PETROLEUM HOST
COMMUNITIES FUND: SEEN THROUGH THE LENS OF CHARITABLE TRUST
Mobolaji Johnson Agboola 1
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ABSTRACT |
Keywords: Petroleum Host Communities (PHC) Fund; Petroleum
Industrial Bill (PIB); Charitable Trust; Niger Delta; Statute of Charitable
Uses 1601; |
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This
article undertakes the viability of the Petroleum Host Communities (PHC) Fund
in the Petroleum Industrial Bill (PIB) as a novel initiative towards the
economic and social development of petroleum producing communities in
Nigeria. The Niger Delta region may be considered as the engine room of
Nigeria’s economy, but they receive little or no share in the revenue
accruable from petroleum exploration and production. This article depicts the
applicability of the principles of trust, specifically charitable trust in
oil and gas law through the innovation of the PHC Fund whereby oil companies
are seen as ‘settlors’, Niger Delta indigenes are the ‘beneficiaries’ while
the government is seen as a ‘trustee’ utilizing the fund for bringing
sustainable development in the region. This article argues that the purpose
of the PHC Fund falls within the spirit and intendments of the Statute of
Charitable Uses 1601 thus making it charitable in the bid of removing the
impoverish state of the Niger Delta region. This article concludes that the
PIB which stands as an antidote to issues pervading the Nigerian oil and gas
sector must be passed without delay otherwise the novel concept of PHC Fund
may not see the light of the day. |
INTRODUCTION
It is not out of place
for one to assert that the law of trust is an offspring of the principles of
equity. The unique principles of equity, irrespective of the criticisms levied
against it, it has contributed more in achieving positive justice among disputants.
Kayode Eso J.S.C puts succinctly that:
“Surely, equity should
not be treated as a tyrannous phenomenon threatening the law. It does not exist
in vacuo or supposedly to roam about pouring water on fire of the law. Equity
is not a warlord, determined to do battle with the law. It is part of a legal
system which has mixed with the law and the mixture is for the purpose of
achieving justice.”[1]
The law of trust as
earlier mentioned is a significant product of equity. Trust in ordinary
parlance may mean to place something in somebody’s care[2];
confidently allow someone to do something with the belief that such a person
will behave responsibly or properly.[3]
However under the lexicon of the principles of equity, it is an obligation
imposed on a person by another for the benefit of other specified persons.
According to Petit:
“a trust is an
equitable obligation, binding a person (who is called a trustee) to deal with
property, over which he has control (which is called the trust property)
whether for the benefit of persons (who are called the beneficiaries or cestuis
que trust) of whom he may himself be one and any of whom may enforce the
obligation or for a charitable purpose which may be enforced at the instance of
Attorney General, or for some other purpose permitted by law though
unenforceable.[4]
Keeton described trust
as:
“the relationship which
arises where a person called the trustee is compelled in equity to hold
property, whether real or personal and whether by legal or equitable title, for
the benefit of some persons (of whom he may be one and who are termed cestui
que trust) or for some object permitted by law, in such a way that the real
benefit of the property accrues, not to the trustee but to the beneficiaries or
other objects of the trust[5].”
However Roger Leroy
Miller and Gaylord A. Gentz[6] saw trust
as any arrangement through which property is transferred from one person to a
trustee to be administered for the transferor’s or another party’s benefit.
From
the above definitions, it is imperative to assert that a trust relationship
creates some-sort of a fiduciary relationship among all the parties to the
trust. A person known as the ‘settlor’
gives his property which may tangible or intangible to another known as the ‘trustee’ for the benefit of the settlor
or other persons named by the settlor as ‘beneficiaries’.
Confidence is reposed on the trustee to deal with those properties righteously.
In the case of Maguire v Makaronis[7] it was
held that equity intervenes not so much to recoup a loss suffered by the
plaintiff as to hold the fiduciary to and vindicate the high duty owed to the
plaintiff. It went further to state that those in a fiduciary position who
enter into transactions with those to whom they owe fiduciary duties, labour
under a heavy duty to show the righteousness of the transactions. In addition,
a trust relationship is imposed when the legal owner of the property has
behaved unconscionably in some ways or it will be unconscionable to deny the
beneficial rights of another.
This
unique creation of equity cuts across various spheres of life without one
noticing. Its ingredients can be found in banking, pension schemes, capital
market, companies etc. Under banking operations, the owner of an account in a
bank is the settlor and beneficiary while the bank stands as a trustee keeping
the monies or securities of the owner of the account for his benefit. On
account of death of the actual owner of the account, the next of kin stands as
the beneficiary while the bank retains the position as the trustee. Notably,
there exist trust relationships in oil and gas practice especially under
charitable trust. This article seeks to analyze how the law of trust interrelates
with oil and gas law under the umbrella of charitable trust, in respect of the
novel arrangement of the Petroleum Host Communities (PHC) Fund provided for in
the Petroleum Industry Bill 2012. The Bill which has being before the National
Assembly for over 14 years now has prevented substantial improvement and
investment in the oil and gas industry. The Bill has being held to be such that
will reform the oil and gas industry not only for incumbent administration but
for subsequent administrations to come. An example of such reform is the ‘Petroleum
Host Communities Fund’ created in favour of oil producing states
whereby oil companies shall donates certain monies for the improvement of the
lives of people in those states. In essence by analogy, a trust is created
specifically an express public trust (Charitable Trust), as the oil companies
are settlors, the state is the trustee, while the people in the oil producing
state are the beneficiaries.
CHARITABLE TRUST
There is difficulty in
giving a comprehensive definition of charitable trust. However the legal and
accepted definition was that given by Lord Macnaghten in Commissioner of Income Tax v. Pemsel[8]
as follows:
“Charity in its legal
sense comprises four principal divisions: trust for the relief of poverty;
trusts for the advancement of education; trusts for the advancement of religion
and trust for other purposes beneficial to the community, not falling under any
of the preceding heads. The trusts last referred to are not less charitable in
the eye of the law, because incidentally they benefit the rich as well as the
poor, as indeed every charity that deserves the name must do either directly or
indirectly.”
Traditionally for a trust
to be considered as charitable, it’s purpose must fall within the spirit and
the intendments of the preamble of the An
Acte to Redress the Misemployment of Landes, Goodes and Stockes of Money
heretofore Given to Charitable Uses[9],
commonly (and hereinafter) referred to as the Statute of Charitable Uses, 1601[10]. The
Preamble listed the following purposes as charitable:
“The relief of aged,
impotent, and poor people; the maintenance of sick and maimed soldiers and
mariners, schools of learning, free schools and scholars of universities; the
repair of bridges, havens, causeways, churches, sea banks and highways; the
education and preferment of orphans; the relief, stock or maintenance of houses
of correction; marriages of poor maids; supportation, aid and help of young
tradesmen, handicraftsmen and persons decayed; the relief or redemption of
prisoners or captives and the aid or ease of any poor inhabitants concerning
payments of fifteens, setting out soldiers and other taxes.”
Notably, there are
divergent views as regards the source of the enumerated purposes stated above.
The most commonly cited source is William Langland’s poem, The Vision of Pier
Plowman written in 1362.[11] The poem
goes thus:
And therewith repair hospitals
help sick people
mend bad roads
build up bridges that had broken down
help maidens to marry or to make them nuns
find food for prisoners and poor people
put scholars to school or to some other craft
put religious orders and
ameliorate rents or
taxes.
Other writers believe
that the true sources of the Preamble are to be found amongst the titles and
provisions of the public statutes of the Tudors monarchs.[12]
These statutes provide a compelling explanation for the inclusion in the
Preamble of several objects that ordinary persons would not otherwise consider
being charitable.[13]
Irrespective
of whatever source, it is worthy to note that this preamble has been repealed
but our courts use the list of charities in the preamble to determine disputes.[14] In
addition, whether a trust is charitable or not is one of law to be decided by
the court in the light of the circumstances in which the institution or trust
came into existence.[15]
The law
favours charitable trusts by according them certain privileges, such as an
advantageous tax status. Before a court will enforce a charitable trust, it
must examine the charity and evaluate its social benefits. The court cannot
rely on the view of the settlor, the one who establishes the trust, that the
trust is charitable.[16]
It is
imperative to assert that the use of charitable trust in Nigeria is rather not
frequent. Based on the difference in the social structure of the English and
Nigerian societies, charitable trust and trust generally is at a low-pace in
Nigeria.
PETROLEUM HOST COMMUNITIES FUND UNDER THE PETROLEUM INDUSTRY BILL (PIB)
The PIB’s journey began
as far back as the year 2000 with the inauguration of the Oil and Gas Sector
Reform Implementation Committee (OGIC) by the Nigerian government to carry out
a comprehensive reform of the Nigerian oil and gas industry, i.e. to cover the
upstream, midstream and downstream sectors of the industry.
Following
the prerequisites for a bill to become law, the PIB was first presented to the
National Assembly in September 2008. It is disheartening to realize that since
2008 till date the PIB hasn’t being passed into law. The 6th
National Assembly couldn’t pass the PIB into law even after concluding the
public hearing and after several promises to Nigerians that they will do so.[17]
The much
anticipated PIB 2012 was presented by the Executive arm of the Nigerian government
to the 7th session of the National Assembly on 18th July
2012 to enable the commencement of legislative deliberation. There has however
being intense debate among various interest groups without any concrete
progress.[18] Indeed,
there are indications that the delay in the passage of the PIB has resulted in
a significant reduction in investments in the industry.
There
are too many versions of the PIB in circulation. For instance, there were
indications that there exist up to four versions of the PIB and the general
public was worried regarding which of the four versions is the correct version.[19] However,
this article will focus on the Petroleum Industry Bill 2012[20]
comprising three hundred and sixty-three (363) sections together with five
schedules.
Section 116 makes
provision for the establishment of the Petroleum Host Community Fund,
stipulating thus:
“There is established a
fund to be known as the Petroleum Host Communities Fund (in this Act referred
to as ‘the PHC Fund’)”.
The basic rationale
behind this novel concept is for the development of the economic and social
infrastructure of the communities within the petroleum producing area.[21] All
upstream petroleum producing companies are required to make monthly payments of
10% of their net profits.[22] While profits
derived from upstream petroleum operations in onshore, offshore and shallow
water areas are to be remitted directly to the PHC Fund,[23]
profits derived from upstream petroleum operations in deepwater areas are to be
remitted into the fund for the benefit of the petroleum producing littoral
states of Nigeria.[24]
The
literal interpretation of the provision above is that, oil companies engaging
in the exploration of crude oil shall pay certain monies, which is 10% of their
net profits (deduction of gross profit from cost incurred in the exploration of
oil) both in onshore, offshore, shallow waters and in deepwater upstream
petroleum operations; these monies will be sent to the newly created PHC Fund
and applied solely for the benefit of states considered to be oil producing
states.
Furthermore,
while 10% of net profits contribution to the PHC Fund places additional fiscal
obligation on companies in the upstream subsector, such contributions
constitutes an immediate credit against a contributing company’s total fiscal
rent obligations.[25] This
brings about some form of advance payment of taxes as contributions to the PHC
Fund are eventually deductible for final tax purposes.
Moreover,
where an act of pipeline vandalism, sabotage or other civil unrest occurs which
causes damage to petroleum facilities within a host community, the cost of
repair of such facility shall be paid from PHC Fund entitlement unless it is
established that no member of the community is responsible.[26]
In essence, it is still these same contributions from the oil companies that
will be used to repair pipelines that have been damaged owing to vandalism,
sabotage, crude oil theft etc. This is however question-begging on how this
provision is reasonable. One may argue that petroleum companies should seek for
other funds to repair any damage whatsoever done to their facilities rather
than taking out from the PHC Fund. Taking out from the funds in respect of this
matters amounts to a misapplication, rather than applying the funds to the
development of other key areas within the host community. However, on the flip
side, one can also rightly argue that the above provision seeks to abate all
oil-related menace. Using the monies from the PHC Fund would make the indigenes
of the host communities to help law enforcement agencies arrest criminals in
the bid of stopping these appalling activities and preventing the oil companies
to use the PHC Fund to repair the damages done to their facilities, hence
applying the funds solely for the development of the economic and social
infrastructure within the host community concerned.
Irrespective
of where the pendulum of the argument tilts, it is worthy to note that most of
the facilities of oil companies are outdated and obsolete. The need for
constant calibration is imperative. The position would be different if the
pipelines and other oil facilities are standardized and up-to-date in terms of
technology. Oil thieves would find it difficult to vandalize these pipelines if
they aren’t sub-standard or obsolete as well as where appropriate security
measures are put in place.
It is
noteworthy that the Niger Delta region in Nigeria has been regarded as the
reservoir of oil and gas exploration and exploitation. Discovered over five (5)
decades ago, oil became and has remained the backbone of the Nigerian economy.
However, irrespective of these abundant resources in that region, the large
revenues accrued have barely touched the Niger Delta region. It’s quite
saddening to discover that the region has being tagged with deprivation,
underdevelopment and unemployment, with majority of its people living in acute
poverty. The region has been described as suffering from “administrative neglect, crumbling social infrastructure and services,
high unemployment, social deprivation, abject poverty, filth and squalor, and
endemic conflict”.[27]
The Petroleum Host
Communities Fund is a means of improving the lives of people in the Niger Delta
region. This is a novel concept in Nigerian petroleum law as it is essentially
targeted at the development of the economic and social infrastructure in
petroleum producing communities. An express public trust (charitable trust) is
created in favor of the Niger Delta inhabitants in the sense that, some form of
statutory trust is created as the oil companies are mandated to make monthly
payments of 10% of their net profit. In light of this, the contributions will
be used for economic and social development of the region making it to fall
within the spirit and intendment of the preamble of the Statute of Uses Act
1601 “…the relief of aged, impotent and poor people[28]…”
In addition, it falls under the four heads of Lord Macnaghten’s definition of
what is charitable trust “…trust for the
relief of poverty…trust for other purposes beneficial to the community…”
The
inhabitants in the petroleum producing states are unable to maintain a modest
standard of living. The general standard of the communities reveals the need of
basic human requirements e.g. clean water, education, employment opportunities,
good roads, hospitals etc. The PHC Fund is charitable as it will be used to
serve as a relief for the impoverish state of the Niger Delta region as well
for other purposes beneficial to the communities. The oil companies may by
analogy be termed settlors, the monthly payments may be termed trust funds, the
government will act as trustees and the petroleum producing states shall be the
beneficiaries. A charitable purpose of the PHC is one designed to benefit,
ameliorate, or uplift mankind in every ramification.
It may
not be out of place to assert that contributions to the PHC Fund should not
only be made when profits are made. There are certain situations whereby
profits won’t be made; can it now be said that because profits are not made,
there won’t be any remittance to the PHC Fund? It can be tentatively
recommended that contributions should not be based on the profits made by the
oil companies. In so far as exploration and production operations are carried
out in communities whereby the inhabitants would be adversely affected, it
should be part of the DNA of the oil companies to increase, develop and
maintain the standard of living of the host communities.
CONCLUSION
One may reasonably assert
that the Petroleum Industrial Bill (PIB) is a new dawn and not a false hope to
the Nigerian oil and gas sector. It has come as an antidote to intractable
issues surrounding the Nigerian oil and gas sector. The Petroleum Host
Communities (PHC) Fund initiative in the PIB which stands as a novel concept
will not see the light of the day if the bill is eventually not signed into
law. Problems ranging from unemployed youths, environmental degradation, lack
of basic amenities etc. stands as the status quo at the Niger Delta region. One
of the therapies to this socio-economic imbalance in the Niger Delta region is
the PHC Fund. The PHC Fund is aimed for the development of economic and social
infrastructure of petroleum host communities thereby acting as a means of
improving the lives of people in the Niger Delta region. This curiously brings
to mind the unique principles of charitable trust as the PHC Fund is a trust
fund aimed for bringing sustainable development for the public in the Niger
Delta region. A charitable trust fund is created in favour of the public living
at oil producing communities and it would be unconscionable on the part of the
Federal government of Nigeria acting as trustees to misapply those funds for
purposes other than purposes beneficial to the public.
REFERENCES
Comrade
Hyginus C. O.: The Petroleum Industry Bill and the Challenges of Transparency
in the Oil and Gas Industry. [Online] Available: http://newsdiaryonline.com/chika_bill.htm (August 19, 2014)
Keeton
G.W.(1968). Law of Trust, (9th
Edition) London: Pitman Publishers.
Petit P.
(2001). Equity and the Law of Trust
(9th Edition), London: Butterworth
Picarda H.
Q.C. (1999). The Law and Practice
Relating to Charities, (3rd edition) London: Butterworth
Roger, L.M.
& Gaylord, A.G. (1996). Business Law
Today, (4th Edition) South-Western, Division of Thomson
Learning,
UNDP Report,
2006. [Online] Available: http://web.ng.undp.org/reports/nigeriahdr
report.pdf (July 12,
2014)
[1] Trans Bridge Co.
Ltd v Survey International Ltd (1986)
4 NWLR (pt. 37) 576
[2] Encarta Dictionaries
[3] Ibid (n2)
[4] Petit P. (2001) Equity
and the Law of Trust (9th Edition) London: Butterworths Tolley
p. 2
[5] Keeton G.W. (1968). Law of Trust, (9th Edition) London: Pitman Publishers,
p. 3
[6] Roger, L.M. and Gaylord, A.G. (1996). Business Law Today, (4th
Edition) South-Western, Div Of Thomson Learning, p. 944
[7] Maguire v
Makaronis (1997) 188 CLR 449 at 465
[8] Commissioner
of Income Tax v. Pemsel [1891] A.C.
531 at 583
[9] 43 Elizabeth I, c. 4
[10] This statute is also frequently referred to as the
Statute of Elizabeth
[11] Picarda H, Q.C. (1999). The Law
and Practice Relating to Charities, (3rd edition) London:
Butterworth, p.9
[12] Ibid
[13] Ibid
[14] See Iyanda &
Ors v. Ajike & Ors (1948) 19 NLR 11;
[15] Incorporated
Council of Law Reporting for England and Wales v A.G. [1971] 3 All E.R.
1029
[16]What is Charitable Trust. [Online] Available: www.freedictionary.com (January 12, 2014)
[17] Comrade Hyginus C. O.: The Petroleum Industry Bill and
the Challenges of Transparency in the Oil and Gas Industry [Online] Available: http://newsdiaryonline.com/chika_bill.htm (August 19, 2014)
[18] Ibid
[19] Ibid
[20] This is the current version before the National
Assembly
[21] Section 117
[22] Section 118 (1)
[23] Section 118 (1)(a)
[24] Section 118 (1)(b)
[25] Section 118 (4)
[26] Section 118 (5)
[27] UNDP Report, 2006. [Online] Available: http://web.ng.undp.org/reports/nigeriahdr report.pdf (July 12, 2014)
[28] Emphasis mine