Dr. Francis Adigwe, Principal Consultant, Senate Committee on Petroleum Resources Upstream
After the Petroleum Industry Bill (PIB) was split in four elements by the National Assembly for easy assessment and passage, one aspect of the bill is of significant to the country and stakeholders in the oil industry. The Petroleum Host Community Bill (PHCB) is viewed by watchers of the oil industry as paramount because it will be the determinant factor for peace in the Niger Delta. Only peaceful atmosphere will guarantee stable oil production without depletion of reserve which is contrary whenever the Delta is in obstreperous state arising from restiveness through youths and community exasperation.
In the past, there had been violent agitations in the Niger Delta due to operational activities of oil companies which host communities have accused of neglect and decrepitude. They believed that devastations caused through exploration activities affect host communities while little or no attention is given by either the government or oil companies to address the ugly situation.
The Principal Consultant, Senate Committee on Petroleum Resources Upstream, Dr. Francis Adigwe took time recently at the Emerald Energy Institute, University of Port Harcourt to explain vividly about the Host Community Bill.
He made it known that the bill is still being developed and it is open to inputs from host communities, oil and gas companies and concerned publics who want to make their contributions into it. “Having tested the framework with different stakeholders and the basic fundamental content of the framework, people believe that it would work operationally, legally and feasible, Adigwe added.”
According to him, there will be public hearing for everyone to prepare his position for this purpose at the National Assembly. The hearing is ongoing.
Adigwe underscores the fact that host communities are of the view that they are landlords and host to oil and gas production including petroleum activities and as host, they deserve to be compensated. The impacts of petroleum activities affect host communities and if these communities are visited, the negativity of operations will be seen which include devastations of environment, whittling down of structures and means of livelihood among others. These are issues that have been raised, existing laws in the constitution and the Land Use Act, deny host communities of ownership of land on which petroleum activities are carried out.
Besides, Nigerian constitution states that any land where oil and gas is found, automatically is vested on the federal government, these laws do not favour host communities.
Adigwe pointed out that host communities are asking for resources because they feel there is no sufficient economic benefit where the oil is being drilled. Another concern is that major cities in the country are being developed through proceeds of oil but communities where oil is found and explored do not feel the impact of the resources, hence they are demanding for development as well. Part of the infrastructure and developmental projects they lack includes: portable water, good roads, heath care, sound education for their children among others.
Most stakeholders believe that the derivation fund that has been provided in the constitution and the resources that ought to have accrued from Niger Delta Development Commission (NDDC), are hijacked by high profile persons without involving the communities. Sometimes, funds are given to state governments. State governments have in turn created commissions to administer funds, for instance, Delta state has the Delta State Oil Producing Areas Development Commission (DESOPADEC), but the state governor once dissolves the board due to financial mismanagement and related issues.
The Senate Consultant stressed further that communities do not have opportunities to be part of the decision making as to how funds are utilized. Derivation at NDDC has not provided opportunity for host communities to be directly involved in deciding how the resources are utilized and for what purpose they are used. The communities are also excluded from direct ownership from resources on their ground arising from provisions of the constitution.
What are the host communities actually asking for? There are varieties of issues that have been raised. From documents that have been submitted by host communities, they want the constitution to be amended so as to give way for ownership of land to be vested on them. Adigwe explained that in America, some communities own lands and “Once petroleum resources is found within the jurisdiction, the communities have primary ownership. They engage companies to explore, produce and then pay taxes to government.” Although, some lands are owned by federal government but ownership is determined at primary level within oil and gas resources. In Alaska, which is an oil and gas state, it receives a lot of money from companies during licensing process. Taking a cue from this, there is a state fund, where money will be kept, used and invested, “When you live in Alaska, every year, you get a cheque, sometimes it is $2000 either less or more.”
Therefore, some stakeholders want the country to emulate what obtains in other climes hence amendment of the constitution. While other communities are asking for amendment of concession rentals and royalty. Rental means rent paid for land, “If anyone owns the land, then rent should be paid to the direct owner and not to the federal government.” Royalties are also paid to the federal government and communities frowned at this unfavourable development, the government can only collect tax not royalty.
Adigwe said certain communities are demanding that they want to participate in every ownership, “For instance, if an oil block is given to a company and it has 100% equity ownership then 20% of the ownership should be given to host communities so that they can be part owners of the oil block.” While some are asking for direct equity, others demand for 20% of profit made by companies. These divergent demands from host communities arise as derivation from NDDC hardly get to them. They also seek derivations to be given directly to oil producing communities. There are some communities that want derivation to be paid by 10% from oil and gas companies people should be assembled and share proceeds.
Besides, Adigwe enumerated what government has done for host communities in order to address their demands. The government has provided 13% derivation which is constitutional and the constitution stipulates minimum of 13%. It has provided 8% of resources produced in littoral states with oil blocs, the NDDC Act, 15% of monthly statutory allocation due to member states, 3% of total annual budget of petroleum companies which is subject to a lot of issues as to whether it is operating cost project or capital expenditure (Capex).
Former President Yar’dua created the Ministry of Niger Delta and there is a yearly budget for it which goes to the host communities, the Amnesty Programme that gulped a lot of money including Corporate Social Responsibility (CSR) from either the government or oil companies. With all these in place, it has been argued that host communities do not deserve to get any other project because the government has done a lot. But, the issue is that, government’s intervention programmes do not get directly to the ordinary Niger Deltans, resources are diverted and the objectives of NDDC, derivation and Amnesty is of no recourse to host communities. They are not involved in the process of determining how resources are allocated thereby excluded from development process. The failure of government initiatives results in the fact that there are absence of basic facilities and infrastructure for the host communities with poverty and inequality. These have led to huge agitations while they continue to ask for crumbs from available resources of oil and gas. Multiplicity of agitations abound in host communities within Niger Delta.
Notwithstanding, according to Adigwe, the perception of most Nigerians is that PHCB is a baby of the Niger Delta, rather “The bill is also known as Petroleum Host and Extractive Communities Bill.” What it means is that, if oil is found in Bida or Lake Chad including anywhere in the country, the communities also become host communities. “It is a national bill not a bill that is focused only on host communities in the Niger Delta.” There is also a provision in the bill for any community that is impacted on by petroleum activities including upstream, midstream and downstream companies. For instance, “As a community is impacted by the activities of either a midstream or a downstream company, it will benefit from the legislation.”
Some school of thought believe that money is taken from the federation account and given to host communities which is a wrong notion because if the fund does what it should do, it is going to increase resources. This will enable companies to produce in peaceful atmosphere in oil producing areas, reduce security cost, and increases tax to the government.
To bring sanity and resolutions, Adigwe stressed further that in designing the proposed PHCB, models from other countries were viewed on how the legal framework will be, the Alaska and Norwegian Sovereign Wealth Fund (SWF) were adopted. On Norwegian fund which is at national level, the country’s proceeds from oil and gas are put into SWF, the resources will in turn be invested and utilized by the country in case income from oil falls. Taking a cue from this initiative, there is possibility of government creating an agency that will administer host community fund such that it will not go the same way like NDDC fund that was hijacked. The money will be disbursed through organs of state governments. The Global Memorandum of Understanding (GMoU) model that is being operated by some oil companies are also put into consideration with a view on its successes.
Adigwe, a former university Don revealed that the proposed PHCB is unique with effective legal framework for host communities. The proponents of the bill ensured that it will be community-inclusive in such that they are involved whenever decisions are made. The bill will fast track infrastructural development in host communities and feasible impact will be seen, which will enhance peace and security in petroleum operations while companies also feel the pacification. In the bill, there will be no cash transaction or payment to anyone and the process for disbursement must be based on principles of good governance, transparency and accountability.
It is also observed that there could be loggerheads among communities, companies and those saddled with the responsibilities to disburse funds, mechanism will be put in place to check mate the process in order to avoid discord or rancour among stakeholders. These principles are test of the law.
The content of PHCB states the objectives, recognition of the petroleum host communities’ development trust, governance mechanism of the law, issues related to finance and issues related to disputes and resolutions. The cardinal objectives also states clearly that there will be creation of framework for development of host communities to provide direct economic benefit between them and oil companies so that they can operate in peaceful environment devoid of distractions. The proposed PHCB will ensure that those things that are missing in the NDDC Act and derivation are thoroughly addressed.
Adigwe disclosed that to avoid ambiguity, the real host communities will be identified and clearly distinguish who they are, it is not going to be an all comers affair without virile evidence of proof. “Any community that falls within fields and well heads of an upstream company manifolds, processing stations, plants and terminals will be termed as host community, he submitted.” This include Exploration and Production (E&P), midstream companies that are processing oil and gas with processing, petrochemicals plants and refineries. Communities that host terminals and refineries plants are also referred to as host. Those communities where pipelines pass through benefit in this status but not all that will share equally in terms of fund disbursement.
A matrix has been developed such that every company setting up host community fund should also develop a margin as to the impact of a particular community. “So, if a community A is hosting oil fields and well heads that community has more impact than community B that is hosting a pipeline passing through underground. The matrix is that the company will give more resources to the company hosting field and well heads, Adigwe added.”
The Senate Consultant noted that every upstream company will set up a Trust Fund and the Trustee will be incorporated in the communities. This “Entails that if you are an oil and gas producing company, you must set up a Trust for the communities.” In addition, oil companies that have designated midstream asset like petro-chemical plant which will impact the community, must set up a Trust. Also, the law defines an oil and gas company, either upstream, midstream or downstream to have Board of Trustees.
The proposed bill gives room for effective administration in terms of host community operations while the Board will be in charge of managing the Trust for the company and host communities. Trustees will determine what project to be carried out and how money will be invested or used so that host communities will benefit maximally from the Trust. Adigwe revealed that the difference between the Board of Trustees compared to the GMoU and MoU models is that they are not incorporated bodies and have no power to sue under the law since they are not legal personalities. But Trust can sue or be sued because it is a legal personality.
Also, every transfer of interest in the oil and gas asset goes from the holders of host community fund to new holders of interest.
However, stakeholders supported the proposed PHCB provided host communities are given their rightful demand without third party interference that will scuttle the process and shortchange the people. They also enjoined the government to ensure that the real version of the bill is passed into law after final inputs from the public and NASS has given its nod. On like the past, they want erring companies to be sanctioned should they breach any part of the established law.
Some contributors want attention to be given to the bill to guarantee peace in the Niger Delta and allow companies to operate without destruction of their facilities. Operational issues like oil spillage and pollution of environment where companies are situated should be addressed while vested interests should not be allowed to hijack the bill by discarding and making light of it for selfish reasons and politicization.