• Friday, December 08, 2023
businessday logo


The PIA, settlors and the host community development trust fund: A review of settlors’ duties (2)

Events that shaped Nigeria’s oil, gas sector in 2022

Furthermore, any asset which is subject to the obligation to incorporate a Trust may be transferred by the licence holder subject to the requirements of extant laws in that regard, and subject to what the PIA referred to as ‘surviving obligations. As stated earlier, the obligations of a settlor or a holder of a licence to a designated facility are deemed to attach to the petroleum property or asset. As a result, where a licence holder desires to transfer any petroleum right or a qualifying interest, such a holder shall during the pendency of the transfer arrangement continue to be responsible for all ongoing or unexhausted obligations under chapter three of the PIA. One example of a surviving obligation is the obligation to incorporate a Trust and the performance of activities incidental to such incorporation. Thus, if a settlor or a licensee to a designated facility desires to transfer any of these assets after August 16, 2021, it shall continue to carry out surviving obligation such as the incorporation of aTrust, the constitution of the Board of Trustee, the conduct of a host community needs assessment plan and the community development plan. In other words, none of these programmed obligations must be suspended or kept in abeyance until the acquisition process is complete. The concept of surviving obligations is consistent with the established legal and industry practice in similar circumstances. Failure to incorporate a Trust for the benefit of the settlor’s host community shall be a ground for revocation of title if the default persists after the holder has been informed of their non-compliance by the Commission or the Authority.

One of the most important obligations of a settlor is the obligation to make an annual contribution of an amount equal to 3% of its actual annual operating expenses of the preceding financial year in the upstream sector. From the provision of section 340 which relates to sources of funding of the Trust, it would appear that the obligation to incorporate and fund Trust inures only to upstream operations to the exclusion of midstream and downstream assets. This is contrary to the position in the version of the PIB which was passed by the House of Representatives. It approved an additional 2% rate for midstream and downstream petroleum assets but was reject by the Senate version on the ground that such facilities involves high CAPEX, huge maintenance cost, and a very low revenue base. This suggests that host communities of midstream and downstream facilities are not entitled to have a Trust incorporated for their benefit except where so designated by the settlor under section 235 (3).

Read Also: Buhari wants PIA amended to remove ministers from boards of regulatory agencies

Thus, section 236 (f) appears to conflict with the provision of section 240 which limits or restricted the obligation to settlors or operators that are involved in upstream petroleum operations.

Furthermore, it is the responsibility of settlors to facilitate the promulgation of the constitution of a Trust established by it, to establish the Board of Trustees, determine the membership and criteria for appointment into the Board. Appointment of members of the Board must be carried out by the settlors in consultation with their host communities and subject to the approval of the Commission or the Authority, as the case may be. Such criteria shall include the two obligations expressly stated in section 242 (2) such as persons of “high integrity and professional standing.” None of these phrases was defined under the PIA.

Additionally, settlors are required to determine or design the operational systems of the Board’s business, administrative procedures, procedures for meeting financial regulation to which the Board must be subject, remuneration, discipline, qualification, disqualification, suspension, and removal of a Board member.

Finally, settlors are required to submit a matrix for distribution of trust funds to the Board of Trustees. This provision appears innocuous and liable to subversive interpretations. It does not mean the distribution of cash benefits to members of host communities. The old practice involves direct cash payments to chief, very influencial community leaders or those who can undermine or obstruct petroleum activities is not envisaged or provided for under the PIA. Here, the matrix for distribution of trust fund may relate to the distribution of the income of a Trust into the three categories stated under section 340 and/or distribution or the breakdown of remitted trust revenue where communities are involved, reflecting the quantum of the operational cost expended in each community.

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