The Petroleum Industry Act 2021(the Act) introduces the Petroleum Host Community Development (PHCD) under Section 234 of the Act. The Host Community Development Trust was introduced by the Act to aid in the development of the economic and social infrastructure of communities in the petroleum-producing areas and this article aims to elaborate on the establishment and procedure for host community development fund.
The objectives of the Host Community under Section 234 of the Act are as follows;
- To foster sustainable prosperity within host communities;
- To provide direct social and economic benefits from petroleum operations to host communities;
- To enhance peaceful and harmonious co-existence between licensees or lessees and host communities; and
- To create a framework to support the development of host communities.
Regulations of the Host Communities Development Trust
The Nigerian Upstream Petroleum Regulatory Commission and the Nigerian Midstream and Downstream Petroleum Regulatory Authority are empowered under the Act to make regulations in respect to host communities on areas within their competence and jurisdiction. Such regulation includes a grievance mechanism to resolve disputes between settlers and host communities; the regulations shall include the ability to make the adjustments to reduce expenditures where the available funds for the administration are insufficient to fund the ongoing operations by doing the following:
- Reduce the number of members of the Board of Trustees and frequency of meetings;
- Not fund the reserve fund nor hire fund manager;
- Reduce the number of members of the management committee and the frequency of meetings and;
- Reduce the frequency of meetings of the host community advisory committee.
The Act also provides for the incorporation of host communities development trusts under Section 235 of the Act as the settler is required to incorporate host communities development trust for the benefit of host communities which the settlor is responsible for. For the purpose of setting up the trust, the settler in consultation with the host communities shall appoint and authorise a Board of Trustees to be registered by the Corporate Affairs Commission as a corporate body under the Companies and Allied Matters Act.
Timeline for setting up the Trust
Under Section 236 of the Act the Trust is required to be incorporated;
- Within 12 months from the effective date of existing oil mining leases;
- Within 12 months from the effective date for existing designated facilities;
- Within 12 months from the effective date for existing new designated facilities under construction;
- Prior to the application for a field development plan for existing oil prospecting license;
- Prior to the application for any field development plan under a petroleum prospecting license or product mining lease granted under the Act;
- Prior to the commencement of commercial operations for licenses of designated facilities granted under the Act, etc.
Failure of the holder of a license or lease to comply with its obligations as stated above may be grounds for the revocation of the applicable license or lease as provided under Section 238 of the Act.
Objectives of the Host Community Development trust
Section 239 of the Act provides that the Constitution of the host community development trust shall allow the host communities development trust to manage and supervise the administration of the annual contribution of the settler as contemplated under the Act and any other sources of funding. The objectives of the Trust as provided under Section 239 (3) are to be specified in the Constitution and it shall include the following;
- To finance and execute projects for the benefit and sustainable development of the host communities;
- Undertake infrastructural development of the host communities within the scope of funds available to the Board of Trustees for such purposes;
- Facilitate economic empowerment opportunities in the host communities;
- Advance and propagate educational development for the benefit of members of the host communities;
- Support healthcare development for the host communities;
- Support local initiatives within the host communities, which seek to enhance the protection of the environment;
- Support local initiatives within the host communities which seek to enhance security;
- Invest part of the available fund for and on behalf of the host communities; and
- Assist in any other developmental purpose deemed beneficial to the host communities as may be determined by the Board of Trustees.
Sources of Funding for Petroleum Host Communities Development Trust
- Section 240 of the Act states that the Constitution of each host community shall establish a fund comprising of more than one account ("host communities development trust fund") to be funded under this Act. Each settler through the operator is required to make an annual contribution of 3% of its actual operating expenditure of the proceeding financial year in the upstream petroleum operations affecting the host communities for which the applicable host community's development trust fund was established.
- Each host community's development trust may also receive donations, gifts, grants, or honoraria that are provided to the communities for the attainment of its objectives.
- Profits and interest accruing to the reserve fund of the host communities' development trust shall also be distributed to the applicable host communities' development trust fund.
Allocation of Funds for Petroleum Host Communities Development Trust
Under Section 244 of the Act, the Board of Trustees shall in each year allocate from host communities development trust fund a sum equivalent to;
- 75% of the capital fund out of which the Board of Trustees shall make disbursement for projects in each of the host communities as may be determined by the management committee in furtherance of its objectives, provided that any sums not utilised in a given financial year will be rolled over and utilised in subsequent years;
- 20% to the reserve fund, which sums shall be invested for the utilisation of the host communities development trust whenever there is a cessation in the contribution payable by the settler and;
- An amount not exceeding 5% to be utilised solely for the administrative cost of running the trust and special projects which shall be entrusted by the Board of Trustees to the settler, provided that at the end of each financial year, the settler shall render a full account of the utilisation of the fund to the Board of Trustees and where any portion of the fund is not utilised in a given year, it shall be returned to the capital fund.
The settler is required to provide to the Board of Trustees a matrix for the distribution of the trust fund to the host communities as provided under Section 245 of the Act. Fund Managers are also to be engaged to invest in the reserve fund as the fund accrues. The financial year of the host communities' development trust shall commence on the 1st of January and end on the 31st of December of each year or date set for the purpose by the Board of Trustees as provided under Section 253 of the Act.
As earlier stated, the Host Community Development Trust was introduced by the Act to aid in the development of the economic and social infrastructure of communities in petroleum-producing areas such as the Niger- Delta. The objectives of the trust include to finance and execute projects for the benefit and sustainable development of the host communities; undertake infrastructural development of the host communities within the scope of funds available to the Board of Trustees, amongst other purposes. Finally, it is important to state that by virtue of Section 256 of the Act, the funds of the host communities development trust created shall be exempted from taxation.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.