, particularly mining, as the immediate alternative to the challenges the country is facing in the oil and gas sector. It is quite understandable.
In the face of pressure, people must begin to look for where the resources would come from. Having listened to the president on the campaign trail, and since he assumed office, he’s never hidden his focus on agriculture and mining as the priority sectors.
However, the point must be made that mining is not exactly a quick-win sector. In order for the country to turn mining into what we really envision it to be – that is move from a mineral-rich country to a mining nation – a number of steps have to be put in place, particularly as we are starting from below zero level. Mining is an abandoned sector, for want of a better word.
Focus has been lacking over decades from successive governments. Luckily, we now have a government that is desirous of changing that. Unfortunately, government is trying to do that at a time commodity prices in the minerals sector, as you rightly pointed out, are also facing their own challenge. What applies to oil and gas also applies to mining.
But, this administration’s approach is to say: “Fine, mining is not going to produce the dollars tomorrow. But, we can make mining to acquire the necessary pre-requisites to become a serious alternative for industrialisation, import substitution, high grade export, etc.”
What we need to achieve this target is, first, to ensure our geological prospectivity, or data gathering processes in the mining sector, is qualitative and of investment grade.
Second, we have to ensure our legal and regulatory environment is not also subject to policy summersaults, which has been a huge challenge.
We cannot say today we are offering a period of tax holiday, as our law says, as part of incentives, or ensure mining equipment are duty-free, or we have a pioneer status for people setting up new industries in the sector, and tomorrow decide to change that. The market would not react positively to that kind of situation. So, consistency of our legal and regulatory environment is very critical.
Third, we must strengthen the relationship between federal and the states. If mining is going to work in Nigeria, the tripartite arrangement between the investors, federal government (issuing the licenses) and the state governments (where the resources are located), must align seamlessly.
The way government is going about it is to sort it out administratively, since doing so legislatively would take a long time.
But, there is still nothing to ensure overall that the business environment is also conducive to investments in mining. It is highly capital intensive. Government cannot do it unless it also plays its part as a country, because we are competing against people who are already established, even in West Africa.
Countries like Ghana, Burkina Faso, Cote’Ivoire, Mali and others are far ahead of Nigeria, in terms of mining, expenditure on exploration and regulatory environment. That is the challenge, which is contained in the new road map for the development of the sector. That has successfully been put through the Executive Council of the Federation.
Now that the road map is being implemented, in order to sort out the relationship between state and federal governments, for the first time government is setting up a National Council on Mining, which is equivalent to the National Councils on Environment and Health, in which both state and federal governments as well as related agencies, civil society groups, non-governmental and academic institutions, would always come together as critical stakeholders, to look at the issues affecting the mining sector and agree on the way forward.
This is the first time this is happening. It is contained in the road map, which also contains a super regulatory agency to help strengthen the regulatory environment we talked about earlier.
The agency now houses the mining cadastral office, that issues the operational licenses to prospective investors; mining inspectorate division, that monitors what’s happening in the sector – issues of illegal, informal or irregular operators in the sector, as well as our mines’ environmental compliance directorate, which looks at issues relating to health and safety practices, to enable government tackle some of these issues there are to deal with in Zamfara or Shakira village in Niger State as well as other instances of fake mining practices.
The last time I interacted with PREMIUM TIMES, we were talking about government’s vision for the sector. Now, there is a plan in place, which is being faithfully implemented.
We are receiving a lot of support from both government and international institutions very interested in what are happening in the sector. The President is very keen on the plan.
PT: The issue of pioneer status granted companies coming to do business in Nigeria has taken a controversial connotation, because of waivers, tax holidays and other incentives involved. Why would the government choose to incur such huge losses on behalf of companies coming to do business to make profit?
Fayemi: The solid minerals sector is a very competitive environment. If we are going to ask companies to come and invest, we have to encourage them. This is what is happening in Ghana and other mining destinations around the world.
If Nigeria is going to ask a Rio Tinto, or an Anglo American, the major mining institutions, to leave where they are and come to Nigeria, which is perceived all over the world, rightly or wrongly, as a difficult place to do business, we must do something.
From the country’s ranking in the World Bank Ease of Doing Business annual survey, it is evident what the challenges are. If one looks at the Fraser Index that looks at mining sector generally, particularly attractiveness of global mining destinations, Nigeria is almost non-existent on that ranking.
So, if we are going to start from such a low base, we must have something we are offering that would give an investor a serious reason to come to Nigeria. The only other way Nigeria can get the investor to come here without bothering about that, is to have minerals of such high grades and quality that they would ignore all the difficulties of doing business and come around.
To do that, one has to make the first point I raised earlier – the country’s geological prospectivity has to be independently verifiable as first class, high grade mineral resource.
PT: This is sounding like the same argument when Nigeria LNG was conceived. Today, the company is one of the most profitable investments in the country. Yet, for years the country lost billions in tax exemptions as a result of the pioneer status granted Nigeria LNG by government.
Fayemi: No one is disputing that. But, I believe as profitable as Nigeria LNG is, it could still be a lot more profitable. I am not an advocate of indiscriminate tax waivers, or repeated tax waivers. It can be targeted. That’s what the government is doing now. The ongoing review of tax incentives is looking at how to target it so the country would not become victims of transfer pricing.
If one looks at President Thabo Mbeki’s African Union study of illicit financial flows in the continent, it is more of transfer pricing that is causing all the problems. I am very sensitive to that. But, this is a sector that can still do with a lot of government support.
If we are not going to do that, then the alternative is to put intervention fund in place for the sector, so that serious-minded Nigerian operators can actually play in a competitive way with outsiders with far more experience and technical competence than our companies in this sector, just as Dangote has started playing in the cement industry.
Dangote Cement is local, but the quality of its cement seems to be one of the best in Africa, or even globally. So, we can’t do that in the mining sector. This is not a sector we have to show some immediate result, because consistency of policy is crucial.
You cannot afford to have waiver today and no waiver tomorrow. You cannot say you have a regulatory framework in which the process of obtaining license is clearly defined and then tomorrow some big man comes and get the license without going through due process. That’s the point I am making.
We must be consistent, clear and predictable. Business investments are based on predictability and consistency.
PT: You spoke about the importance of the relationship between federal and state governments in the development of the sector. About 44 solid mineral destinations have so far been identified in the country. Recently, you spoke of 13 per cent derivation to solid mineral states, like their counterparts in the Niger Delta region. When is that taking off?
Fayemi: It has actually taken off. The last figures I saw as No.1 on the list was Kogi state, followed by Ogun state. They have started earning money from mining operations. The Revenue Mobilisation Allocation and Fiscal Commission (RMAFC) should have the figures.
PT: Is that practicable without a law by the National Assembly?
Fayemi: Looking at the law granting derivation to oil producing communities, it did not quite say Niger Delta specifically. It just said derivation principle on natural resources, in the case of Niger Delta – the oil and gas. So, it is the minerals. In that case if it is coal coming from a state, it is 13 per cent of the revenue coming from the exploitation of the coal the state would receive. It is not geographically determined. It is mineral specific.
For instance, Niger Delta derivation is now applicable to Lagos, because oil and gas production activities have commenced there.
PT: What other incentives are there to encourage states to do more to develop the sector?
Fayemi: There is nothing in the law prohibiting states from establishing their own special purpose vehicles for mining operations and approaching the mining cadastral office for a license.
If any state has gold, and the states thinks it will be best harnessed by managing it in partnership with a private technical partner, there is nothing in the law that says Kaduna, Bauchi, or Ogun States cannot use their special purpose vehicles to apply to the Ministry of Mines Development for a license, as long as the land is free and unencumbered. Anybody can have it.
What one does with it, in accordance with the Mining and Minerals Act, as long as they follow the law, has no objection to any state benefitting maximally from its equity participation with a technical partner. The Ministry would be willing to assist the states with data available to government countrywide, where necessary.
In addition, government has said it is happy to introduce states to private sector operators who approach the ministry looking for prospective exploration opportunities in certain places in the sector, to avoid running into problems.
Government has also argued in the new road map that the section of the law that talks about consent of states, since one cannot get exploration license, or mining lease without consent from the host community.
This is clearly a lesson from the country’s experience from the oil and gas sector concerning the Niger Delta crisis. We have also seen over the years that consent is often abused by elements within the same host communities, giving two or three letters to different companies, thereby causing conflict.
We are introducing a new line of action that consent from the host community has to be ratified by the state.
So, under the new arrangement, states have a greater legitimacy, as far as issuing of license is concerned. They know who the land belongs to, because they are the ones who issued the certificates of occupancy for the land in that state. Once the investor is able to go through that process, government would now ask: Yes, we have seen the host community document, but has it been certified by the state?
So, one can see that gives the states a greater leverage, participation and knowledge, so they would not come later and accuse government that some people just came from the community and take things without their knowledge, based on license issued from Abuja. No! No!! No!!!
Government would be able to refer to your license ratification, that on a particular date, your office in charge of mineral resources, ministry of environment or natural resources in the state approved that this is the right host community to deal with in relation to this particular property. That would go a long way in reducing the tension we have seen in communities over rights to mineral resources.
PT: For a long time, the country has always talked about formalising artisanal mining in the country to check the huge losses associated with it. Where are we on this?
Fayemi: This is where we get it all wrong at the federal level. You cannot formalise operators in the sector without inputs from the states. What we have agreed in principle with states is they are the ones to carry out first level of enumeration.
If you are into mining, formal and informal, go and register at the state level. The federal government is prepared to support the state to undertake that exercise. Those who have been registered in the states will strengthen their capacity, to help find access to finance for such registered mining operators, and even provide equipment beyond the shovels and diggers.
But, that also enables us to capture the number of people operating in the sector. That’s what government is doing now. We have ceded the responsibility of registering miners to the states, just like if we want to know who the farmers are.
Ministry of Agriculture in Abuja cannot determine who the farmers are. It is the ministry in charge of the resource at the state level that can say, local government by local government, these are the people registered as farmers. That’s the approach government is taking. It speaks seriously to the whole question of decentralisation of responsibilities in the sector.
That does not remove the point the federal government still has the role to monitor compliance to regulations, to ensure uniformity, support and safer mining practices.
When one says one is a miner, one must let government know where and what one is mining. In addition, government has also ceded to states responsibilities from managing the mineral buying centres the ministry built years ago.
The number of states that have approached the ministry and are given the rights are growing by the day – Zamfara, Benue, Sokoto, etc. We have told them to go and manage the centres. We will provide all the support required.
For government, the principle is that one does not do mining from the federal capital. It is a local activity. The responsibility of the federal government is to regulate and ensure the necessary oversight is provided. If we are to succeed, mining cannot be micro-managed from Abuja.
PT: At the moment, not formalising artisanal mining rights makes it difficult to capture the real contribution of the sector in the country’s overall gross domestic product (GDP)?
Fayemi: You are absolutely right. A lot is being lost in the process. We are not going to succeed fully in capturing until we empower those responsible for inspectorate activities at the local level.
The Ministry has Mines Officers in the 36 states of the federation. They don’t have vehicles. Government made provision for that in the 2016 budget, to give them vehicles shortly as soon as the Executive Council of the Federation approves the memo on that.
We have to provide them with the tools averagely for them to work with. Our Mines officers have to get the resources. They only get less than N100, 000 every quarter. What can that do? Chasing after people who are mining illegally in sometimes difficult to access locations? Talking about Shakira in Gagara local government area in Niger state; our experience is that to even access these communities is a big challenge. So, infrastructure is a big issue. So also is training.
PT: Apart from the mining plan that has already taken off, the ministry is considering a Bill to establish a mining regulatory inspectorate in the sector. How is that going to work?
Fayemi: It’s like the Department of Petroleum Resources (DPR) in the oil and gas sector, or the Nigerian Communications Commission (NCC) in the telecommunications sector, or the Nigerian Electricity Regulatory Commission (NERC) in the power sector.
Basically, what it is about is to enhance what three of our directorates now do in the mining inspectorate division, mining cadastral office and the mines environmental compliance directorate.
It’s more of broadening the activities of these three to cover some of the gaps already identified in the sector operations. We are still not doing well with effective monitoring and enforcement of the law. Mining and Minerals Act is one of the best laws. But, having a good law is one thing. Ensuring that it is strictly adhered to is another. We believe if we have an independent regulatory agency, rather than the ministry doing the monitoring, we will be able to do a much better job of it.
PT: The ministry sacked all Mining officers across the country recently for alleged involvement in certain illegal activities. What really happened?
Fayemi: They were not sacked really. They were recalled from their postings. But, let me say this. One of the major challenges in the sector is corruption. Let’s not beat about the bush. One would be shocked there were Mines officers forging all manner of receipts to collect royalties on behalf of government.
Ideally, revenue to federal government coffers is not cash-based. It is paid to the Treasury Single Account (TSA), whether one is in Sokoto or Awka. It really does not matter where one is.
Sitting here as the minister, I have seen letters purportedly issued by the ministry, obviously fake letters, coming from Mines Officers to agents for the purpose of collecting royalties from quarries, mining companies, and operations. It goes on and on like that. The ministry did its investigations and found out that some of the activities were not unconnected to some officers.
It is not an indictment on our officers, because it is not all who are involved in this. It is just a small section of our workforce that is. But, the bottom line is that it is one of the challenges the ministry is dealing with in the sector.
What really triggered the decision to recall all the Mining Officers across the 36 states was that it was becoming a threat to national security.
One would recall the question of explosives, illegal as it were, found in the hands of some terrorist elements some time ago. One of my responsibilities as a minister is to sign up on every explosive license issued to every company that applies for it.
I must know the exact amount they are applying for; how they are going to transport it to, whether a quarry, a construction site or particular operation. The ministry works with the National Security Adviser (NSA), the police explosives unit and the military, as well as the Department of State Security. We coordinate our operations.
But, our Mines officers in the states are also responsible for carrying out the ministry’s directive in accordance with what the minister has signed. Sometimes, they fall through the cracks. The ministry had to take that immediate measure of recalling all of them and changing the entire Mines officers in the 36 states, because of the gaps we noticed. But, now it is not enough to just change them. We have to ensure we continue to monitor their activities on ground. Whoever we find wanting would have to be shown the exit.
PT: The implementation of the mining plan appears to have begun, with the signing of the revised share purchase agreement (SPA) on the National Iron Ore Mining Company Limited (NIOMCO). But, the picture is not clear about government’s plan for Ajaokuta Steel Company.
Fayemi: There are conditions precedent in the agreement government signed. This includes a joint audit between the federal government and the Global Infrastructure Limited. The review is ongoing now. There is a period in the agreement (150 days) within which the audit should be completed. The agreement was signed on August 1.
So, we are on course for the exercise to be completed as soon as possible. Once that is done to the satisfaction of all parties, the legal release of Ajaokuta Steel to the federal government would follow immediately. Don’t forget Ajaokuta Steel was gotten back in order for the Indians to have the remaining part of the concession for NIOMCO, Itakpe, which was concessioned for 10 years, out which the Indians had utilized three years by the time the revocation occurred. Then they took Nigeria to Arbitration Court. The rest of the story is history.
Now, as a tradeoff, for them to release all the monetary claims they had on Ajaokuta Steel for the illegal revocation of contract and loss of business, Nigeria also conceded that NIOMCO should be returned for the remaining duration of the concession. Once the audit is completed, to both parties’ satisfaction, and Nigeria has Ajaokuta Steel back, then we take it up from there.
So far, government has received so many interests for Ajaokuta Steel, although the advert is yet to go out formally calling for interested bidders. Private sector operators, some state-owned enterprises have approached the ministry to indicate interest in Ajaokuta Steel. There are also interest by Russians, Ukrainians, Chinese, Nigerians, and so on. Government believes once all the encumbrances are sorted out and it is put out on public offer, a lot of interest would be received.
PT: But, with the revised SPA on NIOMCO, it appeared government was putting the cart before the horse, by signing the agreement first, before asking them to bring the business plan later.
Fayemi: Don’t forget NIOMCO is the Indian company, legally speaking, based on the terms of the concession they have on it. What government is doing is simply returning it as part of the settlement. But, in doing so, Nigeria has now attached a condition that a business plan is needed to see how they are going to operate it. So, government is not just leaving it to them to decide. That business plan would now be approved by the federal government for it to be implemented.