CONFIDENTIAL MEMORANDUM
To: Uchenna Ohanu
Embassy of the Republic of Korea
From: Olujimi Bucknor
Adepetun Caxton-Martins Agbor & Segun Subject: Legal Consulting Questions
Date: 24th March 2015
Dear Uchenna,
Further to your enquiries in your email received on March 17, 2015, please find below:
PART A – MINERAL & NATURAL RESOURCES
1. Please advise on Nigeria's Mineral & Natural Resources Act and Policy (Attach if possible).
The Nigerian Minerals and Mining Act 2007 (the “Act”) was passed into law on March 16, 2007. This primary Act, regulates the exploration and exploitation of solid materials in Nigeria. Please find the key provisions of the Act below:
Ownership and Control of Minerals
The Act vests control of all properties and minerals in Nigeria in the state and prohibits unauthorised exploration or exploitation of minerals.All lands in which minerals have been found in commercial quantities shall from the commencement of the Act be acquired by the Federal Government in accordance with the Land Use Act.
9th Floor, St Nicholas House, Catholic Mission Street, Lagos.
P.O. Box 55285, Falomo, Lagos, Nigeria.
Tel: +234 1 4622093, 4622094 Fax: +234 1 4613140
acas@acas-law.com www.acas-law.com
Lago
‘Sola Adepetun Afolabi Caxton-Martins
‘Funke Agbor Felicia Kemi Segun Taiwo Afonja Ben Unaegbunam Idowu Durosinmi-Etti Dayo Ayoola-Johnson Chisa Uba
Donna Shodipo
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The Administration of the Act
The Minister of Mines and Steel (the “Minister”), amongst other things, is charged with the responsibility of 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 and also identifying areas where Government intervention is desirable in achieving policy goals in mineral resources development.
The Act also provides for the establishment of the Mining Cadastre Office (MCO) which is responsible for the administration of mineral titles and the maintenance of the cadastral registers.
Mineral Titles
The right to search for or exploit Mineral Resources is obtained through one of the following under listed mineral titles:
a) A Reconnaissance Permit b) An Exploration License c) A Small Scale Mining Lease d) A Mining Lease
e) A Quarrying Lease f) A Water Use Permit
2. What is the relevant authority concerned in the development of mineral & natural resources in Nigeria?
The Mining Cadastre Office is the agency exclusively responsible for the administration of mineral titles including the consideration of applications for mineral titles and permits and the issuance, suspension and revocation (upon the written approval of the Minister) of mineral titles.
Please note that at the federal level, the mining industry is administered by the Ministry of Solid Minerals and Development headed by the Minister.
There are also departments established by the Act to administer permits, licences and leases, and to register mining titles. They include the following:
- The Mining Cadastre Office (MCO).
- The Mines Inspectorate Department (MID).
- The Mines Environmental Compliance Department (MECD).
- The Artisanal & Small Scale Mining Department (ASM).
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3a. What are the procedures for development and investment in the mineral & natural resources sector.
Please see 3c below.
3b. Procedures for exploration development.
Please see 3c below.
3c. Procedures for License acquisition.
1. An application would be made to the Minister for a certificate of entry into the mining industry. The application must be supported with the company’s certificate of registration, evidence of technical competence and financial capability.
2. An application for prospecting right (PR) to enable the company carry out general and scientific prospecting for the categories of minerals.
3. Application for an EPL in the state mines office where the mineral is located. This is an exploration license for a particular mineral over a particular land area, which by law should not exceed 22 square kilometers. Once granted, the area will be held exclusively by the company. Please note that this license is renewable every one or two years depending on the nature of the terrain.
4. Where the company has satisfied itself of the availability of the mineral in commercial quantity, an application may be made for a grant of Mining license over the whole or part of the area covered by the EPL.
3d. Procedures for right of mining Please see 3c above.
3e. Procedures for a foreign investor trying to register a company in Nigeria as regards to this sector.
The requirement for incorporation of a company are as follows:
The foreign company would have to conduct a name search at the Corporate Affairs Commission to ensure that the preferred name has not been issued to an existing company, or is not a prohibited name. The following documents are required to incorporate a company in Nigeria:
Memorandum of Association
Articles of Association
Statement of Share Capital
Declaration of Compliance with CAMA
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Notice of situation of the Registered Office of the company; and
Return of Allotment of Shares and Particulars of First Directors.
Stamp duty is payable at 0.75% of the authorized share capital of a company in addition to filing fees payable to the CAC.
Once the registration process is completed, the Register General of the CAC will issue a Certificate of Incorporation to a company certifying that the conditions for incorporation have been fulfilled. Thereafter, the company would be required to register with FRIS for tax purposes, and other regulatory agencies.
3f. Procedures for mineral ore transport permit and mineral ore export permit.
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 of 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.
3g. Possibility of foreign company participation.
Foreigners may freely invest in companies in Nigeria. However, please note that there are Nigerian content requirements for companies operating in the Nigerian oil and gas sectors.
3h. Regulation of the mineral and natural resources development.
The following regulations are the main laws and guidelines governing the Nigerian Mining Sector (“the Sector”):
- Nigerian Minerals and Mining Act, 2007 (“the Act”)
- Nigerian Minerals and Mining Regulations, 2010 (“the Regulations”) - Mines and Quarries (Controls of Buildings, etc.) Act 2004
- Land Use Act 2004
- National Minerals and Metals Policy 2008.
4. What are the environment regulations for mineral and natural resources as regards to:
(a) Total tax and direct or products fee for the development of mineral and natural resources.
Companies engaged in mining activities are liable to companies’ income tax at the rate of 30% of chargeable profits, and education tax at the rate of 2% on assessable
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profits. A value added tax of 5% is to be imposed on the gross value of “vatable”
goods and services. Royalty, annual fees and rentals are also payable.
5. What are the Incentives for development of mineral and natural resources as regards to:
a. Exemption of tax
A tax relief period of 3 years from the date of operation, which can be further renewed for another 2 years, is applicable. Please note that this renewal is at the discretion of the minister. Section 28 of the Mining Act.
A licence holder shall be entitled, in determining its total profits, to deduct from its assessable profits, a capital allowance of 95 per cent of Qualifying Capital Expenditure in the year in which the investment is incurred, all certified exploration, development and processing expenditure, including a feasibility study and sample assaying costs and all infrastructure costs incurred regardless of ownership and replacement.a tax deductible reserve for environmental protection, mine rehabilitation, reclamation and mine closure costs.
There is an exemption of custom duties in respect of plants and machinery brought for mining purpose.
Furthermore, there is the exemption from Companies Income Tax for a period of 3 years upon the company’s initial operation.
b. Exemption fee
Capital allowance of 95% of qualifying capital expenditure incurred on investment on exploration, development, processing and all infrastructures costs incurred of ownership and replacement.
Permission to retain and use earned foreign exchange for use in acquiring spare parts and other inputs required for the mining operations which would ordinarily be available without the use of such earnings.
c. Tariff of Import
Exemption from customs and import duties on approved plant and machinery, equipment and accessories imported specifically and exclusively for mining operations. However, such plant and machinery, equipment and accessories may only be disposed of upon payment of full payment of customs and import duties in respect of thereof.
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d. Considerations in the development and investment in mineral & natural resources.
Capital allowance of 95% of qualifying capital expenditure incurred on investment on exploration, development, processing and all infrastructures costs incurred of ownership and replacement.
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 inputs required for the mining operation which are not readily available without the use of such earnings;
Guarantee of unconditional transferability of funds through an authorised dealer in freely convertible currency of dividends or profit (net of taxes) attributable to the investment, payments in respect of loan service where a foreign has been obtained and the remittance of proceeds (net of taxes) and other obligations in the event of a sale or liquidation of the enterprise.
PART B – OIL AND GAS
1. Please advise on Nigeria's Oil and Gas Act and Policy (Attach if possible).
The primary laws regulating the Oil and Gas Industry in Nigeria are as follows:
1. Petroleum Act ( as amended)
2. Petroleum Profit Tax Act (as amended)
3. Deep Offshore and Inland Basin Production Sharing Contracts Act 4. Nigerian National Petroleum Corporation Act
5. Cabotage Act
6. Nigeria Maritime Administration Safety Agency Act
2. What is the relevant authority concerned in the development of Oil and Gas in Nigeria.
The primary authority concerned in the development of Oil and Gas industry in Nigeria is the Department of Petroleum Resources (“DPR”). Other Authorities include the following:
1. Ministry of Petroleum Resources;
2. Nigeria National Petroleum Corporation;
3. Nigerian Investment Promotion Commission;
4. National Maritime Administration and Safety Agency;
5. Nigeria Customs Service Board
6. Nigerian Content Development & Monitoring Board;
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3a. What are the procedures for development and investment in the Oil and Gas sector.
In order to provide services in the Oil and Gas Industry, companies are required to be accredited and issued with a permit by the DPR to provide such services.
The Guidelines and Application Form for Oil & Gas Industry Service Permit issued by the DPR in 2014 (“Guidelines”) outlines the requirements for the processing of the DPR Permits at the DPR. There are three identified categories of DPR Permits that an applicant may apply for in order to provide services under any of the three categories which are namely: the Special, Major, or General Categories - and the requirements for obtaining a DPR Permit will depend on the nature of the service which the applicant seeks to provide in Industry.
In this regard, where the services which the JvCo seeks to provide in the Industry do not require specialized skills, a DPR Permit in the General Category will be required.
Registration under the general purpose category attracts a fee of N5,000.00 (five thousand Naira) as well as the submission of a completed application form. A company which seeks a DPR Permit in the Major Category is required to possess technical/special skills which are relevant to the service intended to be provided and is required to pay a registration fee of N25,000.00 (twenty-five thousand Naira) as part of its registration requirements.
An application for the grant of a DPR Permit in the Specialized Category requires the applicant to possess highly specialized technical skills and the payment of a registration fee of N250,000.00 (two hundred and fifty thousand Naira) as part of its application submission. A company may be accredited for more than one service and in different categories depending on the type and number of services it intends to provide in the Industry; separate registrations are however required for each service/category. A DPR Permit, once granted, will expire on every annual anniversary of its date of grant but may be renewed for subsequent one-year periods.
3b. Procedures for exploration development.
Please see 3c below.
3c. Procedures for License acquisition.
To conduct petroleum operation in Nigeria, participants must obtain from the Minister an Oil Exploration Licence (“OEL”) or Oil Mining Licence (“OML”) to explore, exploit and produce petroleum (including natural gas) within the concession area. Only a company incorporated in Nigeria may be granted such a licence. An application must contain prescribed information and must be accompanied by the applicable fee.
An OPL gives the holder the exclusive right to explore and prospect for petroleum. The holder of an OPL, on successfully prospecting and discovering oil in commercial quantities may apply for an OML. The OML is the final stage for petroleum exploration and
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production, giving the holder the right to explore for and dispose of any petroleum discovered within the area covered by the OML.
3d. Procedures for right of mining.
Please see paragraph 3 on Mining in Part A above.
3e. Procedures for a foreign investor trying to register a company in Nigeria as regards to this sector.
The requirement for incorporation of a company are as follows:
The foreign company would have to conduct a name search at the Corporate Affairs Commission to ensure that the preferred name has not been issued to an existing company, or is not a prohibited name. The following documents are required to incorporate a company in Nigeria:
Memorandum of Association
Articles of Association
Statement of Share Capital
Declaration of Compliance with CAMA
Notice of situation of the Registered Office of the company; and
Return of Allotment of Shares and Particulars of First Directors
Stamp duty is payable at 0.75% of the authorized share capital of a company in addition to filing fees payable to the CAC.
Once the registration process is completed, the Register General of the CAC will issue a Certificate of Incorporation to a company certifying that the conditions for incorporation have been fulfilled. Thereafter, the company would be required to register with FRIS for tax purposes, and other regulatory agencies.
3f. Procedures for Oil and Gas transport permit and Oil and Gas export permit.
Please find below the guidelines for processing of crude oil export permit application:
1. The company should forward two (2) copies each of the Certificate of Incorporation, Memorandum and Article of Association and current Tax Clearance Certificate.
2. A sketch map to show the field location in relation to other oil blocks/facilities.
3. A copy of approval to commence Test Production and date of commencement.
4. Anticipated average daily production to be provided/MER & Tech. allowable.
5. Monthly or quarterly commercial allowable granted (for OMLs concerned) from Crude oil marketing division of NNPC covering the period of application.
6. Provide calibration tables of all relevant custody transfer facilities (meters, storage tanks, etc) and evidence of DPR participation in their calibration.
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7. Provide a copy of Crude Oil Handling Agreement between Terminal Operator and crude oil injectors.
8. For equity lifters, evidence of participation in the production sharing agreement/contracts should also be provided.
9. For other lifters such as partners in Strategic Alliance, evidence of Federal Government’s approval for arrangement.
3g. Possibility of foreign company participation.
Foreigners may own up to 100% of any Nigerian business except in the Maritime sector (Cabotage).
3h. Regulation of the Oil and Gas development.
Please note that the Oil and Gas Industry is regulated by the following bodies:
- Ministry of Petroleum Resources
- Nigeria National Petroleum Corporation - Department of Petroleum Resources
- Nigerian Investment Promotion Commission
- National Maritime Administration and Safety Agency - Nigeria Customs Service Board
- Nigerian Content Development & Monitoring Board
4. What are the environment regulations for Oil and Gas as regards to:
Total tax and direct or products fee for the exploration development of Oil and Gas.
The tax rate under the Petroleum Profit Tax Act is 85% for JV companies and 50% for PSC companies operating in deep offshore sites. A special rate of 65.75% applies when a company has not yet started the sale or bulk disposal of chargeable oil under a programme of continuous production, and all pre-fully amortised. All expenses, wholly, exclusively and necessarily incurred for petroleum operations are deductible for calculating adjusted profit under the PPTA.
5. What are the Incentives for development of Oil and Gas as regards to:
a. Exemption of tax
Exemption from payment of Income Tax for a maximum period of 5 years for companies or products with a pioneer status (“Pioneer Exemption”). This incentive is available to qualified companies which:
a. manufacture any of: electrical appliances, equipment, components and parts;
solar energy powered equipment and gadgets; generators, transformers, meter, control, switch gears, test equipment, resistors, capacitors, coils, conductors, semi-conductors, solar panels, electrical and other cables; or
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b. provide utility services in the Industry; or c. independently generate power; or
d. utilize gas, coal and renewable energy sources in their operation.
Additionally, all qualified capital expenditure (“QCE”) expended prior to the expiration of the period granted (“Pioneer Period”) shall be deemed to have been incurred on the first day after the Pioneer Period. In other words, the company will be able to utilise the accrued QCE to reduce its assessable profit to arrive at relatively lower taxable profits until the exhaustion of the QCE.
Unlike the Pioneer Exemption, all QCE expended prior to the expiration of the period granted (“Tax-Free Period”) are not expressly deemed to have been incurred on the first day after the Tax-Free Period. Annual allowances are however claimable at an accelerated rate of 90% for expenditures on plant and machinery in addition to a 15%
investment allowance which will have no reducing effect on the residual value of the plant and machinery.
Exemption from payment of Income Tax for a maximum period of 5 years for companies that market and distribute natural gas for commercial purposes (“Gas Utilization Exemption”): This incentive will apply to companies in the Industry which are set up to commercially market and distribute natural gas (“Gas Utilization”) whether or not to businesses within the Industry. Subsidiaries of businesses within the Industry which are established for Gas Utilization will enjoy this incentive.
Income tax incentive: tax holiday of up to 5 years or as analternative, additional investment allowance of 35%. This is in addition to other available incentives for utilization of gas such as accelerated capital allowances and investment allowances.
The profits of such companies from their operations are exempt from income taxes during the tax holiday period.
Exemption from VAT on plant, machinery and equipment purchased for utilization of gas in the downstream petroleum operations.
b. Exemption fee
Capital allowance of 95 percent of qualifying capital expenditure incurred on investment on exploration, development, processing and all infrastructures costs incurred of ownership and replacement.
Permission to retain and use earned foreign exchange for use in acquiring spare parts and other inputs required for the mining operations which would ordinarily available without the use of such earnings.
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Free transfer of dividends or profits, payment in respect of servicing foreign loans and foreign capital in the event of sale or liquidation of mining operations, in any convertible currency
c. Tariff of Import
Custom duties exemption on machinery, equipment and spare parts imported by an industrial establishment that utilizes gas for its operations: The incentive will apply to all exploration, processing and power generation businesses within the Industry which use gas for their operations.
d. Considerations in the exploration development and investment in Oil and Gas
Royalty – this is payable in ranges from 0% to 20% of production, depending on the location and depth of the area of production. Royalty can be paid in cash or by delivery of an equivalent volume of petroleum.
Capital allowances and investment tax credit – there are provisions for generous capital allowances at the rate of 20 per cent per annum in the first four years, 19% in the fifth year and the remaining 1% retained in the books of the company. Holders of PSCs are entitled to an investment tax credit of 5%.
We advise accordingly.
Please do not hesitate to revert if any clarification is required.
Yours faithfully,
Adepetun Caxton-Martins Agbor & Segun
