Corporate Social Responsibility Vis-À-Vis The Duties Of Oil Producing Companies And The Need For An Enabling Legislation

By Oyetola Muyiwa Atoyebi, SAN

INTRODUCTION

Nigeria first had a stake in the Oil and Gas industry after the discovery of crude oil in Oloibiri, Bayelsa State Nigeria in 1956 and has steadily grown to be one of the largest oil and gas producers in Africa.

The advent of the Oil and Gas industry spurred socio-economic development in Nigeria, with the industry being regulated by the Federal Government, which actively participates through its national oil company; the Nigerian National Petroleum Corporation (NNPC) and its subsidiaries.^[1]

The industry is divided into three major sectors namely;

1. The Upstream;
2. The Midstream; and
3. The Downstream.

The Upstream sector includes searching for potential underground or underwater crude oil and natural gas fields, drilling exploratory wells, and subsequently drilling and operating the wells that recover and bring the crude oil or raw natural gas to the surface. The Nigerian Government’s marginal fields licensing and its content development initiative have led to increased participation of Nigerian oil companies in the petroleum industry.

On the other hand, the Midstream sector flows from the activities carried out upstream and involves transporting and storing crude oil and natural gas before being refined and processed into fuels and other petroleum products.

While the downstream sector includes everything involved in turning crude oil and natural gas into thousands of finished products. Some of the more obvious products are fuels like gasoline, diesel, kerosene, Jet fuels, heating oils, and asphalt for building roads.

LEGAL FRAMEWORK FOR OIL AND GAS IN NIGERIA

The primary legal framework regulating the Oil and Gas sector in Nigeria is the Constitution of the Federal Republic of Nigeria, which vests ownership of mineral resources found upon or under any land or territorial waters in Nigeria, exclusively to the Federal Government and confers the government with exclusive powers to manage and legislate for the governance of the industry. Other legislations deriving their force of law from the constitution and specifically applicable to the oil and gas sector are:

1. Nigerian National Petroleum Corporation Act

The Act established the NNPC through which the Federal Government regulates and participates directly in the petroleum industry and regulates the corporation’s functions, powers, internal organisation, and external relationships.

2. Nigerian Oil and Gas Industry Content Development Act

The Act promotes the participation of Indigenous players in the oil and gas industry. It sets minimum Nigerian content prescription for various services and requires that first consideration be accorded to Nigerians and Nigerian companies in the bid for the award of the different contracts and the carrying out of all activities in the sector.

3. Petroleum Act

The Petroleum Act governs petroleum operations, including exploration, production, and utilization. It vests ownership and control of petroleum and its resources exclusively in the government and the exercise of the powers in the Minister of Petroleum Resources.^[2] Qualified companies wishing to carry out any form of petroleum operations can do so on the basis of authorization granted by the minister via license, the petroleum Act provides for the following licenses: –

1. Oil Exploration License (OEL)

The license grants a non-exclusive right to the holder to explore oil and gas within the area of the grant, the license is granted for one year and renewable upon satisfaction of certain conditions.

1. Oil Prospecting License (OPL)^[3]

This is an exclusive license, which grants the licensee the right to explore and prospect for petroleum for any period determined by the minister of petroleum resource for five years in the case of onshore and shallow waters; and up to ten years for deep offshore and inland basins.

• Oil Mining Lease (OML)

Unlike other licenses, this can only be granted as a lease for a period of 20 years to holders of the oil prospecting license (OPL) upon satisfaction of all conditions of the Act and having discovered oil in commercial quantity set at 10,000 barrels per day of crude oil. Upon issuance of the lease, the holder has the exclusive right to search for, win, work, carry away and dispose of petroleum within a specified area.

4. Petroleum Profit Tax Act

It is an Act, which imposes a tax on all profits made from petroleum operations. The Act is meant to apply to taxation of the assessed income of companies engaged in petroleum operations, be it crude oil or natural gas. It provides for the imposition of the Petroleum Profits Tax on the chargeable profits of companies involved in the upstream activities of exploration, drilling, extraction and transportation of crude oil. From its inception in 1959, the Act has undergone series of amendments culminating in the Petroleum Profits Tax (Amendment) Act of 2007.

5. Niger Delta Development Commission (Establishment) Act

The NDDC is a Federal Government Agency with the aim of developing the oil-rich Niger Delta region of Nigeria. By this Act, oil and gas companies are required to pay 3% of their annual budget^[i] to the commission while the Commission will conceive, plan and implement in accordance with set rules and regulations, projects and programmes for the sustainable development of the Niger Delta area in the field of transportation, health, education, employment, industrialization, agriculture and fishery, housing and water development, water supply, electricity and telecommunication.^[ii]

6. Oil Pipelines Act

The oil pipelines Act along with its regulation, provides for the establishment, operation and maintenance of pipelines that are integral to the operation of oil and gas in Nigeria. The Act makes further provisions for licenses to be granted for such operations and other supplementary activities to oilfields and oil mining for purposes ancillary to such pipelines.

7. Associated Gas (Reinjection) Act

This is the legal framework for the control of gas flaring in Nigeria, the Act compels every Nigerian company producing oil and gas to submit preliminary programmes for gas re-injection and detailed plans for the implementation of gas re-injection.

8. Deep Offshore and Inland Basin Production Sharing Contracts Act

The Act prescribes fiscal incentives for companies operating in the deep offshore and inland basin areas of Nigeria under production-sharing contracts.

9. Education Tax Act

By this Act, the federal government mandates all registered companies in Nigeria to pay a percentage of their assessable profit as a contribution to the Education Tax Fund. The tax is charged at 2% of the assessable income. The statute also establishes an Education Fund and a Board of Trustees to manage and administer the Fund.

LEGAL FRAMEWORK FOR CSR IN NIGERIA

Corporate Social Responsibility (CSR) is a legal/moral obligation expected of companies to promote viable societal values for the local host community. The oil and gas industry deploys CSR, which has permeated it, as a form of social license to gain and retain acceptability by its host communities.

CSR could be expressed through several means, i.e., humanitarian services offered to the communities, compensatory social responsibilities by compensating the government or communities; and economic improvements, such as providing essential social amenities and empowerment programmes. Our focus is on the latter due to its durability and long-term benefits to the community.

From the onset of enacting legislation in Nigeria, the closest legislation that created offences and penalties for oil-related pollution failed to address CSR, for example;

1. The 1999 Constitution as amended in section 20 provides;

“The State shall protect and improve the environment and safeguard the water, air and land, forest and wildlife of Nigeria.”

1. The Criminal Code in section 247 provides;

“That any person who violates the atmosphere in any place to make it noxious is guilty of a misdemeanour and liable to imprisonment for six months”

These provisions are inadequate to cover the broad field of the oil sector, although the law was not enacted with the focus of regulating activities in the oil sector, considering the fact that the law was enacted over a century ago before oil was discovered in Nigeria.

1. National Environmental Standards and Regulations Enforcement Agency (Establishment) Act 2007; addresses the protection of the environment and provides for the standards of compliance, offences and punishment regarding environmental protection;
2. The Nigeria Oil and Gas Industry Content Act, 2010; with its key aim of an all-inclusive improvement of local participation in the oil sector in Nigeria. Its purpose is diverted from CSR to ensure Nigeria citizens and Nigeria companies are employed and given first consideration in oil exploration in Nigeria;
3. Companies and Allied Matters Act 1990;

The concept of CSR under CAMA is corporate gifting or philanthropy, Legal entities having the status of a natural person of full capacity by virtue of Section 38 of Companies and Allied Matters Act are permitted to engage in charity and philanthropy only if it benefits the company and protect the interest of the shareholders. By virtue of Section 38(2) of the Act, corporate gifting is prohibited where the gift is made to political parties or to fund political associations or targeted towards any political purpose.

CAMA does not provide a systematic ideology for effective CSR practice in Nigeria, all provisions relating to CSR have been pitched on shareholder protection with no provision for other key players outside the company.

With the sole aim of providing adequate relief to the host community, suffering the direct negative effects of the industrial activities on their environment. A Corporate Social Responsibility Bill was introduced to the National Assembly in 2007, the bill sought to be the primary legislation on all CSR activities in Nigeria and established a CSR commission to collect a compulsory 3.5% CSR stipend from corporations, to execute community development projects in the host communities.

This bill was vehemently rejected as it was coming in the form of multiple taxations on the oil and gas companies who were subject to remitting a certain percentage of income to other agencies for the fulfilment of CSR on the host community, and its failure to capture the true purview of CSR. The bill which sought to establish a commission to regulate CSR activities, rather chose an external CSR regulator with little knowledge of the workings of individual companies, which led to its death on arrival.

RECOMMENDATION/ CONCLUSION

To achieve the true essence of CSR, there is a need to set out certain recommendations to aid easy and feasible legislation and practice of CSR laws in Nigeria. First is a need for the enlightenment of Nigerian society on the benefits of CSR.

Secondly, Legislation to cover CSR projects by the oil and gas companies individually, CSR should be taken beyond voluntarism, there should be a duty backed by law on the corporate entities to make conducive the environment by mandating corporate entities to incorporate and put in measures to observe compliance to environmental protection. The Government should also serve as a regulator to monitor the compliance of CSR initiated by the legal entities, and also carry out a frequent assessment of the extent of CSR projects in host communities.

In addition to the requirement in a local content plan, there should be a mandatory requirement for a CSR plan and how the company intends to implement the plan followed by a later inspection of the CSR project, and a certificate of CSR issued to the company upon satisfactory completion of the projects in the host communities. This certificate will serve as a prerequisite in applying for license approvals or permits.

SNIPPET

This article has attempted an analysis of the role of CSR by companies in the oil and gas sector, it is obvious that most companies carry out their CSR as a gesture of philanthropy aimed at addressing socio-economic challenges in Nigeria because very few legislations lend a voice in the area of CSR and the legislation lacks in detailing the nature and scope of CSR that companies can adopt. Aside from the government’s responsibility to provide basic amenities, infrastructure and ensure law and order, the emergence of CSR in Nigeria by individual companies has been at the discretion of the companies without an enabling law governing that.

[1] ‘NNPC Limited’ < https://en.wikipedia.org/wiki/NNPC_Limited>

[2] Resolution Law Firm, ‘Overview Of Oil And Gas Regulations In Nigeria’ (2020) < https://www.mondaq.com/nigeria/oil-gas–electricity/1004162/overview-of-oil-and-gas-regulations-in-nigeria->

[3] ‘New Licensing Regimes under the Petroleum Industry Act (PIA) 2021 – GS Series II (Part A)’ < https://goldsmithsllp.com/new-licensing-regimes-under-the-petroleum-industry-act-pia-2021-gs-series-ii-part-a/

AUTHOR: Oyetola Muyiwa Atoyebi, SAN

Mr Oyetola Muyiwa Atoyebi, SAN is the Managing Partner of O. M. Atoyebi, S.A.N & Partners (OMAPLEX Law Firm).

Mr. Atoyebi has expertise in and vast knowledge of Oil and Gas Law Practice and this has seen him advise and represent his vast clientele in a myriad of high-level transactions.  He holds the honour of being the youngest lawyer in Nigeria’s history to be conferred with the rank of Senior Advocate of Nigeria.

He can be reached at atoyebi@omaplex.com.ng

CONTRIBUTOR: Efe Iseghohime

Efe is a member of the Corporate Team at OMAPLEX Law Firm. She also holds commendable legal expertise in Oil and Gas Law Practice.

She can be reached at efe.iseghohime@omaplex.com.ng