• Saturday, July 20, 2024
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Explainer: How PIB can reduce host communities’ agitations

NEITI report unearths gaps in Nigeria’s oil revenue management

After 20 years of trying to pass the Petroleum Industry Bill (PIB), partly to halt agitations by host communities against environmental degradation in their domains, the current version needs broader consultation to forestall further widening of the rift.

So far, what has dominated the news was a demand by a group, the Host Communities of Nigeria Producing Oil and Gas (HOSTCOM), which says it speaks for oil-producing communities, for 10 percent contribution into a host community development fund.

The group is demanding a right of shareholding in commercial entities that would be created by the PIB, an acknowledgment that they are critical stakeholders, and that all appointments to the proposed National Petroleum Company (from the level of General Manager) are representatives of the six geopolitical zones.

There are certainly merits in some of their demands while others are merely wishful thinking. However, analysis shows the revised bill has some contentious provisions.

Chapter 3 of the revised PIB states that the bill’s objective is to create a framework to support the development of host communities. It would be regulated by the Commission and the Authority, two new agencies proposed by the bill.

The revised PIB mandates oil companies called ‘Settlor’ to incorporate a trust for the benefit of the host communities and to appoint and authorise a Board of Trustees to execute its plans.

“The settlor shall, in the determination of membership of the Board of Trustees, include persons of high integrity and professional standing, who may not necessarily come from any of the host communities,” says Section 242 (2).

The problem with this provision is that the host communities have no sense of ownership in the projects to be executed. If they have no say in the projects that would be executed on their behalf, they will not support it. The bill sets up an advisory body, but the selection is also based entirely on the discretion of the settlor – giving it undue influence.

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Section 240 (2) of the bill provides that “Each settlor, where applicable through the operator, shall make an annual contribution to the applicable host community development trust fund of an amount equal to 2.5 percent of its actual operating expenditure in the immediately proceeding calendar year in respect of all petroleum operations affecting the host communities for which the application host community development trust was established.”

This is an aspect HOSTCOM and other interest groups in the Niger Delta are disputing. However, they are merely concentrating on the figure but in reality, 2.5 percent of operating expenditure amounts to billions of naira. Previous versions of the PIB recommended 10 percent of the net profit which amounts to little when oil companies load up on expenditure. Payments made to the trust are allowable deductions for the purpose of tax assessment.

Another troubling aspect is Section 257 (2), which says that “Where in any year, 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, the community shall forfeit its entitlement to the extent of the cost of repairs of the damage that resulted from the activity with respect to the provisions of this Act within that financial year.”

Section 257 (3) says “The basis for computation of the trust fund in any year shall always exclude the cost of repairs of damage facilities attributable to any act of vandalism, sabotage or other civil unrest.”

According to Ayodele Oni, energy lawyer, and partner at Bloomfield law firm, “The intention is to have a win-win situation. You protect installations and benefit from the income from same.”

However, it presupposes that the host community is always responsible for the vandalism. In reality, vandals, who may or may not be members of a host community, are responsible for the vandalism. Sometimes an oil company’s negligence or other factors may be responsible. In any case, the best way to get buy-in is if the host communities are involved in deciding what projects to fund.

International best practice

Seplat Petroleum Development Company (SPDC) and Lekoil Plc are among the local companies with the best relationship with their host communities. These companies have operated without the usual rancour oil majors like Shell have faced.

One key reason behind their success is that early on they developed a holistic Global Memorandum of Understanding (GMOU) with their host communities – not for their host communities. This means that both parties sat across a room and hashed out practical areas of cooperation. The communities tell them their concerns and they both agree on what is realistic and doable.

The GMOU Seplat entered into with the local communities that host its operations within OMLs 4, 38, and 41 was the company’s first community development agreement signed between it and its local stakeholders. This set the standard for all of Seplat’s subsequent engagements with local stakeholders as the company has grown and acquired additional licences.

Seplat and its host communities develop a common forum responsible for coordinating the implementation of the social investment programmes funded by Seplat and identified by the team of the community association and the company’s representatives, with a view to investing in areas that align Seplat’s business objectives with local priorities whilst addressing broader development objectives.

“This process involves transparent communication with all local stakeholders and ensures multi-party engagement between the company, community, civil society groups, and government,” the company said.

The revised PIB should build on these kinds of initiatives to reduce agitations in the Niger Delta. Yet, it should never be a substitute for the government’s responsibility for developing the region.