Authored By: Aliyah Tomiwa Salaudeen
University of Ilorin
I.INTRODUCTION
Despite six decades of oil extraction underpinning Nigeria’s national revenue, the communities hosting these operations in the Niger Delta bore the environmental and social cost with regards to gas flaring, oil spills, and ruined farmlands and fisheries, without a corresponding share in the wealth generated.[1] As a result such host communities suffered from severe poverty, environmental degradation, and lack of basic infrastructure. This imbalance between resource yield and community welfare is often described as the ‘resource curse’ or ‘paradox of plenty’.
Before the Petroleum Industry Act 2021 (PIA), relations between oil companies and host communities rested on informal, non-binding Memoranda of Understanding rather than statutory obligation.[2] The PIA sought to remedy this by placing host community development on a statutory footing for the first time.[3] Chapter 3 of the Act mandates that every settlor (license or lease holder) incorporate a Host Communities Development Trust (HCDT), funded by an annual contribution of 3% of actual operating expenditure from the preceding financial year.[4]
The trust itself must be established in accordance with section 235(1), with incorporation timelines set out in section 236, and a dedicated trust fund constituted under section 240.[5]
This article contends that notwithstanding the statutory character of the HCDT, it contains fundamental accountability flaws ranging from the manner of trustee appointment, community oversight, to how the rules are enforced, all of which poses risk of establishing the very ‘elite capturing’ the Trust was designed to prevent. The analysis will be examined in five sections, which are as follows; historical background of the HCDT, its legal framework, accountability gap, comparative perspective and reform recommendations.
HISTORICAL BACKGROUND – FROM MEMORANDA OF UNDERSTANDING TO THE HCDT
Prior 2021, the primary instrument governing oil company and host community relations was the Memorandum of Understanding (MOU), which eventually evolved into the Global Memorandum of Understanding (GMOU), which was adopted by several international oil companies operating in the Niger Delta. These instruments were contractual rather than statutory, hence, their provisions and even their very existence were dependent on the benevolence of the operator. The Niger Delta Development Commission (NDDC) of 2000, was created to complement the arrangement regionally, but was however criticized for opacity in project execution and for diverting resources towards politically connected intermediaries than communal needs. The GMOU tried to fix this by having operators deal with community clusters rather than individuals , to limit the leverage of any local strongman control.
However, the GMOU without any legal backing leaves the community with no recourse where companies choose to delay or abandon such directive.
The emergence of the Petroleum Industry Act 2021 (PIA), reshaped company-community relations, in the Niger Delta by redefining development funding from a discretionary gesture to a binding legal duty.[6] This shift from the informal Memorandum of Understanding (MOU) model to the statutory HCDT framework redistributes power in several concrete aspects, namely:
From Discretionary to Compulsory Funding: With the MOU model in use, Corporate Social Responsibility (CSR), was by its very nature voluntary and largely dependent on operators goodwill, and by implication, companies could postpone or withdraw projects at will with no legal implication. Under the PIA however, the Incorporation of a Trust became a legal requirement, with its funds ring-fenced strictly for community development.[7]
The 3% Funding Formula: Where MOU era budgets were negotiated informally and often opaquely, the PIA statutorily fixes financial obligation to the tune of 3% of actual operating expenditure from the prior financial year, to be contributed by settlors into the Trust Fund.[8]
Trust-Law Governance Architecture: While MOUs relied heavily on informal unstructured negotiation, the PIA instead imposes a formal governance architecture comprising of a Board of Trustees (for fund management), a Management Committee (for day-to-day project execution), and an Advisory Committee (to aid grassroot representation and input).[9]
Statutory Recourse for Communities: Communities previously had no binding mechanism to contest delayed projects, misapplied funds and the likes. The Trust is however, now a legal entity capable of holding operators to account, and the PIA further introduces penalties applicable to both operators and community members responsible for sabotage, creating a reciprocal framework for accountability and peacebuilding.[10]
Notwithstanding this standard baseline as highlighted above, implementation has exposed real gaps and concerns regarding the operating-expenditure calculations, alongside continuing debate over the extent of genuine community control.[11]
III. LEGAL STRUCTURE OF THE HOST COMMUNITY DEVELOPMENT TRUST
Section 235(1) of the PIA mandates every settlor to incorporate a Host Community Development Trust within a specified period of the grant of its license or lease, with section 236 setting out the incorporation timeline and registration requirements and section 240 fixing the fund at 3% of prior year operating expenditure, plus 10% of the amount for the take off of the Trust’s activities in the first year of operation as supplement, along with any income the fund itself generates.[12]
Governance operates across three tiers: Board of Trustees, whose members are nominated by the settlor in consultation with the host communities, holds overall responsibility for the administration of the fund and the approval of its annual management plan. Below it sits a Management Committee, drawn from the host communities. It is responsible for the day to day implementation of development projects. Lastly, an Advisory Committee, composed of community representatives, government agencies and the settlor. Its primary purpose is to provide broader input into the Trust’s priorities without direct control over disbursement.[13]
When viewed through an ordinary Trust law lens, the HCDT sits uneasily between a genuine fiduciary trust and a statutory compliance vehicle. In classical trust law, a settlor transfers property to trustees who then owe fiduciary duties to the beneficiaries, and the settlor typically retains no further control once the trust is duly constituted. HENCE, the structure of the HCDT is a hybrid rather than a classical trust, because while an ordinary settlor relinquishes control upon due formation of a trust, the PIA allows for the settlor to nominate trustees, co-approve budgets, and suspend contributions in certain instances, such as where security incidents attributable to host community disrupt operations[14]. The beneficiaries, meanwhile, exercise only indirect influence through community representation on committees whose decisions the settlor and Board of Trustees could easily override.
The nature of the HCDT is therefore, that of a hybrid structure that borrows the vocabulary of trust law; settlor, trustee, beneficiaries, fiduciary duty, without fully replicating the separation of control from benefit that gives ordinary trusts their protective character.
ACCOUNTABILITY GAP: A CRITICAL ANALYSIS OF WHERE THE GAPS ARE
The central weakness of the HCDT is that the settlor substantially shape the governance institutions meant to constrain them. Notwithstanding the intendment of the PIA, critical examination of its implementation has exposed real gaps as follows;
Firstly, in the Board of Trustees appointment process, where the settlor nominates the Board members, “in consultation with”[15] rather than election by community, thereby allowing entrenched local elites to readily secure and retain these positions indefinitely.
Secondly, accountability can be said to run in the wrong direction, as reporting obligations flow upward to the settlor and Nigerian Upstream Petroleum Regulatory Commission (NUPRC) rather than the community the Trust exists to serve, while binding downward reporting to ordinary community members remain underdeveloped, leaving residents dependent on intermediaries for information about their own funds.[16]
Thirdly, is the ambiguous definition of “host community”, which grants settlor the right to “determine”,[17] what constitutes a host community. This vests in the oil companies and trustees excessive discretion, allowing them favour their own kin networks over marginal settlements.
Fourthly, the opacity surrounding the calculation of “actual operating expenditure, the figure on which the 3% funding obligation depends, because it is self-reported by settlors and is not subject to public verification. Therefore, host communities have no reliable means of confirming whether the contribution paid into their Trust genuinely reflects the operator’s true expenditure for the preceding year. Hence, the party responsible for funding the Trust is also the one controlling the figures.
Also, the Advisory Committee is presented as the voice of grassroot interests, its role however, remains consultative than determinative, as it merely advises the Management Committee but does not itself approve budgets or veto decisions. Commentators have therefore questioned whether the HCDT structure genuinely transfers decision making power to host communities, or whether it merely formalizes consultation while leaving substantive control with the settlor influenced Board of Trustees.[18] The debate sits at the heart of the accountability concerns raised earlier under the historical background section of this article, that a Trust can be statutorily compliant in form while still leaving communities with limited practical say over how their own development funds are expended.
These flaws poses risk of elite capture where powerful local group extract benefit rather than helping the community at large.
COMPARATIVE PERSPECTIVE
Structural separation between those who generate resource funds and those who oversee it is essential to guarding against local corruption in resource-rich trusts. Ghana’s Petroleum Revenue Management Act relies on independent civil society oversight of the budget,[19] while Alaska bypasses intermediaries and pays dividends directly to residents.
Under Ghana’s model, a Public interest and Accountability Committee constituted from trade unions, professional bodies and civil society, is charged with the audit of the Ghana Petroleum Funds, thereby, keeping those who have interests in the money separate from those who verify it.[20]
Alaska’s approach instead pays a share of oil wealth[21] directly to individual citizen, thereby limiting the possibility of local leaders to intercept funds before they reach the wider population.
For the HCDT in the Niger Delta to succeed, it might need to adopt strict, independent checks to safeguard the funds from capture by a minority group of powerful intermediaries.
RECOMMENDATION
Addressing the HCDT’s accountability gaps calls for a specifically targeted and legally grounded reform rather than a broad policy wish-list, which should span across these four areas as discussed below:
Transparent, Community-Driven Trustee Appointments: Appointment should shift from the conventional settlor nomination to allow for community nomination and voting as they know their members better and it ensures every voice in the community is represented. The appointment should also be subject to independent verification by NUPRC or any other body authorized for such purpose, coupled with fixed, non-renewable terms for members of the Board of Trustees, in a bid to prevent indefinite occupation of governance roles by same individuals or networks who might have an interest to serve.
Mandatory Downward Reporting: The PIA should be amended or subsidiary legislations made, to mandate publication of audited accounts and project status reports, all of which should be made accessible to ordinary members of the community. Defined sanctions for settlors or trustees who fail to comply.
Independent Complaint and Audit Body: There should be mechanisms such as bodies specifically constituted or authorized to inquire into audits and also encourage community members to step forward with their complaints and grievances, put in place and made independent from the settlor and NUPRC’s routine compliance function. The cost for community members to trigger the body to investigate should be low and realistic.
Clear Statutory Definition of Host Community: Clear, unambiguous definition of what constitutes a host community should be stipulated through the governing regulation rather than leaving it to settlor’s discretion, thereby narrowing the scope for definitional manipulation.[22]
VII. CONCLUSION
The Host Communities Development Trust represent a genuine advance on the discretionary, non-binding arrangements that preceded it. For the first time, Host community development rest on a statutory funding obligation rather than corporate goodwill. Yet the accountability architecture surrounding that obligation remains structurally weak. By concentrating trustee appointment and budgetary control in institutions the settlor substantially shapes, by directing reporting obligations upward rather than to the communities the Trust exists to serve and by leaving “host community”[23]eligibility open to discretionary interpretation, the PIA has created a framework capable of reproducing the ‘elite capture’ it was designed to end. Ultimately, whether the HCDT truly holds people accountable or just becomes a new way for a few to benefit, depends on real reform (in how trustees are picked, how funds are reported and how complaints are handled). After about six decades of waiting, the Niger Delta deserves to get this right.
BIBLIOGRAPHY
Legislation
Petroleum Industry Act, 2021 (Nigeria)
Petroleum Revenue Management Act 2011 (Ghana), as amended
Alaska Constitution
Nigerian Upstream Petroleum Regulatory Commission, Host Communities Development Regulations 2022
Secondary Sources
Aluko & Oyebode, Petroleum Industry Act: Federal High Court of Nigeria Rules That Host Communities Lack Standing in Operators Divestments.
Anaje Olumide Oke Akinkugbe (AO2Law), Host Communities Development Trusts under the PIA: Policy vs Practice
[1] Anaje Olumide Oke Akinkugbe (AO2Law), Host Communities Development Trusts under the PIA: Policy vs Practice.
[2] Aluko & Oyebode, Petroleum Industry Act: Federal High Court of Nigeria Rules That Host Communities Lack Standing in Operators Divestments.
[3] Petroleum Industry Act 2021, ch 3.
[4] Petroleum Industry Act 2021, s 235(1).
[5] Petroleum Industry Act 2021, ss235, 236, 240.
[6] Petroleum Industry Act 2021, ch 3.
[7] Ibid s 235(1).
[8] Ibid s 240.
[9] Ibid ss 244-249.
[10] Ibid ss 257, 259 (offences relating to interference with petroleum infrastructure).
[11] See A02 Law, Host Communities Development Trusts under the PIA: Policy vs Practice
[12] Petroleum Industry Act 2021, ss 235(1), 236, 240.
[13] Ibid ss 244-248.
[14] Ibid s 257.
[15] Ibid s 242(2).
[16] Nigerian Upstream Petroleum Regulatory Commission, Host Communities Development Regulations 2022, (oversight function).
[17] Petroleum Industry Act 2021, s 235(3).
[18] Aluko & Oyebode (n 2).
[19] Petroleum Revenue Management Act 2011 (Ghana) as amended.
[20] Ibid s 51.
[21]Alaska Permanent Fund Corporation, annual dividend disbursement scheme established under the Alaska Constitution, art IX, s 15.
[22]Petroleum Industry Act 2021, s 235
[23] Ibid s 235
