Under the Petroleum Industry Act (PIA), the term “settlor” refers to a holder of an interest in a petroleum prospecting licence (PPL) or petroleum mining lease (PML) whose area of operations is located in or appurtenant to any community. Important responsibilities have been assigned to settlors both in the establishment of and in the governance of the Host Community Development Trust (the Trust). The Act stipulates that every settlor or the operator of an asset in a joint venture arrangement shall incorporate a Trust for the benefit of the host community for which that settlor is responsible. Thus, where they are many or a collectivity of settlors operating under a joint operating agreement concerning upstream petroleum operations, the operator of that JOA shall have the responsibility of incorporating a Trust for the benefit of the relevant community on behalf of the JOAparties. Individual members of the JOA are not required to incorporate a Trust in this case. In other words, the obligation attaches to PPL or PML assets and not to a corporate entity or entities.
The salient point here is that the responsibility to incorporate a Trust attaches to petroleum licences or a petroleum asset so that only one Trust is required to be incorporated regardless of the number of parties or joint venturers who have an interest in that asset. Thus, it is not a prescription of the Act that every holder of a petroleum prospecting licence or a petroleum mining lease must incorporate a Trust in favour of the host community or communities for which they are responsible. This means that if a community hosts two or more PPLs or PMLs, each of these assets must incorporate a Trust for the benefit of the same host community. This scenario raises the question of the propriety or utility of hypothetically incorporating two or more Trusts in a single community. Is this appropriate or inappropriate? Will such a scenario playing out increases the chances for rapid socio-economic development of such a community or will it be a source of tension, or create social, administration, bureaucratic complexities? There is no perfect answer to these questions. However, the Act should have created an option to allow petroleum licence holders co-located in the same host community to incorporate a single Trust to which all the (3%) revenue will be contributed into. This will reduce the risk of duplication of projects, duplication of bureaucracies, and lead to waste of resources in terms of avoidable costs and expenditure towards wages, allowances, and related expenses which will be incurred by running multiple trusts in the same community. It is suggested that the principle or rationale which underlines the requirement for co-venturers to incorporate a single Trust for their asset should equally apply here to require the incorporation of a single Trust regardless of the number of petroleum assets in a community. But, noting that many petroleum licences cover a very largeexpanse of land area, the possibility of establishing more than one Trust in a host community may not necessarily be pervasive. Nevertheless, the rarity of its occurrence does not diminish the potential disadvantages of incorporating multiple trusts in a single community.
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Another issue which settlors should note is that the timeframe set for the incorporation of a Trust. The Act specified the timelines for the incorporation of the Trust. For existing oil mining leases, existing designated facilities, and designated facilities under construction on the effective date of PIA which is August 16, 2021, a holder of any of these three licences must incorporate a Trust for each of these three licences within 12 months from the above-stated commencement date. In the case of existing oil prospecting licence, or oil prospecting licence, or oil mining lease granted under the PIA, holders of any of these licences shall incorporate a Trust for the host communities for which they are responsible before anapplication for field development plan is made or before the commencement of commercial operations in the case of the latter.
Designated facilities mean petroleum crude oil and natural gas transportation pipelines, bulk storage tank farms, refineries, and gas processing plants in midstream petroleum operations and petrochemical plants. Licence holders to any of these facilities are required to incorporate a Trust for the benefit of their host communities
Dr Dike is an Assistant Professor of Law at the American University of Nigeria, an international energy sector consultant, and a host community development governance specialist
