Development Trusts Shift Oil Asset Security Burden on Host Communities

International Oil Companies are implementing host community development trusts in compliance with the Petroleum Industry Act, thus shifting the burden of security oil pipelines to the communities.

The development is critical and has serious implications because the costs of disruption of petroleum operations attributable to actions of the host community are deductible from the settlor’s contribution to the Trust’s fund according to the PIA.

Prior to the enactment of PIA, oil companies voluntarily set up community development initiatives managed mainly under a Memorandum of Understanding which are negotiated between individual operators and the respective host communities with state governments facilitating it.

Secondly, oil companies are statutorily required to pay 3 percent of their annual budget to a government agency, the Niger Delta Development Commission (NDDC) to facilitate development in the region.

With the enactment of PIA, settlors are required to set up a host community development trust, for the benefit of their respective host communities and contribute 2.5 percent of the operating expenses of their previous financial year to the Trust’s fund.

Mobil Producing Nigeria Unlimited (MPN), a subsidiary of ExxonMobil and operator of the Nigerian National Petroleum Company Limited (NNPC)/MPN Joint Venture has become the latest entrant inaugurating two Host Community Development Trusts covering its Oil Mining Leases in Akwa Ibom State.

The formal inauguration events took place on Tuesday, July 25, and Wednesday, July 26, in Uyo, Akwa Ibom State.

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The Trusts are the Incorporated Trustees of NNPC/MPN JV EMOIMEE Host Community Development Trust (Eket, Mbo, Onna, Ikot Abasi, Mkpat Enin, Esit Eket, and Eastern Obolo communities), and the Incorporated Trustees of NNPC/MPN JV Ibeno Host Community Development Trust (Ibeno community).

“With the inauguration of these Trusts, our communities in Akwa Ibom State will now be in the driver’s seat and determine the pace, nature, and impact of community development projects and programs in the respective host communities,” said Mark Fraser, general manager, Joint Venture Operations of Mobil Producing Nigeria Unlimited.

In May, Shell Petroleum Development Company (SPDC) inaugurated eight Host Community Development Trusts (HCDT) in Bayelsa in compliance with the PIA.

The eight Trusts in Bayelsa are among 22 that have been incorporated in the SPDC JV’s areas of operation in Imo, Delta, Rivers and Bayelsa states, representing more than half of the total 41 that the Nigeria Upstream Petroleum Regulatory Commission (NUPRC) has so far approved for host communities.

SPDC said it has assisted in the development of a Needs Assessment and development plan for the communities where it is contributing over $56 million.

Under the PIA, each settlor is required to incorporate an HCDT, based on the rules of the Corporate and Allied Matters Act (CAMA) and relevant provisions of PIA, for the benefit of its host communities.

But analysts at KPMG in a note said while PIA requires the settlor to consult with the host communities to appoint a Board of Trustees for the HCDT, there are no clear guidelines for making such appointments, which exposes the settlor to the risk of appointing persons that are not true representatives of the host communities.

It is expected that the Commission will issue guidelines that provide a clear and workable framework for making representative appointments from the host communities into the BOT as there is no clear provision that empowers the settlor to appoint its representatives (including its employees) into the BOT and the management committee, the analysts said.

The management committee is required to mandate each host community to set up an advisory committee. However, each advisory committee is empowered to nominate its representative to the management committee as a non-executive member, which then creates a chicken and egg situation.

One way to make this work is for the management committee (executive members only) to first get each host community to set up its advisory committee, each of which then appoints its representative to the management committee, as non-executive member, analysts say.