How Frontier Oil Limited Flouted PIA on Incorporation of HCDT in Akwa Ibom
By Ekemini Simon
LEFT as a widow seven years ago, Ekaette Robert, a resident of the oil-rich community of Edo in EsitEket local government area of Akwa Ibom State has undergone mind-bending hardship with unceasing cheer to cater for her five children.
Her source of livelihood, cassava cultivation has grossly receded in profit in recent times. Her community is the epicentre of gas flaring in Esit Eket. The gas flared by Frontier Oil Limited has generated intense heat among other pollutants to the environment which has caused drastic decline in crop yield to Robert and other farmers in the community.
As a result of the low profit from her petty farming business, three of Robert’s children dropped out of school in 2020.
Robert is not alone in this tale of resource curse in Esit Eket. A cursory look at the community reveals a society drenched in abject poverty.
Yet, the operation by the oil and gas company in this domain has generated multi-billion naira that should compensate for the impact of the years of oil exploration and also improve lives in the community.
For instance, data from National Oil Spill Detection and Response Agency (NOSDRA) Nigeria Gas Flare Tracker, shows that within the last 10 years, Frontier Oil Limited has paid to the federal government $3.8 million as fines for flaring gas in the community. This is in addition to the multi-billion-naira 13 per cent derivation that accrues to the state coffers due to oil and gas exploration in the community. However, community members complain that the gains are far from trickling down to them.
Nevertheless, the hope of Robert having her children get a scholarship and other community members enjoying direct social and economic benefits from the operation of Frontier Oil Limited in their domain sparkled when President Muhammadu Buhari on August 16, 2021 signed the Petroleum Industry Act.
Insight into Host Communities Development Trust
The Petroleum industry Act (PIA) (2021) has provided for the incorporation of Host Communities Development Trust (HCDT) in oil and gas producing communities.
The Trust is aimed at fostering sustainable prosperity in the host communities, providing direct social and economic benefits from petroleum operations to the host communities among other benefits.
This implies that some benefits that accrue to the communities due to oil and gas operations in their domain will now pass directly to the communities unlike the 13 per cent derivation that passed through the states.
According to section 240 (2) of the Act, the oil/gas company is mandated to make an annual contribution to the Host Community Development Trust Fund of an amount equal to three per cent of the company’s actual annual operating expenditure of the preceding financial year.
Frontier Oil Limited continues to drag feet despite flouting deadline
Interestingly, Section 236 of the Act provides the target date on which the Trust must be incorporated. The section states, “The host communities development trust shall be incorporated within 12 months from the effective date for existing mining leases.”
Uquo field where Frontier Oil Limited operates is an existing mining lease that lies within the Oil Mining Lease, OML 13 license area in Esit Eket and Eket local government areas of Akwa Ibom state onshore.[
This implies that since the PIA came into force on August 16, 2021, the Trust was expected to be incorporated on or before August 15, 2022, by Frontier Oil Limited.
Yet, this has not been done six months after the deadline. Findings reveal that the company only debuted their steps for the incorporation in mid-December 2022 when they engaged Esit Eket and Eket stakeholders on the Trust. This implies that the company commenced the steps towards incorporation four months after the deadline.
It was gathered that Frontier Oil Limited will have two local government areas of Eket and Esit Eket as its host communities.
Stakeholders from the area said that the company invited a few stakeholders to a hotel in Eket for a meeting on the preliminary steps to incorporate the Trust first in December 2022 and another meeting in January 2023.
The Village Head of Akpan Idungafia, one of the villages that host Frontier Oil in Edo community, Akpan Etukudoh, told The ICIR that the level of the progress of the Trust is that nominees for Board of Trustees have been sent to the company following their request.
He told The ICIR that the company has refused to further meet with the leaders of Esit Eket after at first rejecting their nominees coupled with several other meeting invitations to discuss further steps towards the incorporation of the Trust.
One of the leaders of Esit Eket, a former house of representatives member, Bassey Dan-Abia nominated by the Council Chairman of Esit Eket, Iniobong Robson, to speak on the matter told The ICIR that Frontier Oil Limited is deliberately dragging feet on the incorporation of the Trust because of what the company think they stand to gain by delaying the incorporation of the Trust.
He said after getting names of the nominees from the communities, the company has kept them in the dark on need assessment, host community development plans and state of incorporation approvals by Nigerian Upstream Petroleum Regulatory Commission (NUPRC) and the Corporate Affairs Commission (CAC).
He added” This delay is an obvious violation of statutory provisions of the PIA. There is absolutely no justification on why the Host Communities Development Trust should not be in full swing now by Frontier Oil.
“With the way the company is dragging its feet, they may not even be able to implement the Trust Fund this year because after the registration, the Board of Trustees will be instrumental in setting up the Management Committee, and Advisory Committee as the three arms that drive the Host Communities Development Trust. It is more worrisome that the management committee is more technical and requires a lot more time “, he explained.
Dan-Abia warned that no matter the time Frontier Oil finally incorporates and implements the Trust, the people of Esit Eket will resist every attempt by the company not to pay in arrears their accrued rights from year 2022 that the Trust supposed to have commenced.
Although TheICIR made several attempts to reach the Council Chairman of Eket local government area, Akaninyene Tommey, for the perspective of Eket local government area on the Trust, he failed to avail comments. Tommey did not attend to this reporter when he visited his office and waited for over three hours in mid-February. Although he promised to get back when he was contacted by phone in early March, he did not keep his promise or respond to further calls and messages.
Frontier, NUPRC Ignores law
Frontier Oil Limited is blameworthy for treating with levity the demands of the law on the timeframe for the incorporation of the Trust as provided for in Section 236 of the PIA.
For existing oil mining leases and existing designated facilities, the section requires that the Trust must be incorporated not later than 12 months from the effective date of the Act which was August 16, 2021.Yet, the oil company failed to respect the law on this.
The failure to incorporate the Trust is a PIA breach and brings consequences on the settlor according to Section 238 of the PIA and paragraph 9 of the Nigeria Upstream Petroleum Host Communities Development Regulations 2022 (the Regulation). Section 238 of the PIA states that the failure to incorporate the Trust may be a ground for the revocation of the settlor’s licence after the settlor must have been informed of such failure by the Commission or the Authority as the case may be.
Notwithstanding, NUPRC has a responsibility before a sanction is met. paragraph 9 (1) of the Regulation provides that the Commission “may within 14 days issue such defaulting settlor or operator where applicable, a notice in writing of its failure to establish a trust and direct the settlor to register the trust within 45 days.” This implies from August 21, 2022, by law, the notice should have been sent out to Frontier Oil over its failure to incorporate the Trust.
If NUPRC had issued the notice on August 16, 2022, the 45 days period would have elapsed on October 10, 2022.
Interestingly, paragraph 9 (2) provides that where a settlor or operator fails to incorporate the Trust after the expiration of 45 days’ timeline contained in the Commission’s notice, the settlor or operator shall be liable to an administrative penalty of $2,500 or its Naira equivalent per day calculated from the date of expiration of the notice until the Trust in incorporated.
From October 10, 2022 which the notice would have elapsed to February 28, 2023, it will imply that 141 days have passed without the incorporation of the Trust. If NUPRC had taken seriously the provision for payment of fines as provided for in the PIA, Frontier Oil would have paid multimillions of naira to the government for flouting the law.
For instance, going by the $2,500 fine that the settlor or operator is liable to pay per day from the date of expiration of the notice until the Trust is incorporated, it will mean that Frontier Oil Limited would have paid $352,500 for failure to incorporate the Trust within 141 days. The equivalent of $352,500 to naira in official rate as of February 28, 2023 was N161.8 million going by N459 per dollar.
Paragraph 9 (3) further adds that the Commission has the option to make a recommendation to the Minister, for the revocation of the licence or lease of the defaulting settlor where the settlor fails to incorporate the Trust within 30 days after the expiration of the 45 days timeline.
Be that as it may, it is doubtful that NUPRC has given the notice, a source noted that that is the case. To ascertain the state of things a freedom of Information request was sent to the Chief Executive of the Nigerian Upstream Petroleum Regulatory Commission, Gbenga Komolafe in Abuja which requested information and documents about the defaulting notice given to Frontier Oil.
Although the request was acknowledged by the Commission on February 10, 2023, the Commission has not acceded to the request thus raising suspicion that NUPRC has not generated the defaulting notice to the company.
A visit by the reporter to the zonal office of the Commission in Eket, Akwa Ibom state on February 22 and 28, 2023 also did not yield result. The Human Resource Manager, Kingsley Ekuri whom the reporter was directed to speak with was not on seat on both days. He also did not respond to calls and text messages sent to his phone line on the matter.
However, late availability of all the relevant guides necessary for the incorporation of the Trust indicate that the Commission may not have taken the August 2022 deadline critically.
The Nigeria Upstream Petroleum Host Communities Development Regulations 2022 (the Regulation) was issued close to the deadline. It was issued on June 24, 2022 which is 58 days to the deadline. Leaders within Frontier’s host communities had stated that engagement with communities for the incorporation of the Trust began in December 2022, six months after the regulation had been published.
Communities cannot Access data to determine amount for Trust
Findings revealed that the planned Host Communities of Frontier Oil Limited are not aware of what will accrue to them in the Trust since they are not able to access data on what was the operating cost of Frontier Oil in 2021 and 2022.
Dan-Abia of Esit Eket however complained that the communities are at the mercy of the company since what they choose to publish as their operating expenditure is what the communities will get as three percent.
As shown earlier, the PIA has provided that the company is mandated to pay an amount equal to 3 per cent of the company’s actual annual operating expenditure of the preceding financial year.
The ICIR could not access the annual financial report of Frontier Oil Limited on its official website.
Through an FOI request and a reminder, ICIR had sought information from Frontier, NUPRC and CAC but this was not acceded to.
Sections 417 – 424 of the Companies and Allied Matters Act, 2020, provides for every company to make and deliver their annual returns to the CAC every year. Annual returns contain information on operating expenditure for companies.
Frontier Oil Keeps Mum on Key Issues
A FOI request sought from Frontier Oil information and documents relevant to this investigation.
We had requested information on the; Identity of the host Communities of Frontier Oil Limited in Akwa Ibom State, Documents of Incorporation of the Trust which includes evidence of consultation with communities including date of consultation commencement, actual amount due for the Trust in Akwa Ibom State in 2021 and 2022, names of members of the Board of Trustees, Management Committee, and Advisory Committee, Evidence of application to register the Trust with Corporate Affairs Commission and Name of the Trust.
Other information requested included the 2021 and 2022 Annual Returns of the company filed at the Corporate Affairs Commission. The company did not accede to the request.
This is despite a reminder sent and a visit to the company’s office in Eket in mid and late February to speak with officials of the company. This was not acceded to on grounds that personal appointments were not scheduled before the visit. The company further failed to respond to the official phone line of the company published on its website.
Owners of Frontier Oil Denies Communities of Right Despite Exposure to International Best Practices
Checks into the Beneficial Ownership portal of Nigeria Extractive Industries Transparency Initiative (NEITI) and Corporate Affairs Commission (CAC) reveal seven individuals as Persons with Significant Control in Frontier Oil Limited.
They are Olanrewaju Osho, Feyisayo Agagu, Obe Ad’Obe, Odoliyi Lolomari, Akin Aruwajoye, Dada Thomas and Rotimi Dosekun. The seven individuals hold a total share of 78.8 per cent.
Interestingly, checks at the company’s website provide additional information on other owners of the company not mentioned in NEITI and CAC who share the remaining 21.2 per cent share. They are Victor Koleade, Solomon Yisa, David Ige, and Abdullah Bukar.
Interestingly, most of the Directors in the company have business concerns outside the country which should make them understand international best practices in a given business environment.
Checks at Dato Capital, an open portal that enables search on international private companies and directors gave deeper insight.
For instance, Abdullah Bukar is mentioned as a director in five companies in the United Kingdom and one in Spain totaling six companies.
Thomas Dada is mentioned as a Director and Secretary in two companies at Islington, United Kingdom while Ad’Obe Obe is mentioned as Director in three companies in Medway and Wiltshire in the United Kingdom.
Dosekun Rotimi is mentioned as Director in a company in the United Kingdom while Victor Koleade is also mentioned as a director who holds above 75 percent shares in two businesses in Lewisham, United Kingdom and appointed as Director on April 15, 2021.
Solomon Yisa is mentioned as a director in two companies in Leicestershire, United Kingdom and holds shares of above 75 per cent in both companies.
CISLAC Blames Community Ignorance on Failure to Incorporate HCDT
A non-governmental organisation, Civil Society Legislative Advocacy Centre (CISLAC), has said that Frontier Oil Limited among other oil and gas companies that have failed to incorporate the Trust within the deadline are simply taking advantage of the ignorance of community members.
According to the Organisation’s Program Officer, Muna Ugochukwu, adequate knowledge of relevant laws and regulations on the Host Communities Development Trust would make the communities undertake the process of engagement with the company and Nigerian Upstream Petroleum Regulatory Commission for the success of the Trust within time.
Ugochukwu opined that from his organisation’s engagement with host communities on issues of HCDT, CISLAC has discovered that other factors that may impede the incorporation of the Trust is that community actors who were benefit captors in the old arrangement can collaborate with the company to come in the way of the success of the Host Communities’ Development Trust.
He said this is done by seeing to it that their communities remain ignorant of the provision and how to participate in the process of its implementation.
The Program Officer expressed concern that for Frontier Oil to fail incorporating the Trust within deadline has a strong likelihood of delaying the communities from benefiting from the Trust beyond 2023 especially as other technical structures await formation after the incorporation of the Trust before implementation finally takes place.
While calling on the media and civil societies to reorient the communities and bring them up with speed with provisions of the HCDT, he added” We need the communities to understand that they have a right to seek that the settlors within their communities request town halls and consultations to nominate members of the board.”
Ugochukwu called on Host Communities of Frontier Oil to intensify engagement with the company and demand for payments for the Trust in arrears. He equally asked NUPRC to follow through on the sanction procedures on companies that flout the incorporation deadline as a wake-up call and deterrent.
This report republished from The International Centre for Investigative Reporting (The ICIR) is supported by Connected Development in partnership with Oxfam Nigeria on the Power of Voices Partnership FAIR for All project.