What’s in the latest Petroleum Industry Bill draft? Environmental and Host Community concerns.

On the 1st July, both the House of Representatives and Senate passed third readings of the Petroleum Industry Bill. Our analysis is based on the report of the House of Representatives, although we understand the substantive changes proposed by the Senate are similar. Our December 2020 briefing outlined SDN’s concerns in relation to environmental regulation and host communities. This blog provides a brief update on these issues and some key changes in the bill.

Environmental legislative framework at risk of further weakening?

Our 2020 briefing noted the lack of reference to existing environmental regulatory agencies, legislation and guidelines and the need to ensure separation of responsibilities for environmental protection from regulators who are responsible for maximising oil and gas operations. We welcome changes in the bill which now make greater reference to existing environmental legislation (e.g. see amendments to section 102, clauses 2 and 3a. However, a new clause 3 under section 304 states:

Where matters relate to the environment, the Commission and the Authority [the two regulatory bodies established under the bill to oversee upstream, and mid- and downstream sectors] shall have responsibility over all environmental matters in respect of upstream petroleum operations and midstream and downstream respectively except in relation to environmental impact assessment which shall be in accordance with applicable laws.

The respective conference committees at the National Assembly should urgently clarify the intention of this clause and how it would impact on existing bodies and legislation, such as the National Oil Spill Detection and Response Agency. At best, this clause is likely to further blur the lines of responsibility between the Ministry of Environment and the new petroleum regulatory agencies. At worst, it could undo and significantly weaken environmental protections for host communities. When viewed alongside other parts of the bill, such as section 6, which states “The Nigeria Upstream Regulatory Commission shall ensure strict implementation of environmental policies, laws and regulation…”, and section 232 on abandonment, decommissioning and disposal which does not reference environmental management plans or wider environmental legislation or regulators, this does appear to reduce the powers and relevance of existing environmental regulators.

Huge increase in allocations to the Frontier Exploration Fund

Section 9, clause 4 has been amended to increase allocations from 10% of rents on exploration and mining licenses to also include 30% of NNPC’s profit oil and gas. Nigeria’s citizens deserve a stronger, diversified economy and far better access to energy. However, this apparent huge investment in frontier exploration is not in line with Nigeria’s climate commitments and steers Nigeria towards further dependence on oil and gas, rather than investing in a clean energy transition. It is also difficult to understand how the use of such vast amounts of national revenue could be justified for this purpose. This proposed change has also caused uproar among a number of Niger Delta groups, who see this as a further attempt to control the benefits of the region’s natural resources, without proper investment in the region and compensation for host communities.

Allocation to Host Community Development Trusts increased – but is it the right approach?

Section 240 previously provided for 2.5% of settlor operating expenditure to be allocated to a Host Community Development Trusts. This is now 5% for upstream operations and 2% for mid- and downstream operations. This amount has also been a flashpoint for a number of Niger Delta groups – particularly when considered alongside the large increases for the exploration fund.

As our previous briefing noted, this does appear to be a large increase on current equivalent expenditure (as represented by non-mandatory social expenditure in NEITI data – see NEITI, Oil and Gas Industry Audit Report, 2018). However, quality of expenditure is as important as quantity, and as our briefing also notes, development trusts are a very narrow response to the needs of host communities. This section of the bill says nothing of government responsibility for host community development.

A positive change is that section 242 now provides for consultation with communities on the composition of the Board of Trustees and for these trustees to come from host communities. However, much of the previous top-down approach remains, which means most of the control over the management and direction of the funds appears to remain with companies. New provisions in section 234 also allow for a grievance mechanism (clause 3) to resolve disputes between communities and settlor companies, however, clause 4 (a-d) also allow for the dilution of the responsibility of companies to reduce members and meetings of the various management bodies, which could further erode community participation in the trust funds.

Community responsibility for infrastructure protection removed, but punishment for third party damage to oil and gas infrastructure remains

We welcome the deletion of section 250 (clause e) which had previously placed responsibility on community advisory committees to protect oil and gas infrastructure. However, section 257 (clauses 2 and 3) remain, which allows for the deduction of payments to Host Community Development Trusts for the costs of repairs for “vandalism, sabotage or other civil unrest”. This punishes entire communities for the actions of a few, which may be completely outside of their control. As our 2020 briefing states: Oil theft and vandalism are major problems in the Niger Delta and solutions are needed to incentivise their prevention. However, it is unreasonable to make communities take responsibility for the prevention of damage to infrastructure, which may be at the hands of armed groups and done in complicity with officials in authority—or for “civil unrest”.

Gas flaring penalties to be invested in gas infrastructure for host communities

Although Nigeria should be preparing for a transition to clean energy, as long as large volumes of gas continue to be needlessly flared, SDN has advocated for investment in host communities to utilise gas flares for local energy production. The new provision for the use of gas flare penalties to benefit host communities (section 104, clause 4) is therefore somewhat welcome. However, it sits within a larger framework for the expansion of gas across Nigeria, which will be at odds with Nigeria’s climate commitments. Nigeria’s citizens have the right to better access to energy – and there are important questions to answer about how a just transition can be achieved for Nigeria. However, while gas may play some role in Nigeria’s immediate energy future, the absence of similar ambitions for renewable energy is a deep concern.

The Environmental Remediation Fund

As previously discussed in our briefing, this fund is potentially a promising initiative, but there are many aspects which need to be clarified, such as the funding allocation to be made, who would manage it, and how it would function to avoid “free loading” by irresponsible companies. These questions remain unanswered in the latest version of the bill.

*** For further information or discussion on this matter, please contact SDN at: info@stakeholderdemocracy.org***

Published: 07.07.21

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