Bring Back the Petroleum Host Communities Fund

popsThe Federal Government has extracted provisions of the Petroleum Industry Bill (PIB) that deal with institutions, industry regulations and governance, and synthesized them into a separate bill known as the Petroleum Industry Governance and Institutional Framework (PIGIF) Bill. Under this new bill, the Petroleum Host Communities (PHC) Fund is conspicuously missing among the new governance structures and institutional vehicles that will drive the revolutionization of the oil and gas industry. The exclusion of the PHC Fund diverges from the institutional reorganization proposed under the PIB, which was deemed necessary for making the sector more transparent, productive and accountable.


As the central point of oil production, the Niger Delta region is most gravely affected by oil prospecting and exploration activities in which the traditional means of subsistence, farming and fishing in the creeks, streams and mangroves are adversely affected by constant oil spills, gas flares, blow-outs and leaks, with spiraling effects on health, soil productivity, aquatic life and the environment. Widespread agitations against abysmal neglect, poverty and decades of reckless destruction of the environment and other natural resources have spurred unrest and growing militancy in the region, which till date, continue to cause significant disruption of petroleum industry operations.


The establishment of the Petroleum Host Community Fund in the PIB formed part of a broader institutional response and regulatory measure to address local discontent, improve environmental governance and bolster healthier relationships between operators and the communities where they operate. Under Section 118 of the bill, every company that is involved in oil and gas exploration and production is required to remit into the fund on a monthly basis, 10 per cent of its net profit, which the PIB defined as the adjusted profit minus the Nigerian hydrocarbon tax and minus the companies’ income tax. The Fund is to be utilised for the development of the economic and social infrastructure of communities within the petroleum producing areas.


Although there is no official statement or explanation for expunging the PHC Fund from the Petroleum Industry Governance and Institutional Framework (PIGIF), it is generally assumed that issues affecting the environment or the adverse impacts of extractive activities on communities may be addressed by a separate legal framework. The implication is that the PIGIF’s central focus is on stimulating economic growth through the restructuring of the governance and institutional architecture of the petroleum industry from which the country derives more than 90% of its foreign exchange income.


Recently, Dr. Ibe Kachikwu, the Minister of State for Petroleum Resources announced a number of reforms which are consistent with this “petroleum-governance-only” disposition. He has introduced the Accelerated Upstream Financing Programme through which the Nigerian National Petroleum Corporation (NNPC) secured a robust financing package from a consortium of indigenous and international lenders to fund NNPC’s 60% share of the drilling operations. He has also reversed the crude-for-products policy popularly called crude oil swap, and replaced it with the Direct Sale-Direct Purchase (DSDP) arrangement, scheduled to take off in March 2016. The DSDP will not just jettison the policy of exchanging crude oil with refined petroleum products through third party traders or middlemen at a pre-determined yield pattern, but would also open up the bidding process, enlarging NNPC’s power to directly control crude oil sale and purchase transactions with credible refiners. These newly-introduced reform measures are no doubt, laudable. However, what the “petroleum-governance-only” approach appears to have done is to narrow government’s focus down to stimulating industry performance and economic progress, while relegating the concerns and priorities of communities who live with the underbelly of oil development.


There are ample reasons to believe that the exclusion of the PHC Fund from the new PIGIF bill draws red flags, and probably not a productive path to follow. First, this expurgation cuts the impression of an apparent divorcing of petroleum governance from the attendant environmental consequences. It is this sort of fragmentation that is often viewed as brazen coveting of the proceeds of oil mineral resources within host communities, with total indifference to its adverse impacts on local populations. The potential for this feeling, when shared by many, to spark new agitations and fuel another cycle of violence in the Niger-Delta cannot be ignored.


Secondly, removing the PHC Fund from the PIGIF bill reawakens the extreme politicization as well as the controversial debates among both parliamentarians and stakeholders in 2012 and 2013 regarding the welfare of host communities in the PIB. I vividly recall that at the Senate Joint Committee-led public hearing on the Petroleum Industry Bill (PIB) held on Thursday, July 17, 2013, the Governor of Niger State, Babangida Aliyu, represented by the then Attorney General of Niger State and his Kaduna State counterpart also represented by the state’s Commissioner for Justice urged the National Assembly to expunge the Host Community Fund from the PIB. The Niger State government argued that PHC Fund will “confer undue economic advantage on oil producing states, to the detriment of other underdeveloped, less-endowed states in Nigeria.” He based his claim on the existence of similarly-crafted initiatives which oil producing communities are already benefitting from, such as the Niger Delta Development Commission (NDDC), the 13% derivation formula, the Amnesty program, the Niger Delta Ministry and a host of oil company corporate social responsibility programs.


These arguments ignore the well-documented realities lived and experienced by people living in the Niger Delta region, who bear the brunt of decades of irresponsible oil operations. For instance, at the request of the Federal Republic of Nigeria, the United Nations Environmental Program (UNEP) conducted an independent assessment of the environment and public health impacts of oil contamination in Ogoniland. UNEP findings disclose that oil contamination in the oil-rich Niger Delta area since the late 1950s is extensive, inflicting grave, negative impacts on the environment, requiring upward of 30 years to remediate. The environment is so heavily-polluted by oil that people in Nsisioken Ogale have been consuming water containing benzene 900 times above WHO’s guideline. While previous acts of environmental damage remain uncleaned, new incidents of oil leakages and massive pollution continue to occur at record-high levels.


The intensity and gravity of the environmental harms continuously perpetrated in the region warrants and justifies the multiplicity of interventions designed to address them. Dr. Bala Zakka puts it succinctly when he stated that: “no amount of initiative, no percentage of oil revenue earnings is too high to be set aside for the areas that bear the brunt of oil exploration and production.” In order words, the claim that the PHC Fund will “confer undue economic advantage on oil producing states, to the detriment of other underdeveloped, less-endowed states in Nigeria” fall flats in the face of rigorous scrutiny. Not only that, the “other underdeveloped, less-endowed states in Nigeria” that are not plagued by similar environmental suffering and economic burdens experienced by people in the Niger Delta, would naturally, not require a comparable dose of strategic interventions and resources.


Thirdly, the very act of amputating the PHC Fund from the substantive governance instrument for petroleum industry operations lends itself to varied unflattering analyses. One inference that could be drawn is that the PHC Fund may have been ousted through the back door, in a bid to finally lay to rest, the controversial debates of 2012 and 2013. On the other hand, it bears the connotation that the current administration does not take environmental governance seriously. It also tends to either ignore or gloss over the fact that environmental pollution and degradation generally characterize petroleum exploration and production activities in Nigeria, with very monumental adverse impacts on persons and communities living in and within the areas where oil and gas extraction takes place.  And with the declining oil prices at the international market, this bifurcation deepens the impression that reforming the systemic failings within the relevant laws and institutions for regulating the environmental impact of oil and gas production in Nigeria, is not a top priority of the government for now. What matters more to the government is profit-making and capital generation, at the expense of human safety and public health. Whatever angle the analysis is viewed from, the imports are quite discouraging.


Dr. Kachikwu has often reiterated his commitment to broad-based engagement on the PIGIF and related industry reforms in general. That assurance gives hope that opportunities still exist for addressing the elimination of the PHC Fund from PIGIF. Without a doubt, the PHC Fund holds strong prospects for improving the governance of the environment in the course of petroleum operations and for strengthening the structure for community participation in the oil and gas industry. On that premise, the time to have that conversation around the reinsertion of the PHC Fund into the substantive petroleum governance regime is now!

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