Expert Opinion

Nigerian Petroleum Industry Bill 2012 – Petroleum Host Community Fund (PHCF)

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Excerpt From  An Analysis of the Nigerian Petroleum Industry Bill 2012. Vol. 1  – A Westpaq Report, written by Samuel Diminas

 

Part 2 Institutions

G. Petroleum Host Community Fund (PHCF)

The PIB 2012 proposes a PHC Fund, which is to be utilized for the development of the economic and social infrastructure of the communities within petroleum producing communities. Section 117.

Under the bill, every upstream petroleum producing company is required to remit on a monthly basis, ten percent (10%) of its net profit(1) directly to the PHCF for profits derived from onshore and shallow areas(2) . For profits derived from deep-water areas(3) , all remittances are to be made to the fund for the benefit of producing littoral states.

The PHCF is likely to enhance peace and stability in the Niger Delta if the communities profit directly from production. An increase in production would result in an increase in funds to the PHCF’s and vice versa, creating a symbiotic relationship between the host communities and the producing companies. In this scenario, the benefit and loss of one affects the other. The net effect of the PHCF is expected to be an increase in revenues for the government and the oil companies as a result of reduction in production disruptions.

 

Recommendations:

The proposal to distribute the PHCF accruable from deep-water production to littoral states is unnecessary and would not serve the needs of the communities or the objective of preventing disruptions to oil production.

Deep-water production should be exempted from the PHCF as a further incentive for new deep-water production. The pre-existing 13% petroleum derivation which goes to state governments has not been utilized for the benefit of the oil producing communities nor has it been applied to prevent discontent between petroleum producing communities and oil and gas companies. It is the ineffective application of funds meant for the host communities that the PHCF should seek to correct.

Another question raised from the PHCF is the definition of communities under the PIB. It is recommended that already existing traditional structures be maintained. In the Niger Delta and across Nigeria, communities are very well defined.

Many communities have Community Development Councils/or Committees, traditional councils who own communal lands, and share benefits that come to their communities such as scholarships, employment quotas, sharing of community land, community development projects and so forth. Existing community structures have been well defined and are quite rigid, making it almost impossible to infiltrate them

 

1 Net profit for the purpose of Section 118, means adjusted profit, less loyalty, allowable deductions and allowances, less Nigerian Hydrocarbon Tax, less companies’ income tax. PIB 2012, Section 118 (2)

2 ‘Shallow areas’ refer to offshore production in shallow water. ‘Shallow water’ means areas in the offshore of Nigeria up to and including a water depth of 200 meters. PIB 2012, Section 3. Interpretations.

3 ‘Deep-water’ means areas offshore Nigeria with water depth in excess of 200 meters. PIB 2012, Section 363. Interpretations.

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