Petroleum Industry Act let us down, say Niger Delta communities

Many local activists in Nigeria say that the 3% of operating expenses that oil companies must pay to host communities under the PIA is insufficient.



Dissatisfaction over funds allocated to the communities of Nigeria’s Niger Delta Region by Nigeria’s historic Petroleum Industry Act in August has been exacerbated by the recent oil spill at Nembe in Baysela state.

In this article we report on the latest spill and investigate the discontents that continue to be expressed by communities in the oil-producing region.

Latest oil spill “like Hiroshima”

A dozen oil workers celebrated and high-fived each after capping a leaking wellhead that spewed over 20,000 barrels of oil per day for one month into the waterways of Nembe, in Nigeria’s Bayelsa state.

The oil spill, which mysteriously erupted on November 1 at a capped, non-producing well, left environmental devastation in its wake, including the death of marine life and damage to mangroves and waterways.

“It was like a Hiroshima site,” said Sharon Ikeazor, Nigeria’s minister of state for the environment, after she inspected the damage at the OML 29 Wellhead operated by Aiteo Eastern E&P Co., a Nigerian oil company. The licence is operated under a joint venture with the state-owned Nigerian National Petroleum Corporation (NNPC).

The river and ocean tides carried the spill into communities in neighbouring Rivers state, also part of the Niger Delta, where the majority of Nigeria’s oil and gas reserves are located. A unit of US services giant Halliburton was enlisted to cap the well.

The oil field was purchased by Aiteo from Shell and partners for $2.7bn in 2014 in one of the largest local acquisitions made as Shell scaled back its operations in Nigeria.

Cost of environmental damage in the Delta region

The Delta region has born the brunt of environmental damage from oil industry activity since Shell-BP became the first joint venture to drill for oil in 1956.

In January, Morris Alagoa, an environmental activist and representative of the Environmental Rights Action (ERA), described the situation to Nigerian daily The Nation as “grievous”, commenting that no water body in the region is unaffected by oil pollution.

“Not just known water bodies, creeks and water channels are contaminated too. You hardly see any lake, ocean or swamp in their natural form any more. It has been history of consistent degradation of water in the Niger Delta,” he told the paper.

The development expected from oil profits has rarely materialised in the region, even as Nigeria became one of the world’s biggest oil and gas producers. The average life expectancy is 10 years lower in the Niger Delta than elsewhere in Nigeria, and oil from spilt or sabotaged wells and pipelines continues to clog and choke mangroves, water supplies and the atmosphere.

Environmental damage and a lack of local economic opportunity have fuelled sporadic insurgencies in the region which have targeted oil infrastructure and government forces. 

As a result, when Nigeria’s President Muhammadu Buhari signed into law the country’s long-awaited Petroleum Industry Act (PIA) in August 2021, it contained measures aimed at addressing the demands of the disaffected communities. 

3% share of oil money fails to satisfy host communities

The PIA includes a directive to create host community trust funds which will oblige oil companies to pay 3% of operating expenses into trusts designed to provide social and economic benefits to communities in oil-producing areas.

The figure is far short of the 10% which community activists had pushed for but an improvement on the status quo.

Nigeria’s House of Representatives passed a version of the PIA granting 5%, but the Senate ultimately approved 3% following arguments from the NNPC that a higher share would deter foreign investment in the sector.

The result has angered oil and gas communities and their leaders, after what they say has been decades of exploitation, neglect, and ecological damage.

“The 3% awarded in the PIA is not enough to protect the environment and ensure fishing supplies in the future,” says Allen Jonah, secretary of the Nembe Se Congress, a nationalist group which led protests in Yenagoa, Bayelsa’s capital, following November’s spill.

“It’s a sad tale because due to the exploration of oil and gas activities our environment has been battered, and the people are left to suffer their fate. While gas and oil activities remain profitable, the 3% is not enough.

“The government should show genuine care about the wellbeing of the people, as without the resources from this region the nation of Nigeria cannot adequately fend for itself.”

Stop “bickering over the details”, says administrator of amnesty programme

As a way of ensuring the long-term competitiveness of an industry Nigeria relies on for roughly 90% of export earnings, and in a bid to attract foreign investment, the PIA presents an opportunity for a root and branch overhaul of the sector.

The NNPC has been incorporated as a limited liability company and will create a funding mechanism where 30% of NNPC’s share of profits from production will be used for a new frontier exploration fund.

It is hoped that the NNPC’s liberalisation – after decades of corruption and mismanagement – will spur multinational oil and gas firms to partner with it, and end the chronic underinvestment in the sector.

“I want people to see this as an important step,” Godswill Akpabio, current minister of Niger Delta affairs, told reporters in September 2021. “People are discussing percentages, I am not interested in that. We will manage this 3%, the main thing is to use it well.”

A similar sentiment was expressed in mid-January 2022 by Milland Dikio, interim administrator of the Presidential Amnesty Programme (PAP), when he urged the people of the Delta to stop “bickering over the details” of the settlement.

“I will say that instead of quarrelling about the percentage, we should be talking about what to do with the percentage we got, build on it and we can have another discussion after that,” he said in a speech at the Port Harcourt Polo Club.

The PAP is a programme that aims to transform ex-agitators from the region into entrepreneurs and/or employable citizens who will become net contributors to the economy.

PIA is an ‘insult to the Niger Delta’, says Nubari Saatah

In addition to dissatisfaction with the 3% allocation, Niger Delta activists are unhappy with the PIA’s stated aim of using 30% of the NNPC’s profits for further hydrocarbon exploration, especially in parts of distant northern Nigeria.

“Setting aside 30% for further oil exploration in frontier basins we believe caps the insult to the Niger Delta,” Nubari Saatah, president of the Niger Delta Congress, a socio-political organisation comprised of ethnic nationalities of the region, told African Business.

“So you have a situation where northern Nigeria with little to no oil has succeeded in setting aside 30% of profit to be spent majorly in northern Nigeria, which will serve as most of the ‘frontier basins’, while they beat down the initial 10% of expenditure in earlier versions of the bill set aside for host communities, in the oil polluted Niger Delta. The short sightedness is shocking.”

Better uses for NNPC profits

“It’s hard to justify using government money to fund oil exploration. If there was oil in commercial quantities outside the Niger Delta, the oil majors would have gotten to it by now,” says Joachim MacEbong, a senior analyst at SBM Intelligence in Lagos.

MacEbong says the 30% of NNPC’s profits would have been better utilised in funding early childhood education and healthcare, and building infrastructure.

Saatah says the people of the Niger Delta see the Act as “legalised plunder” of the region. The government should expect further discontent in the region, Saatah says, as the Delta’s young population copes with a lack of jobs and inflation and seeks to make ends meet.

Setting up the host community trust funds

The government has made August 2022 the deadline for setting up host community trust funds. Establishing the trust for an area and naming its management committees is the responsibility of the oil company operating there, but the PIA stipulates that each trust must include one member of the host community. Available funds are to be allocated 75% for capital projects, 20% as reserve and 5% for administrative expenses.

The boards of trustees are tasked with financing development projects in the communities, creating economic opportunities, and enhancing peaceful coexistence between licensees and host communities.

However, clause 257 of the PIA stipulates that “where in any year, an act of vandalism, sabotage or other civil unrest occurs that causes damage to petroleum and designated facilities or disrupts production activities within the host community, the community shall forfeit its entitlement to the extent of the cost of repairs of the damage that resulted from the act”.

Nigeria lost N851.84bn ($2.78bn) to oil theft and pipeline sabotage in 2019.

Has the PIA come too late?

President Buhari has grappled to diversify Nigeria’s oil dependent economy, as global buyers continue to punt for Nigeria’s light and sweet, high-quality bonny light crude oil, which is suitable for diesel, jet fuel and gasoline, the most profitable products for global refineries.

But with the world’s most developed economies transitioning to cleaner fuels – with some planning a ban of new internal combustion engines by 2040 – it will mean the PIA has come “a day late and a dollar short,” says MacEbong.

The exploration fund is likely to disappear “down a few pockets, since commercial quantity crude oil (in northern Nigeria) is unlikely to ever be found,” he says.

The communities are seeing the PIA as a means for a “few to get rich at the expense of many,” says Nubari Saatah, and the perceived transfer of wealth from the Niger Delta through the networks of northern politicians, is a recipe for further unrest in the region, he says.

“As for oil companies continuing to operate in the region, they do so at their own risk; because the truth remains that there can be no peace without justice,” says Saatah.

Additional reporting by Charles Dietz.

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