More than five decades of oil and gas exploration have caused extensive oil pollution, contamination of water sources, environmental degradation, monumental destruction of traditional livelihoods, and largescale human suffering across communities in the Niger Delta region. The extensive damage to the local environment has triggered violent agitations and conflicts in the region, with Nigeria losing about $3.5 billion annually due to conflicts mainly between oil and gas companies and host communities.[1] The Nigerian government and companies have introduced a variety of development initiatives and social responsibility schemes to address the protracted hostilities, but surging local discontent in the region suggest that none of them has effectively delivered tangible benefits to local people.
Nigeria’s latest benefit-sharing mechanism, called the Host Community Development Trusts (HCDTs), is one of the major highlights of the country’s most recent statute regulating the oil and gas industry—the Petroleum Industry Act (PIA) 2021. The statute obligates oil and gas companies (settlors) to establish HCDTs for their host communities wherever they have business operations, funded with 3% of their total operating cost in the preceding year. To ensure sustainability, the HCDT model emphasizes the need for host communities to be entitled to a share of benefits as key stakeholders in oil and gas production and also ties the funding of the trusts to the companies’ operating expenses.
In what ways will the direct flow of funds from corporations to the host communities accelerate development in the region, deliver meaningful benefits to local populations and foster inclusion in natural resource governance? How is the 3% OPEX determined by corporations and what measures have been put in place to ensure adequate utilization of the funds? Are there factors that may affect funding of the HCDTs in the short-, medium- and long-term, including energy transition? Except when reported externally on a company’s income state, little is known about the formula, criteria and processes for calculating and disbursing 3% OPEX to HCDTs. This policy paper examines the strengths and gaps in the current HCDT governance and funding remittance architecture, proffering recommendations for developing and implementing a robust and inclusive framework for embedding transparency and accountability in the determination and disbursement of 3% OPEX to HCDTs. It proceeds upon the premise that transparent computing and disbursement of HCDT funds are necessary to manage the expectations of host communities and foster trust between companies and host communities, ending decades of violent agitations and conflict in the region.
