Host communities kick as proposed Petroleum Industry Act review shrinks 3% allocation

Niger Delta residents may become more hostile towards the government and oil companies in the coming days due to the federal government’s inaction, as represented by the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), and the proposed amendment of critical aspects of the host community fragment of the Petroleum Industry Act (PIA).
According to The Guardian, oil corporations and NUPRC are purportedly asking the host community to run a new portal developed by NUPRC to manage the difficulties facing the host community. This has raised worries among the stakeholders.
Host Community Development Trusts (HCDTs) and oil companies have pushed back against NUPRC’s mandate that they employ lawyers and chartered accountants with at least 10 years of experience, arguing that it is impossible to pay such professionals from the 5% administrative fund.

The 5% comes from the 3% allocated to communities that welcome international students. Oil firms are legally obligated to handle this on behalf of HCDTs.

The cost of the regulator’s involvement may also make it difficult for the host community fund to achieve its aims, which has led some stakeholders to assert that the regulator is not necessary for the Trust’s day-to-day operations.

From what we can tell, the NUPRC’s proposed new amendment and its demand for involvement in all of the settlors’ operational operations involving the HCDT are designed to undermine the rights of the settler and to usurp the function of the settlors.

This new turn of events follows the October presentation of a draught change to the host community regulation.

Stakeholders fear that the proposed amendments to the host community rule put out by the NUPRC earlier this month could undermine the hoped-for results of the PIA and inflame tensions in the oil-producing region.

The Commission is attempting to participate in all BOT nominations, selections, and inaugurations, Management Committee/Advisory Committee nominations and selections, facilitation of NEEDs assessments, and more, according to a letter dated 9th October 2023 and addressed to all Upstream operators and signed for the Commission by John Tonlagha, NUPRC.

NUPRC also announced the Host Communities’ Digital Automated Compliance and Data Reporting System (HOSTCOMPLY) in a letter dated 12 May 2023 and addressed to all upstream operators with the reference number NUPRC/HQ/HSE.5/01/23/015. The website went live a while ago.

The PIA, which will become law in August 2021, is a bold attempt to change the petroleum industry. Oil companies in the country are required by the PIA to contribute three percent of their operating expenses to a pool that will allow the government to address the long-standing complaint of transferring benefits of the oil industry to communities affected by oil and gas exploration and production.

New attempts by the NUPRC to impose more financial responsibilities and amend some aspects of the host community clause in the PIA have led to new worries, even though most residents in the oil-rich region have not yet accepted the three percent in the legislation.

Some members of the commission may be trying to help themselves to the three percent by straying too far from their regulatory tasks, and there are signs that this may be happening.

Weak oil output is having a multiplier impact that is hurting the economy, leading to currency crises and rising prices as international oil companies continue to pull out.

According to information acquired, tensions have already arisen between oil corporations, the Host Community Development Trust, settlers, host communities, and the regulator as a result of the new regulations.

The Oil and Gas Industry in Nigeria

Prof. Adeola Adenikinju, President of the Nigerian Economic Society (NES), and an energy economist, cautioned NUPRC against creating more instability in Nigeria’s oil-producing towns. According to Adenikinju: “Recent regulations mandating the employment of lawyers and chartered accountants are unnecessary in my view.”

Some delays in the PIA’s implementation, he said, slowed progress in the petroleum industry.

In reality, the PIA implementation gap “cannot be isolated from some of the relatively low production we see in the sector and increased oil theft.”

In terms of GDP, income, and foreign reserves, the oil sector has underperformed in recent years. Adenikinju emphasised the importance of regulatory bodies doing everything in their power to remove obstacles to investment and facilitate easy operations in the sector.

Nnimmo Bassey, the executive director of Environmental Rights Action in Nigeria and the chair of Friends of the Earth International, said that the “extra arm-twisting costs being proposed by the NUPRC are simply adding salt to injury.”

According to Bassey, the efforts of the regulator are “insensitive, insulting, and utterly objectionable,” and the 3% granted to host communities is hardly cause for celebration.

“First, as reported by the oil industry, it is 3% of the cost of production. The locals have no way of checking the oil firms’ claims regarding production or any other costs.

According to an anonymous source, the NUPRC is reviving the practises of the now-defunct Department of Petroleum Resources, in which the regulator imposed unnecessary obstacles on business.

The NUPRC may learn something from “ideal regulators,” which are competent and stay within their purview as regulators rather than encroaching on the turf of the operators. The insider also noted that they should consider the increased expense of interfering in daily activities.

Prof. Segun Ajibola, a former president of the Chartered Institute of Bankers in Nigeria (CIBN), has stated that the host community issue requires immediate attention in order to prevent further unrest in an area that has seen pipeline vandalism, oil theft, environmental degradation, rising poverty, and so on over the past few years.

To paraphrase what he actually said, “The various deductions and charges by the NUPRC need to be managed in order to not defeat the whole essence of the fund.”

Ajibola emphasised the importance of articulating the model for how the money will be distributed so that its core principles may be realised.

For decades, oil companies paid lip service to the Delta region by distributing small amounts of money from discretionary CSOs. Ajibola said, “The Trust Fund and the NDDC are anticipated to perform significantly better in responding to these well-documented challenges facing the region.”

He expressed regret that pipeline vandalism, theft, and a hostile climate had already reduced oil production and export from Nigeria, and he noted that Nigeria had only met about half of its quota with OPEC at one point.

He claims that oil provides 90% of Nigeria’s foreign currency earnings, hence the country needs every dollar it can get.

“This can only be accomplished with the help of organisations like NUPRC and the Trust Fund that it administers. It is now time to really start cranking on the Trust Fund. And bureaucratic obstacles that are preventing the efficient execution of its mandate must be eliminated without delay,” he urged.