With the signing into law of the Petroleum Industry Bill by the President on Monday, August 16, 2021, the provisions of the new Petroleum Industry Act (PIA) 2021 have created a new legal and regulatory direction for the industry. For the key stakeholders in the industry such as the regulators, the licensees, and the host communities, the immediate challenge is to immediately commence a careful analysis of the provisions of the legislation to understand the duties, obligations, and rights of each party under the new regime.
One aspect of the Act which has generated some controversies is chapter three which deals with the establishment of the Petroleum Host Community Development Trust, requiring settlors or licensees to make a mandatory contribution of three percent (3%) of the annual operating expenditure into the Fund. This Fund shall be known as the ‘Host Community Development Trust Fund.’
In addition to the controversy around the rate to be contributed, industry watchers have raised some issues concerning other aspects of the new Act. One of the issues raised questioned the propriety of the ‘trust fund’ model as the main or sole vehicle for host community development, and whether sufficient research was conducted concerning the workability of this model within the peculiar context of Nigeria’s petroleum industry and the Niger Delta. Others have questioned the basis for the enormous responsibilities imposed on the settlor towards the establishment of the Trust and the duty to take important decisions in the constitution of the key organs of the Trust.
More so, doubts have been expressed concerning whether this Trust model is indeed the solution to the reoccurring industry/community disputes in the Niger Delta, the regular allegation of disruption of operational activities by aggrieved communities, and the apparent lack of strategic, coordinated, and sustainable community development in the region. This series is designed to highlight key provisions of chapter three of the PIA from the perspectives of the key stakeholders recognized in chapter three of PIA such as the Petroleum Commission/Authority; the settler; and the host communities. Each of the series shall run a commentary on the important sections of the PIA and highlight key obligations and issues of note by the new regulators; settlors, and the host communities.
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This part will highlight matters that are important to the Petroleum Commission and/or the Authority, which the two important regulatory agencies established in chapter one of the PIA.
The Petroleum Commission and/or the Authority is mandated by section 234 (2) to make regulations concerning the proper administration of chapter three of the PIA. These regulations will be crucial to the orderly management of the Trust Fund and the execution of the duties imposed on the key organs of the Trust such as the Board of Trustee, the Management Committee, and the Host Community Advisory Committee. Also, these regulations will be important because they are expected to contain provisions on grievance mechanism(s) for the resolution of disputes between the settlors and their host communities. Because disputes are inevitable particularly in this period of transition from the corporate social responsibility (CSR) model to the Trust model, the appropriate authority must make regulations that will ensure justice, equity, and fairness through a grievance mechanism process that deals with disputes in a balanced, swift and orderly manner.
In deciding on the nature and structure of any grievance mechanism, regards must be had to the nature of disputes between settlors and host communities, the need to eliminate recourse to self-help, equality of parties, the exigencies of petroleum activities, the need for a timely resolution without compromising substantial justice as may be constituted in individual cases. Thus, it is strongly recommended that the Commission considers the Australian Native Title Tribunal (NTT) model, which was developed in part, to deal with similar disputes between the petroleum and mining operators, and their host communities, and adapt it to our use. The NTT model provides a useful guide in the sense that it recognizes the rights and interests of the parties; the industry party’s need for a speedy dispensation of justice; the right of the community or the industry party to institute an action where parties are unable to resolve their disputes; and appreciates the importance of resolving disputes without undermining the process of resource development except where the tribunal finds an overriding ground to either suspend a planned activity or impose other conditions to the continuation of any operational activity of the settlor without damaging or destroying the gravamen/substance of the dispute. Therefore, the Commission needs to consult and engage experts to understand how to design and structure grievance mechanism tools within the context of petroleum industry activity and the operationalization of the Trust Fund model.
Furthermore, Section 234 identifies community sustainability as one of the objectives for the institution of the HCDT Fund. Although the Act did not define, describe, or articulate any indicator concerning the concept of fostering ‘sustainable prosperity’ in every host community, each Trust is expected to conduct its affairs and implement programmes designed and applied to bring sustainable prosperity to host communities. Thus, it is important to articulate a community sustainability vision that every Trust must implement within the context of spatial locations, income receipt that is tied to the development of a finite resource and within the framework of the emerging discussion around energy transition. The Commission must assume the responsibility of articulating a community sustainability framework or policy because physical development of communities without a clear policy and good coordination of other variables will not achieve ‘sustainable prosperity’ for these communities.
Another provision that creates a duty for the Commission and/or the Authority is section 236. Section 236 stipulates timeframes (inter alia, 12 months from the commencement date of PIA) within which the settlor or the operator of an asset is required to have established a HCDT Fund for the licensee’s host community. In stipulating the timeframes stated in section 236, the word ‘shall’ was used suggesting that strict compliance with the clear stipulations of this provision is required. Nevertheless, this section does not preclude the possibility of a valid and justifiable application for extension of time to comply with the Act. Thus, the Petroleum Commission must develop a checklist of items in line with its regulatory duties under chapter three. This is crucial to ensure compliance because failure to incorporate HCDT Fund constitutes a ground for the suspension or revocation of the settlor’s license under section 238 of PIA.
Additionally, the Act imposes an obligation on the settler to, upon the coming into force of the Act, conduct a ‘host community needs assessment’ to identify the needs of each host community. This assessment is essential for many reasons. The PIA creates ideals under section 234 such as the fostering of sustainable prosperity within communities, community beneficiation through strategic projects and other undertakings, and facilitating peaceful and harmonious relations between the industry actors and their host communities. Secondly, the Act mandates the creation of a host community development plan, stipulating that the said plan must be drawn based on the needs identified in the needs assessment. So, it is the responsibility of the Commission to ensure that new needs assessments are conducted- guided by the ideals stated in section 234 and submitted together with the community development plan. Therefore, it will be unlawful for a HCD Trust to commence operation without an approved needs assessment and a development plan.
Finally, the Commission is authorized to receive annual reports and an audited account from the settlors, detailing the types and number of projects/programmes implemented in their host communities. It is recommended that in reviewing these reports, the Commission should look beyond the mere execution of projects and demand the settlors and the Trust to justify the choice of those projects and their implementation based on the PIA’s requirement that community sustainability must be the cardinal criterion for projects and programmes implementation. This is why a prior conceptualization of the notion of ‘sustainable prosperity’ is needed. Also, it is crucial that in seeking to understand the PIA’s notion of sustainable prosperity, the conceptualization process must be context relevant, considers the effects of time constraints on the Trusts’ income, and the demands of energy transition.
Dike an Assistant Professor of Law at the American University of Nigeria, wrote via [email protected]
