RAISING THE STAKES! – A CAREFUL INSPECTION OF SOMALILANDS MINING ACT (2019)! HOW RELEVANT IS IT TO GUIDE OUR MINING INDUSTRY?

A detailed appraisal and comparative review on the Mining Act (2019); showcasing Somaliland’s earnest efforts to attract foreign investment into the mining sector.

Preface

Could Somaliland dare to declare war against the Evil-Poverty that overstayed with us for centuries! Yes, we can! Poverty, with its agonising shackles on our societies, ought to be eradicated from our lands before it claims citizenship and a permanent place among us! The looming question remains whether Somaliland can use its Mining Industry as a catalyst for bettering the economy and joining global nations that defeated poverty. An in-depth analysis of the Mining Act and whether it is enough to govern Somaliland’s Mining Industry and how it balances the country and investors fair remunerations.

In 1776, Adam Smith, the Scottish economist, philosopher, and author, more known as the father of modern economics; in his famous book “An Inquiry into the Nature and Causes of the Wealth of Nations”, articulated so well how nations could create products and services locally and then balance against the purchases from the other nations.  Adam Smith laid the foundation of the Gross Domestic Production (GDP) formula used to measure a country’s economic health and poverty levels. Adam Smith told us about 245 years ago that for our GDP to show some growth, we should have consumer and government spending, plus some investment, and positive net export after deducting the forex draining import!

Looking closer to the arrival of the colonial British in Somaliland, one could see from their aggressive resources reconnaissance programs during those 70 years of colonial rule that it was more in line with that vivid economy awakening rat race. We are so embarrassed to note that the colonialist ruler outperformed our Somali race and did more exploration, finding and reporting, drilling and exporting our land’s mineral wealth resources than we did in the nearly 70 camel years since they left!

AHA! A glimpse to the colonial archives of British Somaliland, their export records show millions of tons of Anhydrite and Gypsum from Berbera vicinity, nearly a half-million tons of Salt from Zeila (1926 – 34),  millions of tons of Coal from Onkor, tens of thousands of tons of Casseterites (Tin) from Dalan-Majiyan, millions of tons of Phosphatic Guano from Maydh-Island and the list goes on admiringly. In one of the reports, a British gold mining company reached a production of 93kg of gold per month in the Ahl Misket of the nearby Italian Somaliland.

More recently, in September 2019, upon coming to our blessed motherland for the first time as two fresh graduates, we were grateful for the opportunity presented to us by the Ministry of Energy & Minerals of Somaliland to be part of the workshop of drafting Somalialnds first-ever ‘Mining Act’ alongside several other professionals. We immediately joined the many weeks of crafting the ‘Mining Act’ while at the same time admiring the earnest efforts and outstanding work at the Ministry, leading Somaliland to a resource-based economy and putting up all the regulations as the first step to tapping into the natural resource endowment.

Introduction – Looking from a bird’s eye view!

The Act aimed to establish a sense of transparency in the mining sector by reiterating and reinforcing our governing institutions and foreign individuals/companies to comply with all rules. The Act also aims at fostering the growth and development of our finite yet potentially rewarding mining industry. It will serve as a mechanism to regulate the exploitation and exploration of all minerals in Somaliland.

The purpose of the Act can be categorised into five key provisions:

• To ensure the development and conservation of the resources for the benefit of the Somaliland citizens.
• To ensure that mineral resources be carried out following the appropriate technology and sound principles of resource conservation and develop our national expertise.
• To promote mining and exploration in a socially, economically, and ecologically sustainable manner
• To govern the structure of mining authorities and their responsibilities and oversee safety in and around the mines.
• To provide an integrated framework for the effective regulation of authorisations for the exploration and mining operations.

The Mining Act of 2019 has established the legal basis for all prospective mineral extractions in Somaliland, ushering in a new era for the country’s mining industry. The report will be organised as follows—first,  an insight into the administration provisions. Then, an overview of the types of mineral licenses and concessions available in Somaliland. We shall then analyse the royalty structure, environmental protection, offences/penalties, and Miscellaneous Provisions. Finally, we will be concluding with what happens if there is a cancellation, suspension, or surrendering of any mineral rights.

• Administration

This section of the Act covers the duties of the Minister of Energy & Minerals, who shall ensure the orderly and sustainable development of Somaliland’s mineral resources until the formal establishment of the National Mining Corporation of Somaliland within five years of enactment of the Act. The National Mining Corporation will then oversee the mineral exploration and any other related activities and carry out the business, operations, and activities on behalf of the government shall then make the regulations necessary for the operationalisation of the corporation.

• Types of Mineral Licenses and Concessions

The right to search for or exploit Somalilands Mineral Resources is obtained through one of the following listed mining licenses or concession agreements in the Act. Engaging in any activity dealings with our minerals without the formal requirements will be considered an offence under the Act.

1. a) Reconnaissance License

A reconnaissance license allows you to execute a rigorous process of finding locations with higher mineral potential. All operations and works connected to the non-intrusive search for mineral resources utilising geophysical, geochemical, photo-geological, or other remote sensing techniques, as well as surface geology, are included in reconnaissance. Drilling and excavation are not included. Whether foreign or domestic, any person or company can apply for this license if they have not committed any offence under the Act.

The Minister shall then review the application form and determine if the applicant has sufficient funds and expertise to carry out the reconnaissance and have an appropriate environmental protection program. The Ministry will also carry out due diligence to determine if the scope of the reconnaissance overlaps with any of the other mining licenses.

After an applicant has taken all applicable measures and submitted the form, the Minister shall, within four weeks, give a decision whether the grant has been considered or not. The period for this license is valid for two years.

1. Exploration License

The exploration entails various actions aimed at determining whether or not there are minerals beneath the surface. Mining may be conceivable in the future if the exploration process discovers commercially viable minerals. Typically, only around 1 out of every 100 exploratory initiatives lead to the establishment of a mine. This is one of the reasons why mining and the minerals collected are so expensive. The first experimental efforts, such as mapping, will cover a vast region before focusing on smaller and smaller areas. The goal is to assess if the deposits are substantial enough to be exploited profitably.

1. Retention license

A retention license’s main aim is to do more evaluation work on a mineral resource that is presently not economically feasible to mine to determine its economic feasibility and eventually lead to exploitation of the mineral resource. The owner of an exploration license may apply to the Minister for a retention license on the basis that he has discovered a commercially significant mineral deposit within his exploration area but cannot be developed immediately due to some technical constraints, adverse market conditions, or other economic factors that are, or maybe, of a temporary nature.

Suppose the Minister is pleased with the results of the exploration titleholder and presumes that they can financially deliver a project within two years. In that case, he can grant them a retention license. A retention license validity is two years and can only be renewed once.

Per the Act, the Minister must review any Retention Licence with a period of more than one year on an annual basis. Title Holder must supply the Minister with updated studies and evaluations required under the original license during the yearly review. Suppose the Minister reasonably determines during such a review that relevant commodity prices and/or other economic factors have changed to the point where the reasons for the Retention Licence are no longer valid. In that case, the Minister may revoke the Retention Licence by giving the Title Holder ninety days written notice.

1. Mining License

Mining refers to the process of developing and extracting minerals, construction materials, gemstones, or art stones from a deposit for treatment, processing, or sale under the terms of a license or permit. A mining license grants the holder the exclusive right to dig for specific minerals. Before applying for a mining license, the applicant must establish that a mineral resource has been identified.

A mining grant shall be granted if the company is registered in Somaliland and is determined to have a technical qualification and financial capability to carry out its operations. In the enterprises to which a Mining License is awarded, the government is entitled to a 10% stake (however, if the company has a mineral agreement or a particular mineral concession, it can apply for a waiver).

1. Small Scale mining

Small-scale mining refers to extracting minerals using mechanical activities that do not go deeper than twenty meters and do not include sinking shafts, digging adits, or other underground openings. There are less than six contiguous blocks in the small-scale mining region or prospective mining area. Mining operations that generate less than 1,000,000 tons of Construction Materials or 100,000 tons of ore comprising Minerals, Art Stones, or Gemstones require a Small-scale Mining Licence. A small-scale mining license is valid for five years from the date of issuance and can be renewed honouring the condition of the Act.

1. Artisanal Mining

An artisanal miner (ASM) is a subsistence miner who is not employed by a mining business and works independently, mining minerals with their resources, generally by hand. A mining operation could be considered artisanal if the specialised exploration, mechanised mining technology, chemicals such as mercury and cyanide, and explosives are not used in the mining activities. The proposed mining activities do not include any investment or expenditure over the amount that the Minister may specify.

1. Special Mineral Concessions (SMC)

The Minister of energy and minerals may enter into a special mineral concessions contract with the holder of an exploration or mining license if the license holder is willing to invest above ten million dollars with the cabinet approval.

• Royalties

Royalties are payments made by the license holders to the government for mineral extraction in Somaliland. Based on the Act, every mineral rights holder must pay a royalty to the government based on the Act. The amount in percentages for different minerals. The royalties also vary from the government to regions stated. The central government receives seventy percent, the regional administration receives fifteen percent, the district administration receives ten percent, and the local communities receive five. The amount is paid annually. Exemptions from settling the payment can be made towards those who wish to collect samples to analyse and examine.

• Protection of Environment and Pollution Minimization

The holder of a Mineral Title must conduct their operations following the current Act and good mining industry practice to preserve the natural environment as much as possible, minimise and control waste and excessive loss or damage to natural and biological resources. There must also be an annual environmental report detailing how the area surrounding the mine is managed. If the mining site is to be closed, the titleholder has the responsibility to restore the land to its natural state or a safe condition; as is detailed in the plan brought by the titleholder

• Miscellaneous Provisions

As we know, The Somaliland government has a ten percent stake in all mining licenses and permits without contributing any capital. According to the International Financial Reporting Standard (IFRS), it also taxed profits made from mining at thirty percent, according to International Financial Reporting Standard (IFRS). The Minister can also enter into a production sharing agreement as a substitute for collecting taxes.

• Offences and Penalties

The Minister may designate qualified public officers to be inspectors of mines. They will then have to monitor, inspect, enter and examine land on which exploration/mining operations are being conducted and be required to take the necessary action under this Act. Those who are guilty will be either imprisoned or fined as deemed feasible.

• Surrender, Cancellation, and Suspension of Mineral Rights

This section examines the possibilities of what happens to those holders of licenses who wish to surrender, cancel, or suspend their rights.

On the issue of a surrender certificate:

The Minister shall accept if the surrender is concerning the whole or part of the area covered by a mineral license.

On the issue of a cancellation or suspension certificate:

The Minister will have the right under the Act to cancel or suspend the license holders if they fail to use in good faith the land for mining and use that land for purposes other than for which the license was granted. Other reasons include failure to comply with the conditions and requirements of the Act, using child labourers, violating health and safety regulations, failing to meet the minimum work expenditure requirement, and failing to comply with the community agreement.

License holders will have a chance to remedy their actions in not less than thirty days upon the notice of the Minister of energy and minerals.

Our Sound Judgement and Recommendation

The Mining Act (2019) provides a valuable framework for exploring and exploiting minerals in Somaliland in a fair and balanced enumeration for the nation and investors. The full provisions concerning the environment should address the relationship between the local community and the mining contractors. After concluding a detailed analysis on several other Mining Acts in Africa, it seems that this is indeed a stable and informative Act that addresses many issues relating to the mining industry while balancing the government’s interests with foreign or local investors.

As two extractive economists, we would like to recommend several options for Somaliland to boost the attractiveness and boost the overall profile of the Somaliland Mining Act (2019). Somaliland should consider the many challenging factors relating to the mining industry, noting the minerals are finite and non-renewable. We also need to avoid the adverse effect of the resource curse, balancing the role of communities with revenues as wells environmental challenges.

• Due to the attractiveness of the minerals such as Gold, Lead, Copper, Beryllium, Barium-Barite, Iron etc. found here in Somaliland and the revenue it could generate, the Mining Act (2019) must be re-reviewed and passed by the legislative branch of the government. There is no time to waste for Somaliland to join the world’s resource-rich nations, and the Act ned to be passed to set the stage for significant transformative growth through substantial investments.
• Create local awareness and educate local investors to invest in the mining sector while giving some privilege so that the stereotyped investment into hotels, restaurants, and trading is diversified into this important sector.
• Mining projects create infrastructures for the mining operation, like water wells, power generation, roads, railways, jetties and ports etc. Those facilities must be all used for the common good and made available to communities nearby the mining site.
• Hire foreign expertise to further assist the role out of the Mining Act and all that regulatory institutions that are required to solidify governance of the mining industry and set a precedent for many years to come.
• Dedicate a section of the Mining Act to ‘Planning the Use of Investments’. While doing our thorough research found that many nations dedicate a portion of their investments to improve their domestic capacity by selecting and implementing them correctly.
• Establishing the National Mining Corporation must be expedited to serve as information center for the Somaliland Mining Industry and address our industry’s current and future needs.
• Proper restoration of land after exploration has taken place is critical for our nation. Heavy penalties should be imposed on those individuals/companies who tarnish the land.
•  Set up a Mining Cadastre to provide a platform for all stakeholders in the mining industry to engage directly with the Ministry. Most countries set up an online platform for easy accessibility.
• Implement Transparency and Accountability measures in the Act to re-assurance of good governance and transparency to all Somaliland citizens.
• Promote and enforce foreign mining companies to use the local goods and services to retain portions of the Capex and Opex of the mining investor and nourish the local economy.
• Be a part of global Mining Forums/Events to showcase the potential of Somaliland’s. Such events are good to network and secure deals to develop our mining.
• A food for thought for Somaliland would be to apply the Resource Financed Infrastructure (RFI) model. It is a system that allows cash-strapped countries, which have limited ability to borrow , to leverage their extractive assets to develop critical infrastructure on an accelerated timeline. Somaliland could finance the necessary infrastructure that the country needs by pledging future resource revenue to a lender. This is a high-risk, high-reward type of deal that the nation could explore to grow rapidly.

Jointly co-authored by Mohd Faisal Hawar and Mohamoud Faisal Hawar, both Oil and Gas Management Graduates, specialising in Oil and Gas Fiscal Regimes, Oil and Gas Economists, Trainers & Consultants on all the Extractive Fiscal Regimes.