Nigeria’s Petroleum Industry Bill: Have The Indigenous Host Communities Been Shortchanged Once More?

Source: Eze Eluchie, Esq.

The passage of the Petroleum Industry Bill (PIB) by both houses of Nigeria National Assembly, on the 1st of July 2021, after almost two decades of efforts at crafting a legislation that would rationalize and put into proper context Nigeria’s otherwise mostly unchartered Petroleum industry environment, where any and everything goes, was heralded with a sigh of relief by diverse stakeholders: For International petroleum investors - they now have a one-stop document where the rules of engagement in the petroleum industry was adequately enunciated; For operators (downstream and upstream alike), there was now detailed rules for their operations and for engagement with their host communities (indigenous owners of the lands where crude oil was sourced from); and the Host Communities – despite their initial demands to be accorded 10% of operational costs of the operators, they appeared to be at least, for the very first time, assured of a definite percentage of operators operational costs as their entitlements.

It thus appeared that the perennial elusive search for a peaceful environment for our petroleum sector to thrive and maximize its potentials has finally come to an end.

Is that truly the situation? We shall now venture to inquire into the PIB from the perspective of the Host Communities, to gauge if indeed the indigenous communities, the ‘geese that lay the golden egg’ of the mainstay of the Nigerian economy, have been well accommodated and their interests addressed by the PIB, which is currently awaiting the signature of the President of the Federal Republic to become law.

1. The definition of Host Community
A host Community is defined under Sec. 318 of the PIB as: “any community situated in or appurtenant to the area of operation of a settlor, and any other community as a settlor may determine pursuant to Chapter Three of this Act”. The emboldened later part of the definition of Host Community (HC), which gives latitude to the Settlor (an Operator in the petroleum industry) to virtually do as it wishes with regards to deciding which community can be described as a ‘Host Community’ is quite worrisome and subject to abuse. Under the PIB, at par with communities where oil prospecting, extraction and refining activities are undertaken, communities over which petroleum pipeline traverse are now deemed as HC’s, and likewise ‘any other community as a Settlor may determine’.

In a nutshell, a Settlor can decide that a community anywhere, no matter how detached it is from its area of core operations, is a HC!

A situation that provides for such loose definition of ‘Host Community’, allowing wide discretion to the Settlor to determine which community so qualifies, is not well thought through and could give rise to further crisis during the implementation of the PIB.

2. The Host Community Development Trust Fund (HCDTF)

The recognition of the need to allocate a specific percentage of total operational costs to Host Communities is a most welcome development towards attainment of harmonious working, living conditions and existence in our oil producing areas. The rationale behind whittling down the funds accruing to the Host Communities from 10% to its current 3% of operational costs, considering that the betterment of Host Communities is a fundamental objective of efforts at a Petroleum Industry Law, remains shrouded in mystery. {Section 240(2) PIB}. The allocation of a meagre 3% of operational costs for the needs of the Host Communities appears to be where Host Community benefits terminate in the PIB.

Under the PIB, the funds due to any Host Community, the Host Community Development Trust Fund (HCDTF) are paid into the custody of a Host Community Development Trust (HCDT), an entity that will be “set up by the Settlor, who shall determine its membership and the criteria for their appointment” {Section 242(1) PIB}. The Settlor will also determine the membership of the Board of Trustees {Section 242(2)}, (a)the selection process, procedure for meeting, financial regulations and administrative procedures of the Board of Trustees (b)the remuneration, discipline, qualification, disqualification, suspension and removal of members of the Board of Trustees; and (c) other matters other than the above relating to the operation and activities of the Board of Trustees{Section 242(4)}, and also appoint the Secretary to the Board{Section 242(5)}.

In other words, the meagre 3% of the operational costs which is ostensibly meant for the Host Communities, will not be given/presented to the Host Communities, but would rather be given to an entity created, staffed and under the purview of the Settlors. A Settlor is defined in Section 318 of the PIB as “a holder of an interest in a petroleum prospecting license or petroleum mining lease whose area of operations is located in or appurtenant to any community or communities”.

Incredulous as it may sound, under the PIB and in real terms, the 3% meant for the Host Communities will be under the full control of the Operators!

3. Only 75% of the 3% HCDTF will get to the HCDT
Despite the meagre percentage (3% of operating costs of Operators) accorded for development of the Host Communities, under the PIB as passed by the National Assembly, only 75% of the 3% is assured to the HC’s in any given year. Section 244(a) of the PIB clearly stipulates that the HCDT will allocate 75% of the sum available to the HCDT to a Capital Fund from which it will execute projects that have been approved.

244(a) of the PIB oddly enough, has an awkward proviso: “provided that any sums not utilised in a given financial year shall be rolled over and utilized in subsequent year” – making it expressly clear that not all the 75% of 3% may be utilized during a current accounting year. There is the likelihood that, even where the funds are released to the HCDT, factors may occur which will ordinarily make it impossible to use any portion of the said sum in any given year.

244(b) of the PIB Provides for 20% of the 3% to be reserved as ‘Reserve Fund’ for use in years “whenever there is a cessation in the contribution payable by the settlor”. This means that ordinarily, this sum will not be ordinarily available for HC developmental needs, save for when there is a ‘cessation’. More worrisome is the provision of Sec 234(4) of the PIB, which allows the Settlor to, without any reasons being advanced for such refusal, refuse to fund this 20% of the 3% ‘Reserve Fund’ at the Settlors discretion.

244(c) of the PIB Allows for a further deduction of the sums due to the HC, by allocating the remainder 5% of the 3% for ‘Administrative Costs’

To further muddle up matters with regards to the deployment of HCDT Funds, the 75% that appears guaranteed for the HC is described as ‘Capital Fund’, which in Nigerian parlance means funds for capital projects. It appears that the funds received by the HC’s cannot be deployed for human capacity development projects such as Scholarships and Skills acquisition endeavors. This is however debatable.

4. Host Communities can forfeit their entitlements
In what can be termed a sinister plot to deprive the HC’s of even this meagre 3% of operating cost allocation, the funds available to the HC’s will be forfeited in the event of “an act of vandalism, sabotage or other civil unrest occurs that causes damage to petroleum and designated facilities or disrupts production activities within the host community” {Sec 257(2) of the PIB}. Innocuous as this provision appears, when it is realized that the HCDT is comprised by nominees of the Settlor and that in most instances of spills and damages to pipelines and other facilities of Operators, the HC’s have always argued that the aged equipment’s of the operators and the lack of maintenance, it becomes clear that the HC’s will always bear the brunt of accusations for vandalism, sabotage and damages to petroleum facilities – and may thus be compelled to forfeit whatsoever was their entitlements under the PIB.

If the PIB becomes Law in its present state, the likelihood of HC’s not receiving a dime in the course of any one calendar year, is quite high.

5. Overbearing control by the Settlor
Under the PIB, overwhelming control of the funding, funds, management, operations and structure of the HCDTF is accorded to the Settlor. The Settlor decides how, when, where and who can attend meetings of the HCDT {Sec 234 of the PIB}; the Settlor also provides the sharing formula of HCDT Funds amongst the various HC’s within its operational area {Sec 245 of the PIB}, this could be despite the fact that the HC’s being oftentimes contiguous communities, might have traditional means of sharing joint assets; the Settlor shall decide on what the HC’s need and what can be funded under the HCDTF {Sec 251 (1) and (4) of the PIB}; when the foregoing is added to the powers of the Settlor to determine what constitutes the HC’s entitlements under the PIB; incorporate the HCDT; decide who is appointed a Trustee of the HCDT; decide who can be appointed as a Member of the HCDT Board of Trustees; decide who will be appointed as Secretary of the HCDT and decide who will be appointed Fund Manager to the HCDT; it becomes clear that the communities themselves have very nominal roles to play in the HCDT – the powers, the funds, the staffing, the management of the HCDT are all under the control of the Settlor, and whosoever the Settlor decides to favor.

The entity the PIB, as is, protects, empowers and enriches is not the indigenous communities where crude oil operations are conducted/executed, rather it is the Settlor, “a holder of an interest in a petroleum prospecting license or petroleum mining lease whose area of operations is located in or appurtenant to any community or communities”, that turns out to be the primary and sole beneficiary of the PIB

6. Implicit denial of HC’s access to courts to address/resolve disagreements

Under the PIB, HC’s have a maximum of 3 months “after the accrual of any cause of action in respect of any such act, neglect or default and provided such act or omission was not done in good faith” to commence any action arising from the implementation of the PIB {Section 307(2) of the PIB}.

In addition, HC’s or aggrieved entities can only commence actions under the PIB after the expiry of a 1-month “written notice of the intention to commence the suit” {Section 308(1) of the PIB}.

The combined import of Sections 307(2) and 308(1) of the PIB, is that from the time an issue arises between the HC and the Settlor or the NNPC Ltd., the HC has just 2 months to notify the Settlor of their greviance/disagreements, enter into relevant correspondences, hold meetings, retain a Counsel and then issue the statutory 1-month notice of intention to commence action! When it is realized that the Sec 307(2) gives the 3-month period as commencing from ‘the accrual of any cause of action’, and not necessary when the HC becomes aware that they have a cause of action, then it is clear that the 3-month period can actually lapse long before the HC realizes that they have a cause of action.

The framers of the PIB could have overreached themselves when they also try to muzzle the Judicial system by inserting provisions which compels Courts to give the Settlor or the NNPC Ltd ‘a 3 months’ notice of the intention to commence execution process’ {Section 308(4) of the PIB}.

The provisions geared towards denying HC’s access to courts to enforce their claims or rights is mean-spirited, dubious and likely unconstitutional and void.

7. Vesting on Lands
The Nigerian Constitution vests all lands in any State of Nigeria in the State Governors (for lands in urban areas) and in the Local Government authorities (for lands in rural areas) {Section 1 of the Land Use Act, which by Section 315(5) of the Nigerian Constitution, is an integral aspect of the Constitution of the Federal Republic}

The PIB commences with a proclamation in its very first section to the effect that “The property and ownership of petroleum within Nigeria and its territorial waters, continental shelf and exclusive economic zone is vested in the Government of the Federation of Nigeria” {Section 1 of the PIB}.

The Constitution of Nigeria provides that any other law in conflict with constitutional provisions, is deemed void to the extent of such inconsistency. To the extent that it vests lands in an authority distinct from where the Constitution vests lands, Sec. 1 of the PIB is deemed void.

In reality, all Licenses or authorizations to Settlors and Oil companies, issued to such third parties by the Government of the Federation of Nigeria can actually be deemed as unconstitutional and void.

8. Conclusion:
From the description of what constitutes a HC, to the meager sum allowable to HC’s, and further depletion of the said meagre sum to enable HC’s access only 75% of the said 3% in any given financial year, to provisions which empower the Settlor entities powers to control and manage the HCDTF’s, it is clear that the Host Communities have been terribly short-changed by the PIB as passed by the National Assembly.

The PIB, if signed into law, will merely give legal backing to an instrument that is geared to further destabilize the Host Communities, create friction in the oil producing region and very likely foster a cantankerous environment that will not be suitable for meaningful, peaceful petroleum industry operations in Nigeria’s oil and gas rich territories.

The President of the Federal Republic is humbly urged to veto the PIB, return same to the National Assembly and urge for more respect and representation from the Host Communities towards ensuring that their needs are met in line with the global best practices in the oil and gas sector regarding addressing the interests and needs of Host Communities.

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