PIA: Oil Firms Risk Licence Revocation Over 3% Host Community Fund Payment Default

The Nigerian Upstream Petroleum Regulatory Commission (NUPRC), has vowed to revoke the license of any industry settlor, or operator in the oil and gas industry who fails to fulfil their obligations of 3 per cent remittance to the host communities in the Niger Delta region by the end of September.

NUPRC, in a statement yesterday in Abuja, kicked against the delay by operators and industry settlers to remit the statutory fees governed by Section 235 of the Petroleum Industry Act (PIA), 2021.

The commission said the ongoing agitation by the host communities might frustrate the Commission’s efforts at up-scaling the drive for higher foreign exchange and attracting Foreign Direct Investment (FDI) into the country thereby truncating efforts at stabilising the value of the Naira

It therefore warned that continued denial of the statutory contribution which was meant to provide succour to the host communities as lawful beneficiaries, could hinder smooth upstream operations within affected communities.

NUPRC warned that in a situation where defaults are not remedied by the end of September 2023, the Commission would have no option but to revoke the licence of the defaulting settler/operator.

The statement reads: “Clearly, the Commission understands and shares in the sentiments and particularly the patience of the host communities on this issue, especially as the PIA had suspended the Global Memorandum of Understanding (GMOU) and the Memorandum of Understanding (MOU), replacing both provisions with a new Host Community Development Trust Fund.

“The Commission is fully aware of the implications of this development if allowed to fester. The agitation might frustrate the Commission’s efforts at up-scaling the drive for higher foreign exchange and attracting Foreign Direct Investment (FDI) into the country. Incidentally and quite unfortunately, it is also capable of truncating efforts at stabilizing the value of the Naira attaining the much-desired rebound in our national economy and improving our macro-economic status.

“The statutory provision of the PIA regarding the annual contribution of operators in the industry, under Section 240 (2) of the PIA, 2021, is very clear; and it states:

“Each settlor, where applicable through the operator, shall make an annual contribution to the applicable host communities development trust fund of an amount equal to 3% of its actual annual operating expenditure of the preceding financial year in the upstream petroleum operations affecting the host communities for which the applicable host communities development trust fund was established”.

“It must be stated that given the implications of allowing continued default on sustained peaceful operations and the eventual effect on national oil and gas output, the Commission will be minded to activate its regulatory powers, in line with the provisions of the Act as stated above, to bring defaulting and recalcitrant settlors into compliance.

Recently, the Commission passed the Host Community Regulation and organized a mass sensitization programme, emphasizing the responsibility of settlors in host communities under the PIA, 2021. Unfortunately, this has been neglected by those concerned, thereby stoking avoidable agitations. The settlors are therefore required to perform their obligation, to commence remittance of the statutory 3% contribution.

“The Commission notes that remittance of the statutory contribution which should have served as succour to the host communities has sadly become a source of pain to the lawful beneficiaries. This has now given impetus to actions that might affect smooth upstream operations within affected host communities; a situation that could have been addressed through routine social inclusion.

Although the ultimate regulatory sanction as enshrined in Section 238 of the PIA is the revocation of assets, the Commission has been careful not to compound the already low level of investment and divestment rate and further impacting negatively on production levels and the Federation revenue. It rather chose to draw a balance and be strategic in the implementation of the provisions of the law.

“The relevant section states that Unless as otherwise provided for in this Act, failure by any holder of a licence or lease governed by this Act to comply with its obligations under this Chapter, after having been informed of such failure in writing by the Commission or Authority as the case may be, may be grounds for revocation of the applicable licence.”

Therefore defaulting operators (settlors) under PIA 2021 (section 235) are advised to do the needful by fulfilling their obligations and remitting the outstanding arrears without further delay as the Commission might be compelled by emerging circumstances to fully apply the law.

“Notice is hereby served that in a situation where defaults are not remedied by the end of September 2023, the Commission would have no option but to revoke the licence of the defaulting settler/operator.”