• by Zingtim Gambo
• 0 Comments

Indigenous Participation in Oil and Gas: Has the PIA Really Shifted the Balance?

Introduction

The Petroleum Industry Act of 2021 (PIA), which received presidential assent in August 2021, represents a pivotal transformation of Nigeria's petroleum sector. By repealing the 1969 Petroleum Act, the PIA established a thorough legal, governance, regulatory, and fiscal framework for the industry.

A key feature of this new legislation is the mandate for certain petroleum operators to create a Host Communities Development Trust (HCDT). This initiative aims to foster peaceful relationships between licensees or lessees and the communities that host them, while also promoting the development and economic prosperity of oil-producing areas. Nevertheless, it is important to note that the rights afforded to host communities under the PIA are not absolute.

Local Content and Host Community Development

The PIA 2021 introduced significant reforms aimed at enhancing the involvement of Nigerian companies in the oil and gas sector by ensuring that they receive first consideration in contract awards and licensing, with a stipulation for 51% equity. This legislation reinforces the importance of local content and establishes Host Community Development Trusts to promote stability and development.

The Act's intention is to improve the historically poor relationship between oil and gas host communities and industry stakeholders by creating the Host Community Development Trust Fund (HCDTF). This fund is designed to foster sustainable prosperity and provide tangible social and economic benefits to these communities while encouraging peaceful coexistence between community members and oil companies.

The PIA mandates that projects established in host communities be transferred to the HCDTF, and it requires oil license holders to contribute an annual fee equivalent to 3% of their previous year's operating expenses. The fund's management committee must include community representatives, ensuring local voices are part of decision-making processes. Moreover, the Act imposes penalties for non-compliance with host community obligations, including the potential revocation of licenses.

Environmental Concerns and Gas Flaring

Host communities continue to grapple with environmental degradation due to gas flaring linked to oil extraction, a longstanding issue that previous legislation has struggled to resolve effectively. The PIA imposes penalties on companies for gas flaring and allocates the resulting revenue for environmental restoration and assistance to affected communities.

However, for this approach to succeed, the penalties must be sufficiently substantial. If not, oil companies are likely to persist in gas flaring when it remains more cost-effective than the penalty incurred.

Host Communities and Oil Mining Lease Divestment

The Petroleum Industry Act also omits to involve host communities in the decision-making processes of oil companies, specifically concerning the divestment of shares and the assignment of Oil Mining Leases (OMLs). This absence of inclusion was upheld by the Federal High Court of Nigeria, Port Harcourt Judicial Division, in two related judgments delivered on 15 November 2024 by Hon. Justice S. Dalyop Pam.

The cases are Suit No: FHC/PH/CS/123/2022 — Prince Barrister Opunabo Bourdillon Ekine & 5 Ors, on behalf of members of OML 25 Host/Impacted Communities, v. The Shell Petroleum Development Company of Nigeria Limited & 2 Ors; and Suit No: FHC/PH/CS/124/2022 — Chief Biokpomabo C.J.O. Ndewari & 3 Ors, on behalf of members of OML 23 Host/Impacted Communities, v. The Shell Petroleum Development Company (SPDC) & 2 Ors.

In Suit No: FHC/PH/CS/123/2022, the Plaintiffs, representing the Belema, Ofoinama, and Okoama communities within the Kula Kingdom, collectively known as the OML 25 Host/Impacted Communities in Akuku Toru Local Government Area of Rivers State, brought a legal action against SPDC, Belema Oil Producing Limited, and the Attorney General of the Federation.

Their primary aim was to seek an injunction preventing SPDC from divesting its interests in OML 25 without the consent and involvement of the Plaintiffs, whom they described as the legitimate landlords and host community of OML 25. The Plaintiffs argued that SPDC's choice to divest its interests without engaging the affected host communities undermines their rights under the PIA, which they interpret as prohibiting SPDC, as the operator of the OML, from assigning or divesting its shares in OML 25 without the participation of the host communities.

The Plaintiffs in the cases mentioned argued that they are entitled to receive 35% of the bid amount for OML 25, as they represent the host communities. They maintained that the lease should only be awarded to a company like Belema Oil Producing Limited, which is familiar with local issues and can effectively address the community's needs.

Additionally, the Plaintiffs sought both declaratory and injunctive reliefs, urging the Attorney General of the Federation, the Federal Ministry of Petroleum Resources, the Nigerian Upstream Regulatory Commission, and the Nigerian National Petroleum Company Limited to deny regulatory approval for the divestment of SPDC to any bidder other than Belema Oil Producing Limited.

Likewise, in Suit No: FHC/PH/CS/124/2022, the Plaintiffs filed a lawsuit on behalf of the Soku communities, the host communities for OML 23 in Akuku Toru Local Government Area of Rivers State, seeking similar outcomes to those requested in Suit No: FHC/PH/CS/123/2022. Both cases highlight the Plaintiffs' determination to ensure that local communities receive fair representation and consideration in the leasing process.

Conclusion

The passage of the Petroleum Industry Act in 2021 marked a significant stride towards reforming Nigeria's oil and gas sector, particularly in promoting indigenous participation. However, the efforts encapsulated within this legislation appear insufficient in addressing the pervasive challenges faced by host communities, which continue to grapple with environmental degradation and limited involvement in crucial decision-making processes.

The weak penalties imposed on companies for gas flaring remain a significant concern, exacerbating the plight of communities already suffering from ecological damage and economic marginalization. Furthermore, the exclusion of host communities from the operational and infrastructural decisions of oil companies undermines the intended benefits of the PIA.

To rectify these shortcomings, it is imperative to establish stringent environmental regulations that impose heavier penalties for non-compliance, as well as to create a structured framework for the meaningful inclusion of host communities in all stages of project development. Enhanced transparency, capacity building for community representatives, and the establishment of advisory councils could foster a more collaborative approach, ensuring that the interests of local populations are adequately represented and respected in the oil and gas sector.