Why government’s losing revenue in mining sector

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Posted on July 2, 2018

Economist, geologists and surveyors have long agreed that under the Nigerian soil are wealth and riches untold. But majority of Nigerians are wallowing in poverty. The Nigerian Extractive Industries and Transparency Initiative, NEITI report suggests that there are about 40 different kinds of solid minerals and precious metals buried in Nigerian soil waiting to be exploited.

The commercial value of Nigeria’s solid minerals has been estimated to run into hundreds of trillions of dollars, with 70 per cent of these buried in the bowels of Eastern, Western and Northern Nigeria. Chairman of Solid minerals and Mining Group of Lagos Chambers of Commerce and Industry (LCCI), Otunba Babatunde Alatise, reveals that Nigeria loses a whopping N8 trillion annually in unexploited gold alone. He also says that Ajaokuta remains the key to Nigeria’s industrialisation and that getting it back to work is a matter of patriotism for President Buhari and his team.

Alatise, who is also the Managing Director of Tuntise Investments Limited, a mining and construction services provider, said: “If Nigerians were taking data seriously, we would have built a database, where we have authentic information. In 2012, the Permanent Secretary of the Ministry of Mines and Steel, came before the nation and said, that from our precious metals alone, specifically from gold exploitation alone, Nigeria is losing N8 trillion ($50 billion) annually.” The failure of Nigeria, since independence in 1960, to put in place a structure that will make the benefits of the exploitation of solid minerals available to all Nigerians has been the bane of the nation. At the moment mining of minerals in Nigeria accounts for only 0.3 per cent of its GDP, due to the influence of oil resources. The domestic mining industry is underdeveloped, leading to Nigeria having to import commodities it could produce domestically, such as salt or iron sheets and billets.

According to NEITI’s audit findings, solid mineral deposits are scattered all over Nigeria, with more deposits in certain areas than others. Over 40 million tonnes of talc deposits have been identified in Ebonyi, Niger, Osun, Kogi, Ogun and Kaduna states. There are huge deposits of coal ranging from bituminous to lignite in the Anambra Basin of South-Eastern Nigeria.

There is no doubt that the new administration is confronted with a huge financial burden partly caused by the reduced federation revenues which have been largely sourced from proceeds of crude oil sales. The reduction in global crude oil prices is not expected to reverse at least in the short run, thus the need to diversify the economy towards improving other sources of revenue. One key sector which offers great potential in achieving this is the solid minerals sector. The solid minerals sector had been targeted by the previous administration to contribute 5% to GDP by 2015 and 10% to GDP by 2020.

Current contribution of the solid minerals sector to GDP averages about 0.46% to reverse this trend and initiate appreciable growth in the sector, the following are the quick wins the new administration should explore. Urgent geoscience data gathering to further support the airborne geophysical survey already carried out one of the major challenges experienced by miners in raising funds is the ability to establish a worthy collateral for the intending financiers. The previous government had achieved 100% aerial geophysical survey of the country, with data existing at the ministry of mines and steel development for would be miners. However, this does not provide reliable details of the estimated quantity of the nation’s solid minerals which can only be achieved by more detailed geoscience data gathering.

Funding challenges have been identified as the reason for the inability to embark on detailed geoscience data gathering. Existing licenses are worth just the mineral titles without any reliable information on estimated quantity.

Mining licenses in Nigeria cannot be used as collateral for loans, as done in other global mining hubs. There is an urgent requirement for detailed geoscience data gathering to be done, so as to assign value to these licenses. The government can achieve this by employing either or all of the following, Government investment in geoscience data gathering, recouping invested costs and margins from sale of licenses. In this case, the government can fund data gathering by employing professionals, and pricing the mining licenses according to the estimated quantity delineated, and mineral type involved. Intending miners will be willing to purchase an expensive license if it can be used as collateral for loans. 2. Private companies specialising in data gathering can be licensed to perform the geoscience data gathering, and be given exclusive right over data gathered. Access to data gathered can then be for a fee, through which the company generates revenue.

Another quick win for the new administration is to urgently establish a platform for collaboration on initiatives whereby the development of one sector acts as catalyst for the development of another. The current power development drive and resultant privatisation embarked upon by the government cannot be done without considering other sectors that the power industry would rely on for the expected growth.

According to the roadmap for the power sector reform, the Federal Government intended to develop commercial power generation through focus on hydro, coal and natural gas. The roadmap for the development of the solid minerals sector further projects a 30 per cent contribution by coal to the nation’s power generating capacity. The support for coal mining has so far been to the extent of coal required as feed stock for the proposed coal fired power plants. However there is need to take a holistic view towards commercial exploitation of coal for varied purposes including export. Furthermore, we see this initiative being entirely championed by the Power Sector, without adequate involvement of the Ministry of Mines and Steel Development .


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