Mining royalties increase Nigeria’s revenue

In a recession year when the nation’s economic activities came to a virtual halt on account of the global pandemic, the Nigerian solid minerals sector, defying all odds, is recording booming numbers, funneling N7.69 billion in royalties into federal coffers, the highest in a three-year period, according to a 2018-2020 review by PREMIUM TIMES.

The core year of the COVID pandemic, 2020, posted about half of this amount, declared a gladdened Frank Odoom, Director of the Mines Inspectorate of the Ministry of Mines and Steel Development in Abuja who walked PREMIUM TIMES through the current data which he credited to a new strategy in the ministry to pursue an aggressive revenue profile in the wake of lean oil earning into the federal purse.

Mr Odoom pointed out that the progression from 2018 to 2020 had been even, starting from a modest posting of N1.88 billion in 2018, remarking that the South-west region of the country recorded the highest contributions, accounting for N749.96 million, (39.95 per cent) of the total royalty paid in the year under review. Ogun State’s sole contribution to that regional performance was N563 million (75.09 per cent) of the total revenue generated in the South-west region.

The Southwest states include Ogun, Oyo, Ekiti, Osun, Ondo, and Lagos States.

In a regional scorecard, the Northwest States of Jigawa, Sokoto, Kaduna, Katsina, Kano, Zamfara, and Kebbi states, generated the least royalty at N125.44 million (6.68 percent) of the total revenue collection in the three years under review.

From a national perspective, Borno State out of all the 36 states recorded the least, contributing N289,000 (0.015 percent) to total royalties generated, a development that resulted from the insurgency that has ravaged the northeast belt of the country in the past decade.

Mr Odoom ascribed the impressive numbers from Ogun State to the “abundance and incredible active presence of construction companies” which he said “explains the highest revenue generation from the state,” adding that “we have these royalties coming from construction materials, especially the cement industries that make use of limestone as their major material which is abundant [in the state].”

In 2019, the total royalty generated amounted to N2.56 billion, representing a 9 per cent increase to the amount generated in 2018. Just like the previous year, the South-west maintained the lead as the zone with the highest royalty generation, with Ogun State making almost double the amount it made in 2018. The gateway state generated N951.04 million, representing 37.17 per cent of the total royalty paid in 2019.

The Northeastern states of Adamawa, Bauchi, Borno, Gombe, Taraba, and Yobe, slipped behind the northwest, contributing N113.67 million (4.44 percent) of the total royalty paid, a situation also blamed on the insurgency in the region.

Despite the Challenges

Almost all the zones maintained a steady increase in royalty contributions in 2020, contributing a total of N3.25 billion to the federal government, a 9.05 per cent increase from 2019. In the words of the director of the mines inspectorate, four factors were responsible for the steady revenue growth: the nature of mining operations, an open-minded government policy, an aggressive assessment as well as close monitoring and supervision of the operators. “These developments brought about the increase in production which resulted in high revenue generation for the sector,” Mr Odoom said.

He added: “Mining generally on its own is carried out in isolated centres. The construction companies such as Dangote cement continued to work because they are located in not-so congested places and they can always observe COVID guidelines easily as people work in their spaces.

“Construction work was categorised as essential services, so most of these construction minerals were produced by the activity of mining, especially granite and the production of cement which continued to operate even during that lockdown period,” Mr Odoom continued.

Speaking on the government policies, the official said “the policies of the ministry and some of the measures we put in place were just coming to fruition by then. Because we have a committee of optimization of revenue in the mining industry.

“Some of it includes being much more visible, paying regular visits to our operators to ensure that we capture the rightful royalty rates. We collect revenue for the government by doing a proper assessment of the production of the companies. We even have to adopt some scientific methods to estimate the production especially when explosives are used which we issue as demand notices to these companies and they have to pay,” he explained.

Mr Odoom said plans are in the work to boost earnings in more minerals and more states. He said the ease of doing business is part of what has been put in place to ensure investors come into the sector. “We have a little increase in new companies coming in and the investors are attaining confidence. We are getting very good signals from coal mining as well because the cement factories are using coal as a source of power generation. And that has now helped to increase coal exploitation in Nigeria,” he said.

However, Mr Odoom regretted that the “huge and high interest of some mining investment expected to come into Zamfara and Kaduna States suffered from the effect of the insurgency in the Northwest and Northeast,” responsible for the low returns in the regions.

Comparing the mining sector to the agriculture sector, Mr Odoom said, “Look at agriculture, the prices of food are going high and it’s not natural. It is because of the internal threat of the insecurity…most of these minerals are in very difficult terrain.”

“You have to get through some valleys, hills, rough terrains,” observed Mr Odoom who quipped that mineral sites “are not actually in your backyard. When you get to these isolated areas, there are probabilities you can be attacked by some of these bandits, so people are afraid to go to farms and mines as well.”

Royalty Rates

A royalty rate is a tax that is unique to the natural resource sector. It is a payment to the holder of the mineral rights for which minerals are extracted from the land and sold to the markets.

Most countries with older mining laws have different royalty rates for different minerals. This variation flows from national sovereignty issues in which some minerals are perceived as being more important to the host nation.

Nigeria is thought to have robust and attractive royalty rates, giving not more than 5 per cent royalty rates on whatever mineral being harnessed as compared to other mining giants but has a poor policy perception index, as indicated by the roadmap. For instance, royalty rates in Australia range between 2.5 per cent and 15 per cent, Chile is between 0 per cent and 20 per cent, South Africa is from 0.5 per cent to 7 per cent while the USA is from 4 per cent to 12.5 per cent.

Early in 2015, the Federal Government of Nigeria, through the Ministry of Mines and Steel Development identified seven strategic minerals to unlock the sector’s potential. The minerals are Gold (with a 3 per cent royalty rate), Barytes (5 per cent), Bitumen (3 per cent), Coal (3 per cent), Iron ore (3 per cent), Lead/Zinc (3 per cent), and Limestone ( 5 per cent).

Investor-Friendly

In its drive to attract both national and international investors into the sector and and provide ease of doing business, the Minister of Mines and Steel Development, Olamilekan Adegbite, at the just concluded 5th Annual Mining Week re-emphasized the government’s commitment to encouraging investors by giving tax holiday to miners for an initial period of 3 years from the commencement of operations, exemption from custom and import duties on mining equipment and a giving a mining lease duration of 25 years, as stated in the Nigerian Mineral and Mining Act 2007.