Petroleum Industry Bill requires oil companies to invest 2.5% of their budgets in host communities

OIL companies operating in Nigeria will be compelled to set aside 2.5% of their annual expenditure for the development of their host communities under fresh proposals contained in the new Petroleum Industry Bill.

Given the chaotic state of the Nigerian crude oil industry, there have long been calls for the passing of a new comprehensive law to regulate the industry, liberalise the market, remove subsidies and address the environmental concerns of producer communities.  Last week, President Muhammadu Buhari sent the draft bill of the long-awaited law to the National Assembly for deliberation.

Under the new proposed new law, oil firms are to deploy 75% of their budget to implement capital projects in such communities with an understanding that the beneficiaries would watch over the facilities. Also, the bill states that the special vote would be used to fix damaged facilities in any community that allows vandalism of oil installations in its domain.

Government ministers decided to come up with the stick-and-carrot approach as a strategy to protect oil installations and production by host communities. This proposed bill contains a lot of radical changes to the management and operations of the nation’s petroleum sector, including a recommendation that communities where oil facilities are located or where exploration and production takes place protect such facilities and operations at all cost.

 Oil companies classified as settlers in the proposed law, are expected to carry out a needs assessment of their host communities after they are granted any license or lease. Such assessments will be based on the social, environmental and economic needs of the communities.

Every settler is then expected to develop a host community development plan based on the findings of the needs assessment which shall be submitted to the relevant government agency for proper monitoring. Also, a Host Community Development Trust Fund will be established to foster sustainable prosperity, provide direct social and economic benefits from petroleum operations, enhance peaceful and harmonious co-existence and create a framework to support the development of every host community.

Oil companies are expected to incorporate a trust in the community where they operate within 12 months from the effective date of their operations. Section 238 of the bill states that failure by any holder of a licence or lease governed by the act to comply with its obligations may be grounds for revocation of the applicable licence or lease.

In addition, the bill recommends the scrapping the Department of Petroleum Resources, the Petroleum Product Pricing Regulatory Authority and the Petroleum Equalisation Fund and commercialising the Nigeria National Petroleum Corporation (NNPC). It suggests that they should be replaced by the Nigeria Upstream Regulatory Commission, Nigeria Midstream and Downstream Petroleum Regulatory Authority and a private firm to be known as NNPC Limited.

Furthermore, the bill also wants the ownership of oil and gas resources in the country vested solely in the federal government. When it becomes operational, the law is expected to establish a progressive fiscal framework that will encourage investment in the petroleum industry, balancing rewards with risk and enhancing the federal government’s revenue.

It also provides that a person who makes an incorrect account, incorrect schedule or statement or gives false or misleading information concerning any matter affecting his liability to hydrocarbon tax is liable to an administrative fine of N15m or 1% of the amount of tax which has been undercharged. Upon conviction, such a person shall also be liable to a fine of N15m or 1% of the amount.