HB 879: Petroleum Host Community Development Bill, 2016

Bill Analysis:

SHORT TITLE

Petroleum Host Community Development Bill, 2016

OBJECTIVE OF THE BILL

The objectives of the Bill are to provide for a framework relating to:

• Petroleum producing host community’s participation;
• Cost and benefit sharing amongst the government, petroleum exploration companies and petroleum host communities, and for related matters

NUMBER OF CLAUSES/PARTS

The Bill has 22 Clauses including interpretation and citation

IMPLICATIONS OF THE BILL

When this Bill is passed,

1. There shall be established a Petroleum Communities Trust (“Trust”) in every Local Government (LGA) where there is an upstream or facility community (Clause 1). There shall be one Trust for one LGA; (Clause 1)
2. The Federal Government shall pay directly to a Local Government the following amounts for the benefit of the upstream petroleum communities within the LGA:
   • 10% of the total amount payable to a State Government by the Federal Government in accordance with the derivation formula as contained in the Constitution;
   • 30% of loyalties paid by a company from petroleum production on land within the territory of an upstream petroleum community
   • 20% of an aggregate of the total royalties accruing to the Federal Government for petroleum production, evenly divided by the number of LGAs with facility communities.
   • 50% of amounts payable to the government for pipeline rights of way (Clause 6)
3. Every company conducting petroleum operations, operating an upstream, midstream or downstream facility such as but not limited to a gas gathering plant, gas processing plant or a refinery or owning pipelines for the conveyance of petroleum or its derivatives, shall from the date when this Bill becomes law, enter into a community development agreement with the communities where petroleum operations are being conducted or where the facility or pipelines are situated (Clause 8)
4. There shall be established a Restoration Fund (“the Fund”) to ameliorate the effects of pollution and environmental hazards in the host communities (Clause 11)

GENERAL PROVISIONS OF THE BILL

1.     Petroleum Communities Trust (“the Trust”): -

The Trust shall be established in every LGA where there are facility communities to decide upon, and manage the disbursement of monies paid to the local government for the benefit of upstream/facility communities development. Each LGA shall have one Trust and the Trust shall bear the name of the LGA; for instance, “[Name of LGA] Petroleum Communities Trust”.

Each Trust shall be managed by a Board of Trustees (“the Board”), which shall be a body corporate with perpetual succession and a common seal.

2.      Board of Trustees: -

The Board shall consist of the following members:

• a representative of each upstream or facility community within the LGA, who shall not be an employee of any level of government;
• a representative of each company that is involved in petroleum operations within the LGA;
• a Chairman to be selected by Trustees from amongst the representatives of the communities on the Board and shall hold office for 2 years and may be re-appointed for another 2 years and no more;
• a Secretary who shall be one of the representatives of the companies on the Board and shall hold office for 2 years and may be reappointed for another 2 years and no more.

The membership composition shall include of a minimum of 25% women, and 25% youth (below 40 years old as at the time of first appointment). A trustee shall be above 25 years old, of proven integrity and sound mind, who has never been bankrupt or convicted in Nigeria or abroad.

3.       Remuneration of the Trustees: -

Trustees shall be paid sitting and other specified allowances, and shall be entitled to reimbursement for money spent on behalf of the business of the Trust. The Secretary to the Trust shall be paid a salary commensurate with that of the Chairman of the LGA and shall be the chief administrative officer of the Trust.

4.       Employees: -

The Board shall employ such persons as are necessary to assist in the discharge of its functions, and the salaries and allowances for these persons shall be determined and paid from the monies accruing to it (Clause 3).

5.       Application of Trust Monies: -

The Trustees shall apply the monies of the Trust solely for the purposes of:

• salaries, trustees’ allowances and administrative expenses, which shall not exceed 10% of the total amount available to it; and
• whatever is decided by the Board, acting in consultation with the community members, in accordance with a prescribed and open consultation process.

6.     Decisions on Disbursement of Funds: -

Decisions as to disbursement of funds shall be made in accordance with a process that shall include input from all members of the communities in question, women, youth and cultural organizations inclusive (Clause 5).

Disbursement of funds shall be for whatever purpose each community decides, provided that decisions are taken in accordance with prescribed procedure. The procedure shall be contained in a written document and made available to the public.

The Board shall make final decisions on the disbursement and communicate its decisions to the public within 48 hours, through a press release and by notices placed on the Trust website and notice board at their office.

Within 72 hours of communicating the final decisions by the Board, the Secretary of the Trust shall make a demand to the LG Chairman for the exact amount decided, and the Chairman shall cause the full amount to be paid into the designated account of the Trust within the same time.

The LG is not an approving authority and shall have no power to disallow or alter the request for disbursement in any way. The LG shall be entitled to 0.5% of the total monies held by it on behalf of the communities, as administrative expenses.

7.    Freedom of Information: -

Any person may request any information relating to amounts received and disbursed from the Local Government or the Trust, in writing and on payment of a sum not exceeding N2,000, within 7 days from the date the request was made (Clause 7).

8.    Community Development Agreement (“the Agreement”): -

Companies conducting petroleum operations, operating an upstream, midstream or downstream facility or are owners of pipelines for the conveyance of petroleum or its derivatives, shall at the commencement of this Bill (when it becomes law), enter into community development agreements with petroleum communities within the land where petroleum operations are being conducted.

The agreement shall provide for –

• educational scholarship, apprenticeships, technical training and employment opportunities for members of the communities;
• financial or other agreed forms of support for infrastructural development and maintenance such as education, health or other community development services;
• assistance with creation, development and support to small businesses and micro enterprises;
• agricultural product marketing and support services; and
• methods and protection of environment and socio-economic management to enhance the community.

The agreement shall specify appropriate consultative and monitoring frameworks between the company and the host community, and the means by which the community may participate in the planning, implementation, management and monitoring of activities carried out under the agreement.

Where there is deadlock in concluding a Community Development Agreement between a company and a host community before the commencement of development work in the area by the company, the matter shall be referred to the Minister for resolution. The agreement shall be subject to review every 5 years and shall until reviewed by parties, have binding effect on the parties.

9.   Tax Deduction: -

All monies expended by a company in fulfillment of its obligations under Community Development Agreements shall be subject to tax deduction.

10.   Register of Communities: -

Every community shall be such as are gazetted by the State government before this Bill becomes law and shall register in its LGA and register shall be available to the public at the Local Government office and on its website. The register shall list the names of the LGA and communities, indicate whether they are upstream, facility or pipeline community.

The Local Government shall submit the list of the communities to the Ministries of Finance and Petroleum Resources, and the Ministry shall ensure that the list is contained in the Ministry and be accessible to the general public.

11.   Restoration Fund: -

Clause 11 provides for the establishment of the restoration fund to ameliorate the effects of pollution and environmental hazards in host communities.

The Restoration Fund shall be held by the Local Government and disbursed by the Board of Trustees in line with the disbursement process set out under Clause 6 of this Bill to ameliorate the effects of pollution and environmental hazards in affected communities (Clause 13(5)).

12.   Restoration Tax: -

Once the Bill becomes law, an annual restoration tax of 1.5% shall be charged on the assessable profit (to be ascertained in a manner prescribed by the Petroleum Profits Tax Act) of a company conducting petroleum operations in a facility community or petroleum community. Section 60 of the Petroleum Profits Tax Act, which states that “No tax shall be charged under the provisions of the Personal Income Tax Act or any other Act in respect of any income or dividends paid out of any profits which are taken into account, under the provisions of this Act, in the calculation of the amount of any chargeable profits upon which tax is charged, assessed and paid under the provisions of this Act” is applicable in the assessment, collection and payment of restoration tax (Clause 12(4))

13.    Federal Inland Revenue Service (“FIRS”)

Clause 13 provides that the FIRS shall assess and collect from a company conducting petroleum operations in a facility community or petroleum community. This Bill requires that while assessing such company for other taxes, the FIRS shall assess such company for restoration tax.

The restoration tax to be imposed by the provisions of the Bill (when passed into law) shall be due and payable within 60 days after the FIRS has served notice of the assessment on a company. Tax collected under this Bill (when passed into law) shall be paid into the restoration fund.

The FIRS shall submit the tax to the fund in such form as the Board of Trustee shall approve, a return showing:

• the name of the company making the payment
• the amount collected
• the assessable profit of the company for the accounting period; and
• such other information as may be required by the fund for the proper administration of the tax.

14.   Regulations: -

The Bill provides under Clause 14 that the Minister may, on the recommendation of the Board of Trustees and subject to the approval of the President, make regulations generally for the purposes of this Bill (when it becomes law).

15.    Offences: -

The following will constitute offences under the Bill (when it becomes law):-

• Reduction by a Local Government in the amounts due to a Trust and Restoration Fund under this Bill constitutes an offence, and every officer found guilty shall on conviction be liable to 12 months imprisonment without option of fine;
• Contravention or failure to comply with the provisions of this Act constitutes an offence, and attracts a penalty as follows:
  • For a first offence, to imprisonment for a term of 6 months or to a fine of up to N1,000,000 or both;
  • For a second and subsequent offence to imprisonment for a term of 12 months or to a fine of up to N2,000,000 or both;

Notwithstanding the above listed penalties, where a company fails to file a tax return in any year and the FIRS is of the opinion that such a company or corporate body is liable to pay restoration tax, may, according to the best of its judgment, determine the amount of assessable profit of such company and make an assessment of restoration tax in accordance with the provisions of this Bill (when it becomes law).

The institution of proceedings or imposition of penalty shall not relieve a company from liability to pay a tax, which may become due under this Bill (when it becomes law).

16.  Jurisdiction: -

The High Court of a State shall have jurisdiction to try offences under this Bill (when it becomes law)

17.  Accounts and Audit:

Clause 17 provides that the Board shall keep proper accounts of its income and expenditure in respect of each year and shall cause its accounts to be audited within 6 months after the end of each year by auditors appointed by the Auditor-General of the Federation.

An annual report of its operations, performance and audited financial report shall be submitted by the Board to the Minister not later than July 31 of the following year. A summary of the annual report and audited financial report of the Board shall be published on the website of the Board not later than July 31 of each year.

18.  Restrictions on Legal Proceedings: -

Any lawsuit or proceeding against a Board member, employee of the Board or the Board as an entity for any act or omission or default in respect of its functions and powers under this Bill (when passed into law), shall be brought within 12 months after the act or omission complained of; or in the case of a continuance of damage or injury, within 12 months after such damage or injury may have ceased.

Any lawsuit or legal proceeding against the Board shall be brought after the expiration of a one month written notice of intention to commence the suit was served to the Board by the intending plaintiff or his agent. The notice shall contain the following:

• Cause of action
• Particulars of the claim
• Name, place of abode and address for service of the intending plaintiff, and
• Relief which is being claimed

19.   Service of Notice: -

Notice of intention to commence a lawsuit against the Board, Board member or employee of the Board may be served by delivering the same to the Chairman of the Board or Secretary, or sending it by registered post addressed to the Chairman or Secretary at the head office of the Board (Clause 19).

20.   Indemnity of the members of the Board and Employees: -

Every member of the Board, Secretary and every employee of the Board shall be indemnified out of the funds of the Board against any liability incurred in defending any proceeding whether civil or criminal, if such proceeding was brought against the person in their capacity as a member or employee of the Board.

However, the Board shall not indemnify any member or employee of the Board for any liability incurred as a result of the willful negligence of the member or employee, as the case may be.

CONCLUDING NOTES

The Bill seeks to provide for a framework relating to petroleum producing host community’s participation, cost and benefit sharing amongst the government, petroleum exploration companies and host communities. Though the objective seeks to ensure cost and benefit sharing, the Bill seems to have dwelt on the benefit sharing more. For instance, there was no clause on protecting the investment of petroleum exploration companies, like the pipelines or on providing security to the workers (against scourges like kidnapping) in turn for the monies that the companies are required to pay under the Bill.

With regards to the monies to be collected from the companies, the Bill imposes a lot of fees that could run a business aground. The Bill seeks 30% of royalties paid by a petroleum exploration company from petroleum production on land within the territory of an upstream petroleum community; 20% of an aggregate of total royalties (any set of royalties) accruing to the Federal Government of Nigeria for petroleum production; and 50% of amounts paid for pipeline rights of way. This implies that the companies are expected to pay royalties to communities for petroleum production and pay the Federal Government royalties for petroleum production as well.

In addition to the funds to be paid by the companies (as stipulated above), the companies shall pay 1.5% on assessable profit of the company as tax into a Restoration Fund account to ameliorate the effects of petroleum exploration on the environment. This tax is exclusive of every other tax paid by the companies to the Federal Inland Revenue Service (FIRS). Furthermore the FIRS is expected to collect the 1.5% tax and pay into the designated account of the Restoration Fund. This additional role needs to be included under Section 8 (functions of the Service) the FIRS Act, 2007.

The Bill seeks to encourage inclusivity as it provides for the recruitment of a young demographic as well as women. Clause 2(5) reserves a minimum of 25% of trustees positions to be reserved for women and another 25% to consist young persons below the age of 40years. Decisions on the disbursement of funds as provided under Clause 5 requires the contribution of women and youth as well.

It is quite commendable to note that the Bill proposes transparency and accountability under Clause 7, as well as publication of information on its website for access to the public under Clauses 10 and 17 of the Bill.

Though the Bill seeks to protect the rights of petroleum exploration host communities, it seems exploitative in terms of the fees or amounts it proposes to collect from the companies. A review is recommended before passage.

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