Internal conflicts jeopardize host community benefits from N60Bn oil trust fund

The establishment of the Oil and Gas Host Community Development Trust Fund (HCDTF) is a key component of Nigeria’s Petroleum Industry Act (PIA) aimed at promoting the sustainable development of communities that host oil and gas operations. This initiative, overseen by the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), represents a strategic attempt to address longstanding grievances between host communities and oil companies. The scheme ensures that these communities benefit directly from the oil and gas resources extracted from their lands, thereby creating a framework for shared prosperity.

However, despite these efforts, community disputes continue to threaten the effective deployment of the N60 billion and $100 million secured for the fund. This analysis delves into the nature of these disputes, the role of the HCDTF, and how alternative dispute resolution (ADR) mechanisms can help mitigate these conflicts for the benefit of both the communities and the oil and gas sector.

Host Community Trust Fund as framework for development

The Petroleum Industry Act (PIA), signed into law in August 2021, was designed to reform the oil and gas sector in Nigeria, which has long been characterized by inefficiency, environmental degradation, and social unrest. A key innovation within the PIA is the introduction of the Host Community Development Trust Fund, which mandates that oil companies allocate 3% of their operating expenses to the fund annually. The fund’s primary purpose is to finance development projects, improve infrastructure, and foster long-term socio-economic growth in host communities.

The structure of the HCDTF is designed to empower host communities to manage these funds autonomously through elected trustees. The direct involvement of communities in decision-making processes regarding the allocation and use of funds aims to build trust, reduce tensions, and create a peaceful operating environment for oil companies.

This approach aligns with global best practices in natural resource management, where host communities are given a stake in the profits generated from resource extraction. When properly implemented, such mechanisms can enhance social license to operate, reduce incidents of sabotage, and create more stable and productive environments for both communities and investors. However, in Nigeria’s case, several obstacles — particularly internal community disputes — have raised concerns about the efficient utilization of these funds.

Community Disputes: A Persistent Challenge

Despite the promise of the HCDTF, the NUPRC has expressed concerns over community disputes that threaten to derail its deployment. The Commission’s Chief Executive, Gbenga Komolafe, emphasized that internal conflicts within communities, often marked by legal battles and disagreements over resource sharing, could delay the allocation and utilization of the funds.

These disputes often arise from a combination of historical grievances, competition for leadership positions, and disagreements over the distribution of benefits. For decades, oil-producing communities in Nigeria have endured environmental degradation, loss of livelihoods, and inadequate infrastructure due to oil exploration activities. These issues have led to deep-seated frustrations, which can sometimes manifest in violent conflicts and inter-group rivalry.

Additionally, the involvement of multiple ethnic groups and clans within single oil-producing regions adds another layer of complexity to these disputes. In areas like the Niger Delta, for example, the delineation of community boundaries and the identification of rightful beneficiaries of the HCDTF can be contentious. This issue is further exacerbated by the lack of transparent governance structures in many communities, leading to allegations of corruption, favouritism, and embezzlement of funds.

Implications for the Oil and Gas Industry

The ongoing disputes have profound implications for Nigeria’s oil and gas industry. Delays in deploying the funds could lead to prolonged social unrest, disruptions in production, and increased costs for oil companies. The relationship between host communities and the oil companies operating in their regions is a delicate one, and any breakdown in trust could result in acts of sabotage or protests, both of which can cripple production activities.

Komolafe’s warning that legal battles among community members could clog an already strained judicial system underscores the importance of finding timely and efficient ways to resolve these disputes. The delay in fund allocation not only hinders the socio-economic development of the host communities but also impacts the overall production goals of the oil and gas sector, which remains a key driver of Nigeria’s economy.

The Role of Alternative Dispute Resolution (ADR)

Given the severity of these challenges, the NUPRC has highlighted the importance of alternative dispute resolution (ADR) mechanisms to address community disputes in a more efficient and less adversarial manner. The establishment of the Upstream Alternative Dispute Resolution (ADR) Centre in Lagos and the inauguration of the Body of Neutrals mark significant steps toward this goal.

ADR mechanisms such as mediation, arbitration, and expert determination offer a more flexible, cost-effective, and less confrontational approach to resolving conflicts. Unlike traditional litigation, which can be protracted, expensive, and often escalates tensions, ADR processes are designed to foster collaboration, encourage dialogue, and reach mutually beneficial solutions in a timely manner.

Komolafe emphasized that ADR, through its inclusivity and adaptability, is particularly well-suited to resolving disputes in the oil and gas sector, where conflicts can vary in complexity and scale. The establishment of a neutral body to oversee disputes ensures fairness and impartiality, helping to rebuild trust among community members and between communities and oil companies.

Strengthening the Impact of the Host Community Trust Fund

For the HCDTF to achieve its intended purpose, it is essential that the funds be deployed efficiently and transparently. This requires the creation of robust governance structures within host communities to ensure that the elected trustees act in the best interests of the community as a whole. Measures must be taken to promote accountability, reduce corruption, and enhance transparency in the management of funds.

Capacity building and community engagement are also crucial. Many host communities lack the technical expertise required to manage large sums of money and implement complex development projects. Therefore, oil companies and the government must work together to provide the necessary training and support to ensure that communities can effectively manage their funds and execute development initiatives.

Conclusion

The deployment of the N60 billion and $100 million Host Community Development Trust Fund represents a landmark opportunity to address the longstanding grievances of Nigeria’s oil-producing communities and foster sustainable development. However, the effectiveness of the fund is currently being undermined by internal community disputes that threaten to delay its implementation.

Through the establishment of the ADR Centre and the promotion of alternative dispute resolution mechanisms, the NUPRC has taken important steps to mitigate these challenges. However, for these efforts to succeed, there must be continued engagement with host communities to build trust, strengthen governance structures, and ensure the transparent and accountable management of funds. Only by addressing these underlying issues can the HCDTF fulfill its potential to create shared prosperity and foster a peaceful and productive operating environment in Nigeria’s oil and gas sector.