Legal regime for community development agreement under the minerals and mining act 2007


The 2007 Nigerian Minerals and Mining Act (NMMA) introduced a novel practice of mandatory community agreement between mining sector operators and a certain segment of the society referred to as “the host community”. By virtue of this legislation, the concept and practice of Community Development Agreement (CDA) has become an important part of Nigeria’s energy sector legal framework which needs to be understood and implemented.

The Act enacts a regime of mandatory CDA negotiation between minerals exploration and production companies and communities within and around which they operate. The NNMA refers to this unique segment of the Nigerian society as the “host community” of the particular minerals exploration and production activity occurring within the host area.

A CDA is defined as any negotiated agreement between an extractive industry proponent and a community stipulating how that community accesses development initiatives undertaken to be provided by the project proponent. In other words, one of the functions of a CDA is to regulate the manner in which a host community benefits from the resource exploration and production activity occurring on community land.

Nevertheless, the CDA process is also used in many jurisdictions to express a community’s consent and support for a project and to agree how a project proponent engages or relates with the host community during the life cycle of the proposed project.

As a concept, CDA is an emerging or a contemporary community engagement and development tool used by countries and the extractive industry companies to engage with landowning communities within or around the licence area.

Section 116 (1) of the NMMA provides that: “Subject to the provisions of this section, the Holder of a Mining Lease, Small Scale Mining Lease or Quarry Lease shall prior to the commencement of any development activity within the lease area, conclude with the host community where the operations are to be conducted an agreement referred to as a Community Development Agreement or other such agreement that will ensure the transfer of social and economic benefits to the community”

Furthermore, subsection (2) of section 116 stipulates that “the Community Development Agreement shall contain undertakings with respect to the social and economic contributions that the project will make to the sustainability of such community.”

These provisions of the NMMA seem to have instituted a mandatory legal regime in which CDAs serve as instruments for structuring community governance and benefit sharing in the mining sector. Additionally, the provisions established specific objectives which are intended to be achieved by the obligatory CDA process. The direct approach employed by the NMMA in explicitly requiring mining companies to negotiate CDAs is not only groundbreaking, but also indicative of a new resolve to assimilate a contemporary tool towards addressing energy project-induced community challenges in Nigeria.

Also, the assimilation of the concept and practice of CDA into the Nigerian legal system and into the minerals sector indicates a deliberate intention on the part of the Federal Government of Nigeria to avoid some of the foundational errors which were inadvertently allowed to occur at the inception of the petroleum industry in Nigeria. The problem of militancy and the recurrent hostility between petroleum exploration and production companies particular the International Oil Companies (IOCs) and communities in the Niger Delta is largely caused by the failure to institute a system for host community engagement and benefit sharing at the inception of the petroleum industry in Nigeria.

Section 116 (1) of the NMMA quoted above imposes a duty on the holder of a mining lease, small scale mining lease or quarry lease to negotiate and conclude with the host community where the operations are to be conducted an agreement which shall be known as CDA. This mandate on mining companies to negotiate CDAs with their host communities is a deviation from the norm in Nigeria. Before the enactment of the NMMA, the notion of a binding contractual relationship between companies operating in the natural resources sectors and their host communities was alien to our legal system. Accordingly, the IOCs operating in the Niger Delta adopted the practice of executing memoranda of understanding (MOU) whenever they deem it necessary to define their engagement with a community by an agreement. Moreso, all the MOUs existing in the oil and gas industry are voluntary non-binding understanding between communities and the IOCs. As a result, there have been disputes and claims of non-implementation of the contents of most MOUs signed in relation to petroleum exploration and production in the Niger Delta.

One of the imports of a non-binding agreement is that the terms therein contained will be non-justiciable and therefore incapable of grounding any rights or positive obligations enforceable at law. In other words, none of the parties to any of the existing MOUs signed in relation to any particular petroleum operation in the Niger Delta can validly institute a legal action in court and successful enforce any of the provisions of an MOUs. One may argue that the inability of an aggrieved party to ventilate real or perceived grievances could be one of the reasons or inducers of violence and militancy in the Niger Delta. Often times, it is common for people to resort to self-help where there has been a denial or a curtailment of the right of an aggrieved person to seek redress for perceived infractions.

This problem appears to have been identified and the provision of section 116 of the NMMA is an attempt at providing an effective remedy so as to prevent a repeat of the mistakes made in the Niger Delta by failing to structure out a framework for community engagement and development.

However, it must be noted that creating an engagement framework such as the one contained in the provisions of the NMMA is only a good starting point. The other critical component of the solution is the implementation of the provisions of the Act. The stakeholders need to study and understand the provisions of the NMMA on CDA, to recognise their duties and obligations as well as tools necessary to competently comply with the requirements of the Act, otherwise, this very thoughtful provision of law may become a potential show stopper to the crystallization of investment potential in the Nigerian minerals sector.

 

The NMMA specifically stipulates that the holder of a mining lease, small scale lease or quarry lease shall negotiate and conclude a CDA with the relevant host community “prior to the commencement of any development activity within the lease area.” In other words, section 116 (1) requires that lease holders must agreed to a CDA with their host communities before the commencement of any development activity within the lease area. This means that a company must immediately after obtaining licence under the NMMA initiate a structured engagement process with the relevant host communities with a view to concluding a CDA prior to the commencement of any mineral development activity. So, community engagement should be ongoing during the exploratory or preliminary stages when all the seismic and assets evaluation activities are taking place within the lease area. Companies are often advised to initiate or establish contact with their host community as soon as a mineral licence is obtained. The reason is that genuine community engagement process (which usually leads to the grant of a community’s consent and support for a project) takes a reasonably long period of time. Thus, to avoid unnecessary delays which may adversely affect a project’s timelines and ultimately the economics of it, community engagement must be commenced very early. This will allow the parties the time needed to cultivate a health relationship, gain the trust of the other party which makes community agreement-making substantially easier to concluded.

 

Within the context of extractive industry projects, it is always useful to differentiate community engagement from a CDA. Community engagement refers to the interface between a host community and the project proponent enabling the community party to participate actively in the monitoring and implementation of the licensed activity. A community engagement process in energy project context is usually designed to endure for the duration of the project. The main purpose of community engagement is to enable a community to access useful information concerning the nature of the activity proposed by a project proponent, how the proposed project will affect the community and the remedies or palliatives which the proponent proposes to implement to mitigate the adverse impacts of the project. Where community engagement is initiated and sustained, a host community will usually have all the information required in order to arrive at an informed decision whether to provide consent and support for a proposed project or to withhold consent. The NMMA did not expressly provide for the effect of a community’s decision to withhold consent on a proposed project but merely provides that in the event of the failure of the host community and the lessee to conclude a CDA by the time the lessee is ready to commence development after several attempts to reach an agreement, the matter shall be referred to the Minister for resolution.

Nevertheless, experiences from jurisdictions such as Canada, Australia and Papua New Guinea each of which has more than 20 years demonstrable know-how in community engagement demonstrates or proves that a company’s ability to win the consent and support of its host community is beneficial both for the project and the value of the company’s stock.

So, project proponents in these jurisdictions invest tremendous amount of time and resources to community engagement thus significantly reducing the various social risks associated with most extractive industry projects. The expectation is that the Nigerian CDA process will be able to achieve a similar result over time.

 

The NMMA identifies the need to transfer mining-projects-induced social and economic benefits to the host communities as the principal purpose for instituting the CDA regime. Furthermore, subsection (2) of section 116 provides that every CDA shall contain certain undertakings regarding the social and economic contributions which a proposed project will make to the sustainability of such community. Thus, from the provisions of section 116 (1) and (2), it is expected that CDAs executed pursuant to the provisions of the NNMA and the 2011 Minerals and Mining Regulations will embody certain undertakings which are designed and implemented to engender social and economic benefits in the relevant host communities. However, it should be noted that the existence of a duly negotiated CDA regardless of the undertaking contained therein will be insufficient to secure sustainable social and economic benefits to any host community. Accordingly, careful implementation and regular monitoring of performance are two critical elements of a successful CDA process. Additionally, the issue of how community benefits contained in a CDA is structured is also pivotal to the realisation of CDA-based expectations or outcomes.

Sustainability of host communities within the context of energy projects development is a higher ideal achievable through the CDA process. The reason is because CDAs are traditionally private agreements between a project proponent and the host community and their existence do not automatically lead to a sustainable outcome. Thus, the support of other strategic stakeholders (especially the State) is often critical to achieving a sustainable outcome through the instrumentality of CDAs. This will be discussed in detail in another article.

One of the important bases for CDA negotiation is that resource development projects generally occur within a context of legal rights and/or interests. The minerals right and title usually reside or lie with the State in most jurisdictions including Nigeria. However, the minerals title holder does not always have the rights and title to land or territory on which the minerals are found and upon which a project development activity takes place. While the State may issue or grant mineral licences, it generally would not have the right to grant the mineral lease holder access to land or territory which belongs to another juristic entity or an individual. In Nigeria, the initial thinking and disposition of the Federal Government, which in turn is reflected in the way our natural resources laws are couched, was that the Federal Government has the right to acquire any land upon which mineral resources are found. Nevertheless, Nigerian law recognises Federal Government owned land, a State-owned, community and individual landownership and thus provides a framework for land acquisition by the State which must be adhered to before the State can validly acquire any community land or land belonging to an individual. The CDA process is therefore designed to give recognition to the different legal rights and to facilitate the management of the various interests usually at play in energy project context.

The CDA process thus provides a collaborative framework which enables the mineral title holder to exercise or maximize the full extent of its rights without infringing or diminishing the rights, title and interest of the landowner. The mechanisms of a well-structured CDA process help to ensure an orderly and conflict-free exploration and development of minerals.

Following the above analysis, the theory is therefore that where a right or interest is likely or in danger of being affected by the action of another, then the holders of that endangered right or interest should be engaged, consulted and be given an opportunity to participate meaningfully and to contribute in the decision-making process and to also share in the benefits accruing from such an activity. In other words, the CDA process acknowledges or recognizes rights or interests which an individual or a group has by virtue of some special or historical connection to a place or territory and the peculiar adverse impacts which they are likely to suffer by reason of their proximity to the project location.

Resource development projects such as in mining and petroleum come with certain adverse impacts for the society, particularly those members of society that are resident or work within or around project areas. Some of the common adverse impacts of mining and petroleum operations include the degradation of the marine and land surfaces by polluting agents. One of the immediate consequences of resource-extraction-induced environmental degradation is the entrenchment and/or exacerbation of poverty in the area affected. This happens where land and marine resources, the primary sources of local sustenance, become polluted or are rendered unsuitable or unfit to perform their natural functions.

Another adverse effect often experienced by host communities is the impairment of pre-existing social and cultural life style. Also, problems such as the lack of social and economic amenities or other basic infrastructures and the perceived neglect of the host communities tend to exacerbate existing adverse situation prevalent in most communities. The feeling of resentment (resulting from the above factors) against the project and the proponents often serves as the incubator for obstructive behaviours and community conflicts.

Furthermore, the clash of cultures often occasioned by limited cultural awareness of the local environment by migrant workers sometimes evokes the resentment of the adversely impacted members of the host communities against the project, the proponent and the State. Similarly, the inability (real or perceived) of governments to address these concerns through the normal apparatuses of the State together with the problem of limited access to legal remedies, further fuel local resentment and exacerbate conflict between local communities and the minerals sector operators. Additionally, without careful planning, energy projects characteristically do not produce or generate enough positive impacts to significantly improve the social and economic conditions of rural communities. This scenario creates situations in which the adverse effects of resources development projects outweigh or diminish the minimal positive effects that community derive from extractive industry projects.

The NMMA names “the host community” as the other party to a CDA which lease holders have been mandated to negotiate with prior to the commencement of any development activity. The crucial question is who is the host community? An answer to this question is important because the phrase “the host community” does not possess or refer any distinct juristic personality which can be easily ascertained or identified for the purposes a CDA. Another relevant issue relating the community party to a CDA is the capacity to contract since “the host community” is not a juristic person. Section 116 (1) of NMMA and the Minerals and Mining Regulations 2011 tried to provide some guide to how to identify who the host community is in a particular case but failed to fully address the issue of the host community’s capacity to contract. Furthermore, a cumulative reading of the NMMA and the Regulations shows that there is a distinction between the host community and a community located adjacent or around the project area but which does not qualify as a host community to a project. The import of this to the CDA process on each of these two groups is telling and will be the subject for another article.

It has earlier been established that the central focus of the CDA process instituted by the NMMA is to secure the transfer of social and economic benefits to the community through certain “undertakings” which the CDAs are expected to contain. What are these undertaking? Section 116 (3) stipulates that the CDA shall contain or address all or some of the items therein listed subject to their relevance to the circumstances of each host communities. Some of the items which a CDA should contain include education, scholarship, apprenticeship, technical training and employment opportunities for indigenes of the communities, financial or other forms of contributory support for infrastructural development and the maintenance of related community services.

Additionally, CDAs shall provide for how to assist the benefiting community to establish and grow small scale and micro enterprises, agricultural product marketing, and methods and procedures for environmental and socio-economic management and local governance enhancement. Furthermore, CDAs must provide for a participatory consultative and monitory framework and shall be reviewed every five (5) years.

From the foregoing, the point is well established that the imposition of a mandatory CDA process by the NMMA is both strategic and well intended. By this provision, the two most important issues bothering communities which are the acknowledgement of specific land-based rights and interest within their community, and the institution of systematic process of community benefit sharing have been potentially addressed. The adequacy of the remedy contemplated by the Act and the institutional framework instituted for CDA implementation are discussions which shall be had as the CDA process unfolds. Also, it has already been stated that while this provision conforms to the new thinking in the extractive industries, urgent and pragmatic steps should be taken by all stakeholders towards a firm understanding of the complex requirements of a functional CDA process as well as to equip them with the necessary tools for the effective implementation of the CDA process. For instance, it is important that the State recognizes that community sustainability through the CDA process requires active participation and partnership of strategic Federal and State institution. Also, there will be need for the State to leverage the CDA process so as to deepen and expand the scope of beneficiation. Furthermore, Ministry of Solid Minerals Development and the Mining Cadastre Office should organize CDA summits to sensitize critical stakeholder as well as build consensus on the implementation of the CDA regime. Importantly, host communities’ need to be educated on the essence of the CDA policy, and what is expected of them in order to maximize CDA- based benefits rather than using the CDA process to frustrate business activities of project proponents in the mining sector. These are crucial steps and the time to begin is now.

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