Introduction
The ownership and control of all mineral resources in, under or upon any land or waters within the territory of Nigeria are vested exclusively in the Government of the Federation for and on behalf of the Nigerian people by the Constitution of the Federal Republic of Nigeria, 1999 (as amended). These rights are affirmed by the Nigerian Minerals and Mining Act, 2007 (the Mining Act), which provides the framework for the grant of mineral titles by the Federal Government to qualified applicants seeking to explore or exploit mineral resources within specified areas.
Given the potential for significant economic benefits that mineral title holders may derive from mineral extraction vis–a–vis the potential socio–economic impact to nearby communities, the Mining Act requires each mineral title holder to enter into a Community Development Agreement (CDA) with their respective host community before undertaking any mine development activity or extraction of minerals. This requirement derives from the philosophy that if a community enjoys social and economic benefits from a mining project, the community is more likely to allow the mining project to operate with minimal disruption, thereby giving the mining company a "social licence to operate."
The term, "social licence," is an unwritten social pact that is widely recognised as a critical success factor for sustainable mining operations. Mining operators strive to earn social licence by engaging in responsible mining practices and undertaking various programmes and initiatives that are geared at benefits sharing and gaining the trust and support of their host communities, thereby reducing conflicts, mitigating risks to their projects, and building stronger relationships. The Mining Act thereby offers a structured approach to securing social licence by making CDAs a regulatory requirement.
In this publication, we examine the CDA requirement under the Mining Act as a tool for mining operators to obtain social licence from their host communities. We also highlight some challenges to its implementation and offer recommendations for improving the CDA framework in Nigeria.
Community Development Agreements: Scope and Trends
A CDA is a written agreement between a mining company and a host community that outlines how some of the economic benefits from the project will be transferred to the community in order to improve their social and economic welfare. CDAs typically include commitments by the mining company to support developmental initiatives such as the provision of roads, electricity, portable water, healthcare, housing, education and create opportunities for job creation and economic empowerment. Recognising the negative environmental impacts of mining, CDAs often contain commitments to ensure that mining companies minimise their environmental footprint through sustainable practices.
The process of developing a CDA generally involves consultations with key community representatives and government agencies to ensure that the mining company's commitments align with the needs and priorities of the host communities. By clearly documenting the benefits that the community will receive, CDAs help mining companies secure social licence to operate and mitigate the risk of operational disruptions, loss and reputational damage.
Many countries including Sierra Leone and Guinea have made CDAs mandatory through legislation. Even in countries where CDAs are not mandatory, some mining companies voluntarily adopt them as a strategy to secure social licence. The World Bank has attributed this growing trend in the adoption of CDAs to increased emphasis on benefits sharing, heightened stakeholder scrutiny of mining activities and the potential negative impact of poor mining practices on companies' stock prices.1.
Framework and Process for Community Development Agreements in Nigeria
The principal legal framework guiding the development of CDAs in Nigeria is the Mining Act and the Nigerian Minerals and Mining Regulations 2011 (the Mining Regulations). There is also the Revised Guidelines for the Production of Community Development Agreement in the Solid Mineral Sector 2023 (the CDA Guidelines), which was issued by the Ministry of Solid Minerals Development (MSMD) in November 2023 with the objective of raising the standards of CDA development and writing in conformity with global best practices. The CDA Guidelines serve as a handbook to mining companies when preparing CDAs, and it seeks to promote the standardisation of CDAs in Nigeria (by prescribing the content, structure and writing format for CDAs) and best practices for community buy-in and ownership.
Who is mandated to conclude a CDA?
The requirement to conclude a CDA is only applicable to the holder of a mining lease, small-scale mining lease or quarry lease. These categories of mineral title holders are mandated under the Mining Act and Mining
Regulations to conclude a CDA with their respective host communities prior to the commencement of mine development within the relevant lease area. Exploration licence holders are rightfully excluded from this requirement given that rights conferred on the holder of an exploration licence do not extend to the exploitation of mineral resource (other than in very limited circumstances).
How is the Host Community Identified?
Critical to the commencement of any discussions on a CDA is the identification of the host community. The Regulations provides helpful guidance on this issue, as it defines the host community as the community where the mineral is located or the community closest to it. According to the CDA Guidelines, communities impacted by transportation routes, supply chains, employment catchment areas and the use of the areas outside the immediate project area, may not necessarily be considered host communities even though they may be considered as stakeholders. Where the host community is not ascertainable for any reason, the Regulations require that a report must be submitted to the Minister of Solid Minerals Development (the Minister) who will, in consultation with the state government, the state Mineral Resources and Environmental Management Committee ("MIREMCO")2 and other relevant state or federal government agencies, determine which community is the host community. The Regulations also gives the Minister the latitude to determine the host community in any manner, notwithstanding the provisions of the Regulation.
How are Community Representatives Selected?
The CDA Guidelines identifies categories of persons who fall within the scope of stakeholders whose inputs are critical to a successful CDA, such as women groups, youth groups, people with disability, community leaders, civil society organisations and stateMIREMCO. However, recognising the impracticality of every group being present during negotiations, it gives further guidance on how to narrow down to the individuals that best represent the community and recommends working through community heads or other established local structures. It also recommends communication of information to the wider community on the negotiation outcomes as essential to mitigating the risk of appointed representatives not properly representing the overall interest of the host community. The risk is further mitigated by a requirement that the signatories to the CDA must be persons freely chosen by the generality of the community to represent them. These signatories are to be identified in a letter written by the community head and submitted to the MSMD for verification, and the letter must be accompanied by the minutes of the meeting where the signatories were freely appointed together with an attendance sheet.
What should the CDA contain?
A CDA should set out the commitments of the mineral title holder with respect to the social and economic contributions that the project will make to the sustainability of the host community. While the Mining Act, Mining Regulations and CDA Guidelines do not specify any particular projects or initiatives that must be contained in the CDA, they provide guidance on some themes which may be captured such as the provision of social amenities, creation of employment or other opportunities for indigenes of the communities, support with the development of local industries and methods, procedures for environment, and socio-economic management and local governance enhancement.
It is apparent from the foregoing that CDA commitments should be structured to benefit the community at large rather than a select few, otherwise, imbalances in benefits sharing would lead to resentment and division within the community. However, there is a risk that community leaders and influential personalities could advocate for commitments that primarily benefit themselves. This risk is mitigated by adopting processes and measures to ensure effective community representation, transparency and regular communication with the community on the CDA's goals, processes and commitments.
In addition to setting out the commitments, CDAs must specify appropriate consultative and monitoring frameworks by which host community representatives may participate in the planning, implementation, management and monitoring of activities to be carried out under the agreement. It should also include modalities for environmental protection and compensation, conflict management or resolution and the rights of the mineral title holder in relation to the mining area.
What is the Procedure for Developing a CDA?
The CDA Guidelines recommend a 5-step process for developing CDAs. It begins with a commencement meeting between the mineral title holder and the host community to help the parties understand the CDA development process and set expectations. The host community will also have the opportunity to present its needs at this meeting. The commencement meeting is followed by one or more negotiation meetings to agree on the provisions of the CDA. In the event that the mineral title holder and the community are unable to agree on the terms of the CDA after several attempts, the matter may be referred to the Minister for resolution. Following the completion of negotiations, the parties will hold a completion meeting where they would consent to the provision of the CDAs. Thereafter, a signing ceremony will be held. The signed CDA is then submitted to the MSMD for approval in accordance with the Mining Act. Once approved, the CDA must be renewed every five years in order to ensure that the agreement remains reflective of the community's evolving needs.
The CDA Guidelines recognize the crucial role that effective stakeholder management plays in the development of a CDA and requires that stakeholders are actively involved in the identification of their community needs in order to build local ownership of the CDA. For the negotiations to be successful, it also recommends that the government, private sector and civil society organisations invest significant time and effort into building the capacity of all stakeholders prior to the commencement of CDA negotiations.
Implementation and Monitoring
The CDA Guidelines requires that CDAs should establish a Monitoring Committee comprising representatives from different stakeholder groups to monitor the implementation of the CDA. The Monitoring Committee is required to have regular meetings and is also tasked with preparing and submitting an annual report to the MSMD to enable the MSMD track progress. It is noteworthy that for a Monitoring Committee meeting to be valid, a representative of the Mines Environmental Compliance Department of the MSMD must be present.
Grievance Mechanism
The Mining Act expressly provides that CDAs shall have a binding effect on the parties. Therefore, commitments made under a CDA are enforceable and parties may take steps to enforce the agreement in the event of a breach. Where disputes or complaints arise from the CDA implementation, an attempt must first be made at resolving the dispute by mediation, failing which, the dispute may be referred to the Minister for amicable settlement. Where amicable settlement fails, the parties may proceed to arbitration under the Arbitration and Mediation Act, 2023, or the federal high court for resolution.
By prescribing avenues for amicable settlement prior to arbitration or litigation, mineral title holders have the opportunity to avoid the negative impact a full-blown arbitration or litigation may have on their social licence to operate.
Is there a role for communities?
The Mining Act, Regulations and CDA Guidelines do not contain specific mandates as to the exact commitments host communities should make to the mining companies. Recognizing that the relationship between a host community and the mining company is a symbiotic one, it is typical for CDAs to contain clauses that require commitments from the host communities towards stable operations for the mining companies. When the community is aware of the fact that the obligations under the CDA are in part subject to successful and smooth mining operations, there is a heightened sense of responsibility from the community to protect the project in order to enable them uphold their undertakings in the CDA.
Challenges and Recommendations
Together, the Mining Act, Mining Regulations and CDA guidelines provide a fairly robust framework for developing CDAs, incorporating requirements for stakeholder engagement, and mechanisms for monitoring and evaluation, which are strong pillars for building and maintaining a social licence to operate. There are however some challenges that may limit the implementation of this framework. These include the capacity of regulatory institutions to effectively monitor compliance by mineral titleholders. Another challenge is the limited awareness of the issues and negotiation capacity within the host communities. It is therefore important that resources are deployed to ensure that regulatory institutions are structured and equipped to provide effective regulatory oversight on these matters. Stakeholders should also be encouraged to develop and support initiatives to raise awareness and provide host communities with the resources to participate meaningfully in the CDA development process.
There is also limited guidance on the modalities for determining the needs and priorities of the communities and the expected level of funding to be deployed by the mineral title holder towards community development projects. We may contrast this with the framework under the Petroleum Industry Act, 2021 (PIA), which is applicable to the exploitation of oil and gas resources. Under the PIA framework, there is an express requirement for the conduct of a needs assessments on a periodic basis together with a development plan that must be approved by the Nigerian Upstream Petroleum Regulatory Commission. The PIA also requires the establishment of a community trust and a trust fund and specifies the minimum contribution that the operator must make on a yearly basis to the trust fund, to fund community development projects. Establishing these parameters helps stakeholders to manage their expectations and reduce conflict. Drawing from the example set by the PIA, we note the existence of a legislative proposal to amend the Mining Act (i.e., the Nigerian Minerals and Mining (Amendment) Bill, 2023), to require a mandatory contribution of 5% of "all extraction net revenue." We recommend that if any financial threshold is to be mandated for the implementation of CDA, such threshold must be carefully considered to ensure that it is not unduly burdensome on the mineral title holder, while also presenting a win for host communities.
There is also the question as to whether the informal structure of community representation prescribed in the CDA Guidelines is effective. Institutionalising community representation through the establishment of a community trust similar to what is required under the PIA would enhance the long-term stability and continuity of community representation and allow for a structured decision-making process that fosters transparency, and accountability. More importantly, a community trust is a legal entity that can enter into contracts, own property and sue and be sued. Hence, it offers a legally protected approach to managing community benefits, which informal representation lacks.
Conclusion
Overall, the CDA framework in Nigeria has the key components to foster a social licence to operate. When effectively implemented, it ensures a mutual exchange of benefits between the host community and the mining company. By ensuring shared benefits and addressing community concerns, CDAs can contribute to obtaining and sustaining a social licence to operate from the host community and thereby support the long-term sustainability of mining operation. However, there are challenges to its implementation that can hinder the realization of these benefits. Overcoming these challenges would mark a profound step forward, unlocking the true promise of CDAs and empowering both the host community and the mining company to thrive together in shared prosperity.
Footnotes
1 World Bank, Mining Community Development Agreements Source Book (March 2012).
2 MIREMCO is a committee established in each state in accordance with the Mining Act. It comprises primarily of representatives from specific federal and state bodies with oversight over mining, the environment, land, agriculture and forestry. MIREMCO primarily plays an advisory role to the Minister on matters such as compensation, mineral resource development, the implementation of social and protection measures. It also provides a platform for synergy amongst stakeholders.
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