2021 PIA: Host Communities Component and the Frontier Basin


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Engr. Samuel O. Onungwe – samuelonungwe@gmail.com

The presidential assent to the petroleum industry bill has ushered in the Petroleum Industry Act 2021 (PIA). It becomes a compass to navigate through the oil and gas sector of the country. This document which had suffered several years of setbacks is expected to make the industry more attractive, accessible, and secure to oil and gas investors thus making more funds available to the government. A few of the things that are appealing about this document are the window for tax deductions and the host community components. The host community component gives the host communities a stake in the mining of the oil and gas in their neighbourhood. This is critical as it is believed to drastically reduce the restiveness and the feeling of marginalization by the affected host communities.

I recently appraised the 2021 PIA with a keen interest in its chapter three referred to as host communities’ development. Being an indigene of an oil-producing community where oil was prospected as far back as 1953. Since 1958 commercial oil production has been ongoing in the Ebubu Oil Field; therefore, there is no reason not to see the interest of my community. An Eleme adage says it all, what hurts the eye, hurts the nose. Eleme itself plays host to major oil and gas companies such as two refineries – Port Harcourt Refining Company Limited, Alesa Eleme, two fertilizer plants, Notore Chemical Industries, Plc and Indorama Fertilizer Plants and one Indorama Eleme Petrochemical Company, Nchia thus it has become a site for untold pollutions. Amidst these, the Indorama Fertilizer will soon commence the construction of another fertilizer plant at Aleto. The Environmental Assessment on Ogoniland by the United Nations Environmental Programme published in 2011 gives an idea of the level of contamination in oil and gas communities.

Of most immediate concern, community members at Nisisioken Ogale are drinking water from wells that are contaminated with benzene, a known carcinogen, at levels over 900 times above the World Health Organization (WHO) guideline. The report states that this contamination warrants emergency action ahead of all other remediation efforts.

UNEP Environmental Assessment of Ogoniland – 2011, P12

At the moment there are twenty (20) oil-producing wells in Eleme out of which Ogale, my community has eight (8) of them making about 40 percent of the whole. Ebubu is the capital of oil wells in Eleme with 10 while Ekara clan at Onne has three (3) according to records. This would have been more but for a dry hole encountered at a site in Alesa in 2017 by Seepco. It was later plugged and abandoned.

Host Communities Development of the PIA was designed to give host communities a sense of belonging and seeks to achieve the following objectives:

1. Foster sustainable prosperity within the host communities.

2. Provide direct social and economic benefits from petroleum operations to host communities.

3. Enhance peaceful and harmonious co-existence between licensees and host communities.

4. Create a framework to support the development of host communities.

Thus the relationship that will now exist between the host communities and oil government/operator shall by this law be symbiotic.

The law stipulates that upstream oil companies are to pay 3 percent of their annual operating cost of a previous year into a trust fund for the development of the host communities. Hence if an oil prospecting or producing company is operating within a community say Ebubu, 3% of the total cost of operations in that community in the previous year, for instance, 2020 will be paid to Ebubu in 2021 when the law is enforced.

Who will manage the trust fund?

According to this law, those to manage the 3 percent trust fund for the benefit of the host communities whose duties include resolving disputes between operating companies (settlors) and host communities shall be a body of trustees.

What makes a community a host community?

One of these makes a community a host community:

(a) Any community in which an upstream oil operation is taking place in its neighbourhood such as shallow water or offshore as determined by the operating company of mutually agreed upon becomes a host community.

(b) Any community in which upstream oil production is taking place on its land (onshore).

(c) Communities in or appurtenant to the area of operation of a settler, and any other community as a settlor may determine under Chapter 3 as in (a) and (b) above.

Thus, pipeline communities are also, host communities although, they may not get as much as the core oil and gas producing communities, together they are beneficiaries of the host communities component of the PIA.

How does the trust fund management determine what to do with the funds derived?

This act states that a need assessment should be carried out in the affected communities incorporating all stakeholders and it was specified that this cuts across women, youth, and community leaders. After the needs of a community have been identified, a development plan would be mapped out which would be implemented by the management team.

How would the revenues be spent?

1. Management fund: This according to the document shall not exceed 5% of the accrued fund. This means 5% out of the 3% fund from the oil operator(s) annual operating cost shall serve as the source from which to compensate the trust fund manager whose tenure is pegged at 4 years although it is renewable for an additional 4 years.

2. Capital fund: 15% of the fund would serve as a capital fund and the board of trustees is obliged to disburse funds or the execution of projects defined in the mapped out plan after the needs assessment. It also states that any fund not utilized in the previous year should be rolled over for the same purpose in the following year.

3. Investment fund: This act recommends that 20% out of the 3 percent community fund be reserved and invested for the utilization of the host communities’ development trust whenever there is a cessation in the contribution payable by the settler (operating firm).

4. Question: What becomes of the balance of 60 percent? It is believed that the trust fund managers being the stipulated commission would be allowed to also manage this balance to meet the needs of the host communities as jointly agreed by stakeholder. Thus those earlier mentioned may probably serve as a benchmark. Arguably, it would not be fair to allow legislative appropriation for everything should there be a need for exigencies.

What does the government seek to achieve?

Where in any year, an act of vandalism, sabotage, or other civil unrest occurs that causes damage to petroleum and designated facilities or disrupts production activities within the host communities, the community shall forfeit its entitlement to the extent of the costs of repairs of the damage that resulted from the activity with respect to the provisions of this Act within that financial year: Provided the interruption is not caused by technical or natural cause.

Petroleum Industry Act, 2021

The basis for computation of the trust fund in any year shall always exclude the cost of repairs of damaged facilities attributable to any act of vandalism, sabotage, or other civil unrest.

Although, the federal authorities while making explanations have estimated the figures to be $500 million per year, for all the host communities affected in the country, it appears to me that the federal government is invariably committing each host community to become a watchdog to ensure an uninterrupted oil and gas mining and free flow of oil and gas in their communities or domain.

Niger Delta leaders are opposed to 3% host community fund and in favour of the earlier proposed 10%. The House of Representatives had approved 5% which the Senate rejected for 3%. Having signed into law, 3% has come to stay until an amendment is done.

Gas Venting or Flaring

The PIA also, stipulates that any natural gas flared or vented save for

(a.) In the case of an emergency

(b.) Pursuant to an exemption granted by the commission

(c.) As an acceptable safety practice under established regulation is an offence which shall attract a fine payable to the government akin to the procedure applicable for the payment of royalties. The fine shall be used for environmental remediation and relief purpose to the host community affected.

The PIA requires oil and gas operators to install appropriate metering devices for proper quantification of the flared gas. Although, the law says the commission in charge may grant flaring permission for a specific period for the purpose of start-up or strategic operations such as testing. However, an operator is required to submit within 12 months of its plan for elimination and monetization of the gas.

Again, many are opposed to this provision as it does not outlaw oil and gas flaring in strict sense. It must be understood that there may never be a 100% stoppage of oil and gas flaring as it is liken to suffocation. Oil and gas facilities like humans who expel carbon dioxide through breathing and farting are designed to vent or flare occasionally, to maintain safe pressures in order to avert explosion. Even so, it is a known fact that when it comes to the implementation of the ban on flaring, the government of Nigeria has always been the bane behind its setback following its consistent failure to contribute fund for this capital intensive project as the core partner in the oil and gas contract sharing and joint venture.

The law also grants the government regulatory body, the commission the authority to take at a charge-free natural gas destined for flaring at the flare stack. The Flare Gas regulation 2018 recommends $2 per thousand standard cubic feet (mscf) in the case of anyone producing 10,000 barrels of oil or more, and $0.50 / mscf of gas for oil production lesser than 10,000 as a fine. The Department for Petroleum Resources (DPR) had revealed that natural gas flared in 2018 was 321,290.35 mscf translating to at least $643 million as money meant for host communities affected by the gas flare.

To say the least, the penalty earmarked for gas flare violation is cheaper than the cost of installing anti-gas flare or in actual sense, facilities that can reduce gas flare to the barest minimum. This makes the international oil companies, IOCs, the national oil company, NOC and others to prefer the fine to taking stringent measures to curtail their flaring activities. In the long run, life and indeed, the ecosystem in the host communities are put at risk, a situation which could take more than three decades to remediate as in the case of the oil pollutions in Eleme and Ogoni lands as revealed in the UNEP report.

30% NNPC Profit for Frontier Basin Oil and Gas Exploration

There shall be maintained, for the purpose of this section, a frontier Exploration Fund which shall be 30% of NNPC Limited’s profit oil and profit gas as in the production sharing, profit sharing and risk service contracts.

Petroleum Industry Act, 2021

The PIA earmarks 30% of the NNPC profit for oil and gas exploration in the frontier basin. The frontier basin was then defined as areas where hydrocarbons exploration activities have not been carried out or previous commercial discovery of oil and gas have not been made or an area that is undeveloped and this includes Anambra, Dahomey, Bida, Sokoto, Chad, and Benue trough or as may be declared by the commission through a regulation.

The need for exploration in such areas must have been necessitated by the discovery of hydrocarbons in the Lake Chad basin which has currently made Chad an oil-producing country. The belief is that if Chad could have hydrocarbons in commercial quantities in their section of the Lake Chad basin then, most likely Nigeria has the potential of discovering oil in her section. Some experts particularly, geologists have posited that there is a specific formation or rock that exists in the Chad section of the Lake Chad basin which is not available in the Nigeria section. The interpretation is that Nigeria may not find oil in that section. Many have argued based on the above hypothesis that there was no need to continue with oil exploration. Some had gone as far as pointing out that oil was being phased out for renewable energy. However, what they seem to ignore is that despite the abundance of oil and gas reserves in Nigeria, Nigeria still lacks adequate electricity. Nigeria is richer in gas than oil and gas even though fossil, it is cleaner, cheaper and for many years to come will remain a critical energy source and a bridge between fossil energy and renewable energy.

Every society is expected to develop at its pace. This means that while the first-world country will advance and utilize renewable energy, Nigeria and many African countries would continue to rely on oil and gas for many years to come. Hence, there is a need to build the Nigerian economy profitably around domestic utilization rather than depending on foreign patronage.

The need for fertilizers to enhance food production and meet food demand of the world cannot be overemphasized and natural gas remains a major feedstock. Nigeria needs to improve on its petrochemical technology as means to make good use of its abundant hydrocarbons by investing in research, oil refining and gas processing. This must be done the right way and not the stagnant and outlawed Kpo-fire technology whose harm outweighs its benefits. However, acceptable improvement on this illegal refining technology or Kpo-fire is desirable.

Having said that, in my own opinion there is a need to carry out oil and gas exploration in the frontier basin so that no group would feel that they were being neglected or imagine that had it been done, rich hydrocarbons would have been found in their domain. After all, if 30% NNPC profit is utilized for a while and such adventure is not productive as the oil business is likened to a black box, it would not take long for the legislators to repeal that section of the law or ignored by the executives during budgeting even though that will be an aberration.

It is a welcome development although there are many grey areas in the interpretation of the PIA and stakeholders are looking up to the government for its implementation. The idea is that at its implementation, multiple sides of the document like cast dice will be revealed for proper understanding and interpretation.

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