Home News The Petroleum Industry Bill and its proposed Petroleum Host Communities Fund (PHCF)

The Petroleum Industry Bill and its proposed Petroleum Host Communities Fund (PHCF)

Oil-producing communities desperately need their rights enshrined by the federal government with regard to oil-spill compensation, environmental clean-up and improved socio-economic development of the operating regions.

The Petroleum Industry Bill (PIB) seeks to address these imbalances with the creation of Petroleum Host Community Fund (PHCF). According to the bill this will be a designated fund for “development of the economics and social infrastructure of the communities within the petroleum producing areas.”

Funds would be contributed on a monthly basis of a 10% of the net profit of the companies operating both onshore, in shallow water and the deep offshore.

Half-baked?

In contrast to the Petroleum Development Fund and the other institutions set up under the bill, there is no provision for a board of directors, or other staff. The Fund’s entitlement, governance and management structure is left entirely in the hands of the Minister of Petroleum Resources. What is also not clear is the mechanism by which the PHCF could be expanded to include other states, if they also became oil-producing communities. It has to be geographically neutral.

To add to the ambiguity

At present 3% of the total annual budget of all oil and gas producers goes to the Niger-Delta Development Commission Fund (N-DDCF). There is no provision within the PIB for the repeal of this provision, so the 10% going to the new fund is assumed to be in addition to the money going to the N-DDCF.

However, the clauses (sections 116-118) dealing with the new fund are also ambiguously drafted. On the one hand, the calculation of the 10% “net profit” is the adjusted profit less royalty, allowable deductions and allowances, less Nigerian Hydrocarbon Tax less Companies Income Tax.” This would imply that contributions to the fund are not deductible from any other taxation.

Yet the PIB goes on to say that “the contributions made by each upstream petroleum company pursuant to subsection (1) of this section, will constitute an immediate credit to its total fiscal rent obligations as defined in this Act.” This “total fiscal rent” is defined as “the aggregation of royalty, Nigerian Hydrocarbon Tax and Companies Income Tax obligations arising from upstream petroleum operations”. This would imply that contributions to the fund shall indeed be allowable against Nigerian Hydrocarbon Tax.

Loopholes

Another contentious issue concerns the well-publicised issue of pipeline sabotage. Clause 118 (5) may cause difficulties over proof of pipeline damage: “Where an act of vandalism, sabotage or other civil unrest occurs that causes damage to any petroleum facilities within a host community, the cost of repair of such facility shall be paid from PHCF entitlement unless it is established that no member of the community is responsible.” Without a legitimate investigative process by which to examine oil damage, this clause of the bill may easily render the PHCF vulnerable to corruption and misuse.

In summary, the bill needs clarification as to the tax position of the revenue given to the PHCF and precisely how it is to be administered, or by whom. It is vital that this is clarified, since the PHCF proposal is the one aspect of the bill, where all the advantage goes to existing oil-producing states and not to Nigeria as a whole. Nowhere in the bill is it explained how the PHCF will be managed, nor its precise function fully explained.

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