Possible Transformation of Oil Communities: What Can 3% Do?

After more than two decades of endless national debates and stalemate, there is a new Petroleum Industry Act 2021 (PIA) in the country. The Act has provided a six-month transition period for the emergence of a fresh institutional framework for oil and gas operations in the country.

Unsurprisingly, the newly promulgated PIA 2021 has continued to attract reactions in the country and beyond; and one area that has generated substantial ripples in the polity and will continue to invite close interest is the section that relates to the Host Communities.

Part 3 of the Act is devoted to details of the Host Communities Development, with Sections 234-257 providing the nitty-gritty of how the communities will be affected by the new legislation. More specifically; Section 240, Subsection 2 of the Act states that: “each settlor, where applicable through the operator shall make an annual contribution to the Host Community Development Trust Fund of an amount equal to 3% of its actual annual operating expenditure of the preceding financial year in the upstream petroleum operations affecting the host communities for which the applicable host communities fund was established”. This can be interpreted to mean that all oil companies operating in the region will make a contribution of 3% of their previous year total operating expenditure (OPEX) as Equity Fund for the Host communities. The Act further stated that the purpose of this Equity Fund is to foster sustainable prosperity within the host communities, provide direct social and economic benefit from petroleum operations to host communities, enhance peaceful and harmonious co-existence between licensees and host communities and create a framework to support the development of the host communities. The Act further requires the setting up of a Trust for the Fund in consultation with the host communities; which will also authorise the appointment of a Board of Trustees to manage the Fund. The Board of Trustees shall be registered with the Corporate Affairs Commission (CAC) as a corporate body under the Company and Allied Matters Act (CAMA).

It will be recalled that stakeholders in the Niger Delta, especially the host communities, had been at loggerheads with the National Assembly for approving 3% for them while approving 30% of the annual profit of the Nigerian National Petroleum Corporation, (NNPC) as Frontier Basin Funds. They therefore called on the President not to sign the Petroleum Industry Bill (PIB) containing this approval into law.

The President however proceeded to sign the bill to law. He maintained that the Petroleum Industry Bill which is long overdue will create a regulatory environment that would ensure efficiency and accountability across the oil and gas value chain and reposition NNPC to a commercially-driven National Petroleum Company that is accountable to the Federation. He further said that the Bill will also provide for a direct benefit framework that will enable sustainable development of host communities and therefore appealed to the host communities to look carefully at the contents of the bill which its implementation will bring real and lasting benefits to them

However, the Pan-Niger Delta Forum, PANDEF, Host Communities of Nigeria Producing Oil and Gas, HOSTCOM, and other stakeholders of Niger-Delta, rejected the President’s plea to accept the 3%, saying it was too small, and also lambasted the Minister of State for Petroleum for insisting that the 3% provision for Host Communities Development Trust Fund, HCDTF, is a fair deal for the Niger-Delta.
Looking back at where and how it all began, especially what the country has lost in terms of accruable revenue and landmark investments, it indeed calls for celebration that the bill has finally become a reality. Then conversely, weighing it against the expectations of the Niger-Delta region, there is no gainsaying that the Act is not a perfect masterpiece and will be subject of modifications in the future. The core area of misgiving is the well-being of the host communities who suffer the direct impacts of oil and gas production activities. The people of the Niger-Delta and for that matter, many other Nigerians, resented the idea of allocating 3% as Equity share to the host communities’ development trust fund while approving 30% of NNPC Profit for exploration of areas where there are suspected oil existence or availability. There is also a concern about the ambiguity in integrating the oil-producing communities and the pipeline-bearing communities in the fund allocation.
But in the meantime, there is a need to dispassionately analyse what the legislation broadly holds for the communities. At least for the first time, there is a framework that delivers socio-economic dividends directly to the communities, particularly based on what they need and how they want it delivered, unlike the previous approaches where interventions were determined without the inputs of the ultimate beneficiaries. Also, it is simple logic that if there are no investments there will be nothing to share, or better still, if the fortunes of the oil companies improve, there will certainly be opportunities for improvement in their obligations to the communities. Otherwise, if we impose what would be difficult or impossible for them to pay, there would be unavoidable difficulty which might ultimately undermine the targeted goals and objectives.

Also of utmost importance is the fact that it is not just about making laws alone but the existence of a will to implement them faithfully. As such, the government should begin to appeal to the consciousness of Nigerians on the need to be patient and patriotic, through good governance, transparency, and accountability.
Proper implementation is very imperative considering the past investments in the region through interventionist programmes such as the Niger-Delta Development Commission (NDDC) and the 13% Derivation Fund among others, which has unfortunately produced minimal results. Primarily for pragmatism and prudence, attention should be focused on the make-up of the Board of Trustees that would administer the development fund. It is therefore appropriate to seek exploiting the inherent benefits of the legislation particularly in the areas of foreign direct investments and wealth creation through a viable rural economy.

The judicious utilisation of the fund in terms of investment should be of serious concern which will be the only way wherein the development of the region will be the focal point. First and foremost; to avoid communal crisis and intra-region hostilities, there should be a clarified and unified template on how the funds will be allocated either by way of the percentage of oil production by the host or otherwise. For example, OML 61 which is operated by NAOC/Eni has locations across Rivers, Imo and Delta states forming part of the host communities. In such cases of plurality of host; there is need for a clear distinction on how funds will be apportioned on a justified basis.
Other key issues that should be of concern may include, who will manage the fund? Going by its name, it is hoped that politicians and rent-seekers will have no space in the management of the fund, but rather competent fund managers with track record who would be invited to handle it for efficient administration. It is unarguable that the region has suffered tremendously in spite of being the economic powerhouse of the country.

In addition, a unified and effective harmonisation of the fund administration cannot be over-emphasized considering some unsavoury existing realities where some communities in the oil producing areas cannot access funds paid to them by the Nigeria Liquefied Natural Gas Company (NLNG) following court cases instituted by some individuals from the region for selfish motives. There is also renewed commitment by multinational oil firms to relocate their operational headquarters to the Niger Delta and there is a need to continue to sensitize communities on the need to secure public assets in their areas.

Empirically, the various intervention programmes such as Niger Delta Development Commission, Ministry of Niger Delta, Amnesty Programme and others have not positively impacted on the lives of ordinary men and women of the beleaguered region battling with severe economic deprivation and environmental degradation despite its immense wealth. The reasons for this is not far-fetched, pervasive corruption of the region’s political elite and all forms of sleaze and lack of openness and transparency in the management of these processes has culminated in the metastasizing regional conundrum.

There is an urgent need for integrity in this whole new process. The host communities want to directly benefit economically from the oil resources coming out of their areas. It is clear they are tired of business as usual approach that only benefits few elite, while the majority wallow in neglect. The nation is aware of a 13% derivative fund which is statutorily created to look after the oil producing communities. Over the years what benefits from this fund has accrued to the communities and its inhabitants?

These communities in neglect are now saying they don’t feel the impact, and there is more argument in favour of paradigm shift away from the habitual sharing of money into investing this Host Communities Development Funds to generate sustainable wealth that can be used to massively develop Niger Delta communities. The region wants job creation, development of local content, massive industrialisation, environmental clean-up and infrastructural development. This should be among the major things the Equity fund is devoted towards.
Governments at all levels should realize that it is its essential duty to do things that benefit the masses and also that it is the lopsided distribution of national resources that propagate the trust deficit and other tendencies that undermine the stability of the country.
The Act is subject to further modifications to enhance its legitimacy and the leadership of the National Assembly in acknowledging the perceived knotty areas in the Act has announced that it will continue to track, monitor, and supervise the implementation of the PIA when execution starts while also calling for perceived gaps in the Act to be brought to the National Assembly for legislative action.  The doors of the National Assembly are therefore open to further amendments to the Act which is very possible in due course. What matters now is to have a veritable foundation for future improvements especially as ‘grey areas’ have already been identified. The probability of an upward review of the percentage share to host communities is high in no distant future; but that course of action can only be helped if remarkable achievements can be pointed to with the current share obtainable in which case; the rationale to demand for more will be effectively backed up
More noteworthy is the truth that it is only when investors are present that there can be talks of an assured percentage of any value. The most cogent thing right now is for all stakeholders and government to provide the enabling environment for investors and their investments to thrive without which nothing will accrue to the communities. The continued flow of the needed investment to the sector is key.

Therefore, rather than continually dwell on negative sentiments which might incite an ugly turn of events, the people of the Niger Delta are to be cautious of those who might offer themselves as tacit collaborators towards short-changing the region again through various means which include the encouragement of violent resistance to the Act in forms of armed militancy and sabotage of oil installations; all acts of self-damage which will only bring more misery to the region. An uncompromising demand for probity, accountability and transparency in the collection, apportionment and disbursement of the Fund should be the most important thing to stakeholders from the region. Apparently, what this legislation seeks to offer can only be achieved if every concerned stakeholder does what is right and if activities are properly monitored and audited for total compliance as decreed in the Act. Hence, deliberate efforts should be made in ensuring that the narratives change for good and that the Funds accruable for now is injected back into the communities for the intended purposes because if the 3% apportionment can be diverted or mismanaged; then so can 5%, 10% or even 30%.

Categories: Economy