By Fred Akanni, Editor in Chief
Failure by any holder of a licence or lease to incorporate a trust for the benefit of the host communities in the licence area may be grounds for revocation of the licence or lease, according to the Petroleum Industry Bill (PIB), currently tabled for discussion at the Nigerian National Assembly.
“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% of its actual operating expenditure in the immediately preceding calendar year in respect of all petroleum operations affecting the host communities for which the applicable host community development trust was established”, says the 252 page draft legislation.
Host community issues are some of the most intractable items in the development of Nigeria’s oil and gas industry. Some companies have robust Host Community plans while several do not.
The Nigerian state has earned 83 Trillion Naira (or $216Billion) in hydrocarbon revenues in the last thirty seven years, according to the Nigerian Natural Resource Charter (NNRC), but many of the communities in which the fossil fuel is extracted are derelict.
In the PIB’s definition, a “settlor” is a holder of an interest in a petroleum prospecting licence or petroleum mining lease or a holder of an interest in a licence for midstream petroleum operations, whose area of operations is located in or appurtenant to any community or communities.
“Where there is a collectivity of settlors operating under a joint operating agreement with respect to upstream petroleum operations, the operator appointed under the agreement shall be responsible for compliance with the law on behalf of the Settlors”.
The constitution of the host communities development trust shall contain provisions requiring the Board of Trustees to be set up by the settlor, who shall determine its membership and the criteria for their appointment. The Board of Trustees shall in each year allocate from the host communities development trust fund, a sum equivalent -(a) 75% to the capital fund out of which the Board of Trustees shall make disbursements for projects in each of the host community as may be determined by the management committee, provided that any sums not utilised in a given financial year shall be rolled over and utilized in subsequent year; (b) 20% to the reserve fund, which sums shall be invested for the utilisation of the host community development trust whenever there is a cessation in the contribution payable by the settlor; and (c) to an amount not exceeding 5% to be utilised solely for administrative cost of running the trust and special projects, which shall be entrusted by the Board of Trustee to the settlor. The law also says that host community development plan shall -(a) specify the community development initiatives required to respond to the findings and strategy identified in the host community needs assessment; (b) determine and specify the projects to implement the specified initiatives; (c) provide a detailed timeline for projects; (d) determine and prepare the budget of the host community development plan; (e) set out the reasons and objectives of each project as supported by the host community needs assessment; (f) conform with the Nigerian content requirements provided in the Nigerian Oil and Gas Industry Content Development Act; and (g) provide for ongoing review and reporting to the Commission.
The PIB does not relate this trust fund to the Niger Delta Development Commission (NDDC) which has the legal backing to receive 3% of the total yearly budget of any oil producing company operating onshore and offshore in the Niger Delta area.
But the new law says that “each host community development trust may receive donations, gifts, grants or honoraria that are provided to such host community development trust for the attainment of its objectives”.
This is a good development as it will engender peace within the Oil producing region and ensure Stability in the Petroleum industry thereby attracting investments in the sector.
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