THE OILY AFFAIR
From Economics to Politics
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Paper Presentation delivered at the School of Social Sciences, Department of Peace Studies and Conflict Resolution, National Open University of Nigeria, Owerri Study Centre
PRESENTER:
DAN UGWU
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PRELUDE
Oil, we must agree, has been the major cause of most, if not all, of the frictions in our land. Some pundits have even argued that the battle for the control of our petroleum resources was what led the military unto the centre stage of national politics in the first place, and made them almost decide to sit in power forever, messing things up, squandering our riches and drinking themselves (of our oil wealth) to stupor, until they were blown out by hurricane democracy. Unfortunately, the oily problems in Nigeria have been such a huge one that has been there right from the time the military laid siege of the nation. Even with advent of civil rule, issues of oil have refused to leave us. Oil is at the heart of every big problem in our land. If the Niger Delta is on the boil or the restive natives kidnap foreign nationals, it has got to do with oil and the fact that the mouth watering dollars from oil is not trickling down to the people in those areas and other parts of the country. Amidst these, a privileged few who have found their road to our collective till are smiling merrily away as they enrich themselves, their families, friends and cronies without caring for the majority haves-not or providing them any infrastructural succor. Since 1999 when the nation began her match to democracy, Nigerians neither know how much we have made from oil nor how the funds are disbursed.
The oily affairs have deeply dominated the Nigerian life that we have easily forgotten other areas that can give life to the economy. This is why well meaning Nigerians have been calling for the diversification of Nigeria away from dependence on oil. In a speech titled Agriculture: The Value Chain Road Map delivered by Dr. Akinwumi Adesina, the former Minister of Agriculture and Rural Development and the President of African Development Bank at the 9th All Nigerian Editors Conference, held in Asaba, Delta, the Minister argued that the country has the potential of surviving through agriculture. He decried the woeful dependence of Nigeria on crude oil which has become the life blood of the nation’s economy: “Nigeria was food self-sufficient in the 1960s and was well known for its global position in major agricultural commodities. We accounted for over 40% of the global supply of shelled groundnuts. As the largest supplier of palm oil in the world, we accounted for 28% of the global supply. As the second largest global producer of cocoa, we accounted for 18% of the global supply. But these were the good old days. The discovery of oil led to decades of neglect of the agricultural sector. What followed is what I call prodigal economics, where earnings from oil were frittered away, as the economy became heavily dependent on imports. We assumed that oil, like diamonds, would last forever. Nigeria abandoned agriculture and became a net food-importing nation. A nation that does not feed itself is a threat to its own existence.” The Minister further revealed that Nigeria is an agricultural powerhouse with immense potential, possessing over 84 million hectares of arable land, of which no more than 40% is cultivated, over 263 billion cubic meters of water – with two of the largest rivers in Africa – and a cheap labor force to support agricultural intensification. While potential is important, no doubt, no one eats potential.
It could be good to know that the future trajectory of earnings from crude oil does not look good, as other nations have found shale oil and shale gas. One may have as well noticed that the President Obama of the United States saying often that the US no longer needs Africa for energy. This much was revealed to the same group by the Director General, Nigerian Maritime Administration and Safety Agency (NIMASA), Mr. Ziakede Patrick Akpobolokemi, who observed that several countries, including the major buyers of our crude oil, are investing heavily in the development of alternative energy sources. “It has become imperative for us as a country to immediately grow and exploit our non-oil sectors. We must all therefore put our hands on the plough to ensure that all sectors of our economy are given the impetus required to fulfill their potentials and mandates.” Akpobolokemi argued that the maritime sector, for instance, is well positioned to step into the challenge of contributing its own quota to the non-oil revenue base, particularly now that our country is slowly but steadily moving towards being an export-based economy. “The examples of the Asian tigers have illustrated the ability of the maritime sector to be major contributors to a nation’s economy. Like the Asians, we are not only tapping into the opportunities in the entire maritime sector, we have also a seafearers’ development programme. It is therefore imperative that we have a regulator that is empowered and encouraged to be firm in order to make the dream of a thriving maritime sector come to pass.”
The writings are on the wall. We must free ourselves from dependency on crude oil if we must survive economically. There is need to envision and evolve a Nigeria beyond oil, otherwise we perish, and like Femi Adesina said, “Nigeria must now diversify, or die.” For well over four decades, Nigeria has run a mono-product economy. Petroleum has been our mainstay, and we have allowed the easy money from oil to asphyxiate other cash cows like agriculture, tourism, solid minerals, and many others. But as they say, everyday is not Christmas, and the Ekpe festival must end one day. Oil is fast becoming a vanishing source of easy revenue. Nigeria once had the pride of being one of the largest producers of petroleum on the continent, but not anymore. Ghana, Kenya, Uganda, Cameroun, Chad, and some others have also found oil. And much more portentous is the fact that America, our largest customer, has discovered shale oil, and so may not need to patronize us again. I tell you, doomsday is by the corner, except we become proactive, and stave off the evil days. This is irrespective of the profound concerns over dwindling performance of the sector which has been attributed to the structural gaps in its regulatory, fiscal and business practices which have supported high inefficiencies Can you imagine a Nigeria that can no longer fund its imports, yet remains a consumer nation? Can you conceive the chilling prospect of a country no longer able to pay wages and salaries to its army of civil and public servants? Surely, things will fall apart, and mere anarchy will be loosed on the landscape if proper care is not taken.
This observation is not unconnected with the revelation of the World Bank which has over again raised the alarm that Nigeria’s reliance on crude oil revenue is dangerous for the future of its mono-product economy. Ms Marie Francoise Marie-Nelly is the Country’s Director of the bank in Nigeria. In an interview on whether the nation could survive without oil revenue with an online news medium, Economic Confidential, Marie-Nelly noted that the takings from crude oil export account for about 70 per cent of consolidated government revenue, stressing that the nation needed to prioritize non-oil sector for sustainable development in the future. She said oil resources are not finite and that the country should invest revenue from oil in the agriculture sector to guarantee future economic prosperity that would enable the nation to feed its future generation. She noted that so far, the government survives mainly with oil revenue, which accounts for over 90 per cent of exports and well over 70 per cent of consolidated government revenues. As oil resources are not indefinite, it is important for Nigeria to plan now what it wants to be after tomorrow. The issue is how Nigeria can use the available oil resources to invest and prepare itself for the non-oil economy period. Ordinarily, there wouldn’t be any serious discourse about oil exploration in Nigeria without mention of the challenges of the Niger Delta oil based conflicts, multinational exploits, the Petroleum Industry Bill, PIB, the derivation/Revenue Allocation formula among other germane issues. We shall briefly elaborate on these headlines to ascertain how oil exploration has shifted from economic issues to purely political matter.
1. Insurrection in the Niger Delta
Nigeria is a major player in the world energy market. It is the seventh largest producer of oil in the world. It supplies a fifth of United States oil imports. It is further becoming an important supplier in the global liquefied natural gas (LNG). Instability in world oil supplies and the critical link of oil to the international economy has made Nigerian and more generally African oil to be more strategic. Oil and gas is the lifeblood of the nation’s revenues, economy and national survival. It accounts for about 40% of the Gross Domestic Product and 70% of government revenues. In 2003, Oil and gas accounted for 80.6% of total federal government receipts. But Nigeria’s oil belt, the Niger Delta region is embroiled in resistance against the Nigerian state and the multinational oil companies. The region is generally restive, with pockets of insurrection and armed rebellion. Decades of oil exploitation, environmental degradation and state neglect has created an impoverished, marginalized and exploited citizenry which after more than two decades produced a resistance of which the youth has been a vanguard. A regime of state repression and corporate violence has further generated popular and criminal violence, lawlessness, illegal appropriations and insecurity. The Niger Delta is today a region of intense hostilities, violent confrontations and criminal violence. It is pervaded by a proliferation of arms and institutions and agencies of violence ranging from the Nigerian Armed Forces to community, ethnic and youth militias, armed gang and networks, pirates, cultists and robbers.
The conflicts in the Niger Delta have animated and dominated discussions and have engaged the attention of concerned citizens and the international community.
The present instability in world oil supplies and the critical link of oil to the world has drawn attention of the international community to the Niger Delta region. The region today is easily viewed through the dramatic faces of the militia, which symbolizes the extreme level of violence, jungle justice, poverty and political chaos which summarizes the bankruptcy of the Nigerian democracy as a microcosm of a failed African political order. The minorities of the Niger Delta region have been agitating since the 1950s. First it was against marginalization, neglect and the politics of exclusion by the ethnic majority based ruling political parties and governments of the then Eastern and Western regions. This snowballed into the minority agitation for the creation of separate regions, which the Willincks Commission of 1958, rejected and rather provided constitutional guarantees in the form of fundamental rights. But the Commission granted a special developmental status in the form of a Niger Delta Development Board. The emergence of commercial oil production from the region in 1958 and thereafter raised the stakes and generated a struggle by the indigenes for control of the oil resources. This was linked into the former because it was only within their own regions that such control could take place. Further the new oil economy generated an intense ethnic majority and regional hegemonical struggle particularly between the ruling Hausa/Fulani and northern hegemony, the Igbo who dominated and ruled the Eastern region and the Niger Delta minority groups. This in part contributed to the Nigerian civil war of 1967–1970.
However, it remains the argument of analysts that the oppression, marginalization, human right abuses, poverty, structural injustices, feelings of exclusion from the lucrative oil revenue, environmental degradation, irresponsible business operations by the Multinational companies and the militarization of the region by the Nigerian State all contribute to fan the embers of militia activities in the oil rich region. Kekong Bisong, professor of Philosophy of Law is of the opinion that the injustices which the people of the oil producing communities suffer are the foundations of the Niger-Delta militancy. He noted that “the daily experience of the ordinary people in the Niger Delta today is that of poverty, disease, oppression, wide spread abuse of human rights, structural injustice, large-scale corruption, unemployment, ignorance, violence and the certainty of a short life span.”
To respond to this perceived marginalization, the people employed varied methods to draw the attention of the government to their peril. Cases of protests made along the streets and to the government houses were prevalent. We recall the famous January 3, 1992 incident, when about 300, 000 Ogoni people of Rivers State staged mass but peaceful protests to vent their anger at the despoliation of their land through oil-production activities. The Ogoni land is one of the country’s leading oil producers. Even those living in ‘exile’ came back home to be part of the momentous assertion of Ogoni nationalism. Their complaint was that “their land has been systematically destroyed by the oil companies which, in collusion with successive Nigerian governments, have been stealing their prized natural resource – crude oil, without the people getting commensurate compensations for their losses – unproductive farmlands, polluted waters and general environmental degradation.” The Ogonis pitched their tent against what they saw as an illegitimate state controlled by a tiny military clique who had become obsessed with the control of the proceeds of their oil. One of the prime movers of the Ogoni protest was Ken Saro-Wiwa, prolific writer and film producer who devoted his life to address the sorry lot of the oil producing areas in general and Ogoniland in particular. A lot has been written about the Ogoni struggle, most of the literature has been devoted to the life of Saro-Wiwa and rightly so. Saro-Wiwa, the leader of the revolt was subsequently arrested with some other eight persons of his kinsmen and were tried and later executed by hanging on November 10, 1995. Apart from the Civil War, it is doubtful whether there is any other single event in the annals of Nigerian history that has shaken the military institution and challenged its legitimacy more than the Ogoni struggle.
The seizure, occupation and stoppage of oil facilities and operations has been a common tool of the restive communities since the 1980s in the struggle for the benefits of social facilities, employment, scholarships, contracts, cash payments and other forms of compensation. There were several incidences of such seizures by youth militants of the Ijaws, Ikwerre, Egi, Isoko and Ilaje ethnic groups and other groups from Delta, Ondo, Rivers, Bayelsa and Akwa Ibom states since 1997. Youth groups or gangs acting on their own or on behalf of disrupt oil explorations in their area and even vandalize oil facilities and take hostages of expertrates so as to attract the attention of the government. In Delta state, youths have been known to demand development levy for the land occupied and employment for community youths from oil companies and other firms. The youths have been known to harass and disrupt operations of several companies to compel employment of community youths. For example, following several disruptions and work stoppages of Shell Petroleum Development Company, SPDC contractors, Petroserve Nigeria Limited, in March 2002 and persisting invasions and threats by youth gangs at Otorogu Gas plant, Delta State, Shell raised alarm in the newspapers in May 2002 because of the potential danger to lives and properties inherent in a sabotage of the gas plant. Below are selected cases of insurrections in the oil rich region before the years 2000 – 2003 as documented by The Guardian Newspaper.
S/N
INCIDENTS/TIME
OIL FIRM
COMMUNITY/YOUTHS
DEMANDS
1
Invasion of Qua Iboe terminal, seizure of 3 vessels, production Disruption on April 2000
Exxon Mobil
Community Youths/Ibeno Community/Akwa Ibom State
2Electricity
2
Occupation of Shell Rigs at Tunu & Opukulli, 165 staff held hostage/July – August 2000
Shell
Militant Youths of Egbema, Agalabiri & Agbichiama communities of Bayelsa State
Jobs
3
Stoppage of work on Gas project, shut down of 5 flow stations on January 2001
Shell
Youths of Odidi in Delta State
Facilities, registration of indigenous contractors
4
Seizure of Shell Housing Estate, Kolo Creek Camp/ Febuary 2001
Shell
Youths of Otuasega in Bayelsa State
Employment, scholarships and environmental compensation
5
Sealing off of Off shore
Oil rig, Hostage of 88 workers/ April 2002
Chevron/Texaco
Ilaje Youths of Ondo State
Employment
6
Hostage taking of 10 workers in April 2002
Shell
Militant Youth Gang, Ekeremor LGA, Ijay Bayelsa State
Ransom demand for NGN 3.1 m
7
Kidnap of Staff on June 29 July 2003
Oil Servicing Co. working for Shell
Ijaw Youth militants in Bomadi/Burutu LGAs in Delta State
Ransom demand for NGN 25.4 m
8
Occupation of Etobele Flow Stations in May 2002
Shell
Ogboloma Youth Federation, Ijaw, Bayelsa State
Employment Scholarship
9
Abduction of Staff/July 2003
Chevron Texaco
Egbema National Front, Youth of Delta State
Development and empowerment
10
Invasion of premises/August 2003
Oil Servicing Company
Itsekiri Community Youths in Delta State
Employment
11
Kidnao of 9 crew and 4 military escorts of oil barges/ November 11- 13 2003
Unknown
Ijaw Militants
Ransom/other demands
12
Kidnap of 14 workers/ November 2003
Chevron Texaco
Militant Ijaw Youths in Delta State
Ransom demand
13
Kidnap of 19 oil workers
Nobel Drilling/Prospecting
Ijaw Militias in Delta State
Ransom demands
14
Kidnap of 7 workers/ November 28 – December 2003
Bredero Shaw Oil Servicing CO. (Shell)
Militant Ijaw Youths in Delta State
Ransom demand for USD 5m
15
Murder of 7 workers & military Personnel/ April 2004
Chevron Texaco
Military Ijaw Youths in Delta State
Ransom demand
Sources: The Guardian Newspaper, 26.04.2002, Thisday, April 14, 2000,
Exclusion of the communities in the benefits from oil has weakened the local economic and social life and driven the local population to desperation to make ends meet. One of the criminal activities as we saw in the table above is hostage taking. These unhealthy attitudes of the restive communities are exclusive of the illegal oil bunkering associated with them. There is a large scale illegal local and international trading on crude oil. This has grown from a few amateurs in the 1980s who utilized crude methods to extract crude from pipelines to a very sophisticated industry which uses advanced technologies to tap crude and sophisticated communications equipment to navigate through the maze of hundreds of creeks, rivers and rivulets. The oil theft syndicates have also graduated from boats and barges to ships and large oil tankers in the high seas. Crude oil is tapped from pipelines and terminals of the oil producing companies with advanced technological equipments in the waterways, creeks, swamps and high seas. Plastic pipes are fixed to manifold points and intersection of several pipelines and crude oil is then pumped into barges. In some cases, ships are hooked to hoses that siphon crude from oil facilities that may be several hundred meters away. The onshore facilities operated largely by Shell, Nigeria, Agip Oil Company, Chevron Texaco and Elf Petroleum Company Limited have been the main victims. It remains quite unfortunate that the stealing and smuggling of crude oil has become very extensive and large scale since the late 1990s.
2. Multinational Exploits
On February 8, 1993, TELL magazine had an interview with Ken Saro-Wiwa on issues about the Ogoni struggle wherein he was quoted to have said “We will defend our oil with our blood.” In the two-hour interview, the TELL correspondents (Nosa Igiebor, Onome Osifo-Whiskey, Dare Babaringa, Ayodele Akinkuotu and Don MacWarra) had asked Saro-Wiwa to amplify the exploitation of the Ogoniland he was alleging, he said:
Well, basically, the oil belongs to the landlords. Ogoni is older than Nigeria; the oil is their property….The oil companies have been running over all these farmlands. The pipelines, the gas flares, access roads to the oil wells, oil well themselves – all these have completely destroyed the Ogoni countryside because as far as Shell is concerned (shell is the major prospector in Ogoni) the land, whether residential, forest or farmland: means nothing else but land that has to be exploited. Therefore they can get into the villages without bothering and as far as the rulers of Nigeria are concerned they only have a map in front of them. This is an open map cut into oil-mining leases and the oil companies can get in there once they have a paper from Lagos or Abuja and do whatever they like.
The Niger Delta region is Nigeria’s economic heartbeat and is situated to the south of the country. The region which has become the mainstay of the Nigerian economy is known for its gas, hydrocarbon and water resources. These rich natural endowments have, however, not translated into concrete development of the region as the place has metaphorically turned to the neglected goose that lays the golden eggs. The region has a catalogue of human and infrastructural problems which have been largely unattended to while its resources are being exploited. The areas and communities in which oil extraction takes place are underdeveloped, pauperized ad their survival is threatened be defoliation, environmental devastation and ecological degradation. The extent and magnitude of oil spillage and its environmental impact in the Niger Delta, have been well documented by NGOs and international development agencies. Even the federal government’s own Department of Petroleum Resources has recorded more than 4, 835 incidences of oil spillage involving about 2.5 million barrels. The largest spill was in 1980, of about 200, 000 barrels, but there have been numerous incidences of leakages reported by NGOs and activist organizations, which have not been officially acknowledged.
Increased anger in the oil producing communities with the crude and exploitative activities of the oil companies, such as Shell, and the growing perceptions of federal government’s tacit endorsement of these, have resulted in restiveness ad the formation of activist youth organizations and militia gang in the Niger Delta as a medium of self help. In a paper prepared for the National Development Project, Abuja I 2002, Attahiru Jega (who was then the Vice Chancellor of Bayero University Kano), reported the formation of about 24 of such militia groups. Consequently, the region is at present, averred to be very volatile as Multinational Oil Corporations especially in the oil industry have suffered increased aggression from host communities for their perceived ethical inconsistencies towards alleviating the numerous problems of the host communities. The situation is such that these multinational oil corporations are perceived to represent imperial terror against the region. The people of the Niger Delta are of the view that with the enormous wealth associated with their oil endowments, there is no justification for remaining at the present low level of development. Hence, the increasing demands by the people for a fair treatment towards the actualization of their dream of accelerated and sustainable development. These demands have taken several forms of agitations from non-violent to violent mass actions which have resulted in the disruptions of operations of the multinational oil corporations.
Consequently, the destruction of livelihoods and the lack of accountability in the area have led people to steal oil and vandalize oil infrastructure in an attempt to gain compensation or clean-up contracts. Armed groups are increasingly demanding greater control of resources in the region, and engage in large-scale theft of oil and the ransoming of oil workers. Government reprisals against militancy and violence frequently involve excessive force, and communities are subjected to violence and collective punishment, deepening anger and resentment.
Hundreds of thousands of people are affected by oil pollution in the Niger Delta., Particularly the poorest and those who rely on traditional livelihoods such as fishing and agriculture. The human rights implications here are serious, under-reported and have received little attention from the government of Nigeria or the oil companies. Oil spills, waste dumping and gas flaring (gas is separated from oil and, in Nigeria, most of it is burnt as waste) are endemic in the Niger Delta. This pollution, which has affected the area for decades, has damaged the soil, water and air quality. Oil pollution kills fish, their food sources and fish larvae, and damages the ability of fish to reproduce, causing both immediate damage and long-term harm to fish stocks. Oil pollution also damages fishing equipment. Oil spills and waste dumping have also seriously damaged agricultural land. Long-term effects include damage to soil fertility and agricultural productivity, which in some cases can last for decades. In numerous cases, these long-term effects have undermined a family’s only source of livelihood. Oil spills result from corrosion of oil pipes, poor maintenance of infrastructure, leaks and human error and at times are as a consequence of vandalism, theft of oil or sabotage. The scale of pollution and environmental damage has never been properly assessed. The figures that do exist vary considerably depending on sources, but hundreds of spills occur each year. According to Amnesty International report, the oil industry in the Niger Delta of Nigeria has brought impoverishment, conflict, human rights abuses and despair to the majority of the people in the oil-producing areas. Pollution and environmental damage caused by the oil industry have resulted in violations of the rights to health and a healthy environment, the right to an adequate standard of living (including the right to food and water) and the right to gain a living through work for hundreds of thousands of people.
Both the government of Nigeria and the oil companies have a responsibility to clean up oil operations and come clean about the human impact of the oil industry in the Niger Delta, but it is unfortunate that oil companies have been exploiting Nigeria’s weak regulatory system for too long. They do not adequately prevent environmental damage and they frequently fail to properly address the devastating impact that their bad practice has on people’s lives. The region so to speak has been suffering from administrative neglect, crumbling social infrastructure and services, high unemployment, social deprivation, abject poverty, filth and squalor, and endemic conflict. This poverty, and its contrast with the wealth generated by oil, has become one of the world’s starkest and most disturbing examples of the “resource curse”. Oil has generated an estimated US$600 billion since the 1960s. Despite this, many people in the oil-producing areas have to drink, cook with and wash in polluted water, and eat fish contaminated with oil and other toxins.
The oil industry in the Niger Delta involves both the government of Nigeria and subsidiaries of multinational companies. The Shell Petroleum Development Company (Shell), a subsidiary of Royal Dutch Shell, is the main operator on land. The majority of cases reported to, and investigated by Amnesty International relate to Shell. The regulatory system in the Niger Delta is deeply flawed. Nigeria has laws and regulations that require companies to comply with internationally recognized standards of “good oil field practice”, and laws and regulations to protect the environment but these laws and regulations are poorly enforced. The government agencies responsible for enforcement are ineffective and, in some cases, compromised by conflicts of interest.
The extraction and production of oil and gas by the transnational corporations in collaboration with the Nigerian government has engendered, not just neglect but even denied access of local communities to farmlands and fishing grounds as long stretches of thriving forest and arable lands are cut open to allow for laying of pipelines for transportation of crude oil from flow stations and rigs to export terminals, refineries and reservoirs. In many of the oil communities in the Niger-Delta, the activities of the oil companies have killed fishes and destroyed the ecosystem as indications of the suppression of the development of the people. Because of nearly five decades of oil extraction, the Niger-Delta coastal rainforest and mangrove habitat is the most endangered river delta in the world. It remains quite unfortunate that since the inception of the oil industry in Nigeria, neither the government nor the companies have put in any effective effort to control the environmental problems associated with the industry.
3. Petroleum Industry Bill: Interests, Issues and Intrigues
The PIB 2012 is a 223 page document with 362 sections and 5 schedules. The Bill is divided into 9 parts, which propose to cover the entire spectrum of the oil and gas industry. It has the objective of creating conducive environment for petroleum operations; establishment of a progressive fiscal framework that encourages further investment in the petroleum industry while optimizing revenues accruing to the government; creation of efficient regulatory agencies and the promotion of transparency and openness in the administration of the petroleum resources of Nigeria. The Bill seeks to reform, on the face of it, Nigeria’s petroleum sector by removing redundancies and corruption, increasing productivity and revenue; but it has also raised critical issues about ownership and participation in the oil economy by the petroleum host communities.
When compared with its contemporaries, Nigeria’s oil and gas industry is adjudged to have largely remained stagnant for decades in terms of flow of substantial investments into upstream, midstream and downstream sectors. Oil industry players and policy makers are very much aware of this precarious situation. The need to change the face of the petroleum industry in Nigeria was what prompted the enactment of the PIB, a comprehensive piece of legislation that would overhaul the oil industry and rewrite Nigeria’s over five decades relationship with international oil companies (IOCs) operating in the country. Although, the international oil companies and a few other stakeholders in the oil and gas industry continue to express reservation on some aspects of the Petroleum Industry Bill (PIB), both the government and the oil and industry operators have over time confirmed that the growth of the Nigerian petroleum industry is dependent on sweeping reforms that will take into consideration the various extant challenges (funding, environmental, accountability, transparency and efficiency) in the industry through the PIB. It is believed that the proposed bill will usher in a new vista in the oil industry by ensuring that Nigeria's hydrocarbon resources are utilized for the benefit and welfare of Nigerians, through increased participation of local communities in the process.
The PIB is designed to capture and address potential environmental and operational hazards associated with the oil and gas industry and is largely expected to provide for a transparent regulatory framework and competitive fiscal rules of general application. The bill as stated will amongst other inherent provisions see that Nigeria’s crude oil reserves and production are increased through improved investments in exploration and production, within a competitive business environment.
Furthermore, the PIB as the government’s legal instrument to restructure the petroleum industry, is equally expected to create a new fiscal framework upon which Nigeria’s earnings from the sector will improve and the opening up of the industry for even participation will be guaranteed but its passage into law has remained quite difficult with divergent sentiments- all of which when aggregated could make or mar attempts at reforming the industry for optimality. Oil majors allege that the PIB will further erode their profit and that is why they invested much fund to lobby the National Assembly not to pass certain sections that put more operational burden on them. For instance, Section 116 of the Bill provides for Petroleum Host Communities, PHC, Fund, to be referred to as PHC Fund. According to the bill, it “shall be utilized for the development of economic and social infrastructure of the communities within the petroleum producing areas.” To this end, Section 118 provides that every upstream petroleum producing company shall remit on a monthly basis ten percent of its net profit to the fund. However, while profit derived from operations onshore, offshore and shallow waters shall be paid directly into the PHC fund, profit from operation in deepwater areas shall be remitted to the fund for the petroleum producing littoral states. Here is actually where the oil majors are concerned that their fortunes may be hampered, as such they seek to consider other alternatives. BussinessDay of October 15, 2013 reported that as the fate of the much-anticipated Petroleum Industry Bill (PIB) continues to hang in the balance, the ranks of international oil companies (IOCs) divesting oil assets in the country has swollen as Shell is putting up for sale four onshore oil blocks in the heart of the eastern Niger Delta, an area particularly hard hit by crude oil theft this year (2013)… aside from Shell, Chevron is also in the process of selling three onshore oil blocks, while ConcoPhillips’s sale of its Nigerian operations to Oando last is expected to be concluded soon.”
It is quite unfortunate that the controversy surrounding this bill is characteristic of the Nigerian situation. Greed, suspicion and lust have been the propelling force for any endeavour in the Nigerian political life. We recall that as far back as 1992, the General Babangida regime set up the Oil Minerals Producing Areas Development Commission (OMPADEC) to respond to the need of the endangered communities. But for many years, disbursed funds were by far short of what was budgeted. For example, the TEMPO MAGAZINE revealed that in 1992, N6,041.54m was disbursed for the Commission but the actual release was merely N1,614.09m with the rest of the N4,427.45m growing wings and flying away, so were these serial deductions till 1995. In the year 2000, Olusegun Obasanjo established the Niger Delta Development Commission, NDDC, to assuage the hostilities in the region. Resolving the Niger Delta problem was also a cardinal part of President Yar’Adua’s seven-point agenda. It was a challenge that the president devoted considerable time contemplating, so it wasn’t long before he came up with what, essentially, were, for instance, two issues peculiar to the region that he felt could only be tackled together: the challenge of development following decades of neglect and the burgeoning rate of criminality characterized by the spate of kidnappings and violence. Yar’Adua thereafter established the Niger Delta Ministry in 2007 due to the chaos caused by the militants who disrupted oil production. It remains a strong belief that the clamour for ten percent PHC fund is an indictment of the NDDC and the Niger Delta Ministry.
If these two agencies of the federal government had been effective in the discharge of their mandate, the impact of the 13 percent derivation fund and the additional allocation, through the Niger Delta Ministry, would have been felt by the host communities, but the filth in the Nigerian landscape will not allow for the effective use of the fund. In as much as am not against the passage of the bill and the utility of the PHC fund by the host communities, I still believe that if the leaders from this region do not make judicious use of the fund, eschewing greed and feasting on the PHC with their acolytes, even if the whole revenue from oil is given to the Niger Delta their problem will still remain unattended to. My argument is informed by the attitude of some political leaders in the Niger Delta region, who divert public funds to personal use. For instance, James Onanafe Ibori, Diepreye Alamieyeseigha and Lucky Igbenedion, former governors of Delta, Bayelsa and Edo states have been convicted of corrupt enrichment on public funds while they were in office. Though, President Jonathan who was Alamieyeseigha’s deputy as governor, later granted the former governor state pardon. We recall that the TELL MAGAZINE in July 2011, published an open letter addressed to President Goodluck Jonathan by the Council of Youth Leaders in Rivers State on the filth in the NDDC while suggesting the removal of its Managing Director, Mr. Chibuzor Ugwoha on allegations of fraud. Among other allegations, part of the resolution of the Council as signed by its president, Patrick Bira and 13 others reads that “after thorough and independent investigation, we discovered that Mr Ugwoha as MD, opened a new Off-shore Account for the Commission with the First Bank in the United Kingdom without obtaining permission and approval from the Board and effected transfer of the sum of $20 million from the coffers of the Commission into the illegal account.” Such evidences of lack of commitment has made it possible for those members of the elites in the Niger Delta who have managed such federal agencies and state offices to cover inefficiency by always blaming the federal government, even when ordinarily they could not be exonerated from culpability.
Another issue that has prompted my discussion on this matter has to do with the state of our refining and petrochemical or composite companies. Nigeria has two refining companies in Port-Harcourt (Eleme and ….) and two refining and petrochemical companies in Warri and Kadunna which are all subsidiaries of the octopus Nigerian National Petroleum Corporation, NNPC. The government has been playing a dangerous economic politics bordering on sabotage with the state of these companies by deliberately ensuring that they do not operate at all, not to talk of operating at installed capacities. The federal government, through the NNPC and its marketing subsidiary, the Petroleum Product Marketing Company (PPMC) Limited, now being unbundled for more widespread corruption, has not been telling Nigerians the truth about the real cost of producing a barrel of crude oil or the cost of refining a litre of petrol (premium motor spirit), automotive gas oil (diesel), dual purpose kerosene (made of aviation turbine kerosene), or jet A1, and household kerosene, mixed liquefied petroleum gas (LPG), propane (C3), butane (C4), unstenched LPG and (low pour and high pour) fuel oil. All these are refining products. The petrochemical products are carbon black, waxes, poly-propylene, asphalt/bitumen, paraffin wax of various grades, furfural extract, toluene (pure and concentrated), linear alkyl benzene, heavy raffinate, kero solvent, benzene, lubricating oil and heavy alkylate. These are all finished products in their own rights and referred to as ‘special products.’ am doubtful if any person outside the NNPC/PPMC and their customers knows the existence of or the high revenue accruing from all these other refining petrochemical products which are in extremely high demand, both locally and internationally. What about the refining process? Not an average Nigerian knows that the crude oil passes through the following processes:
From the crude distillation unit (CDU) to the Naphta Hydro Treating Unit (NHTU); from NHTU to the vacuum distillation unit (VDU); from the VDU to the crude refining unit (CRU);from the CRU to the fluid catalytic cracking unit (FCCU); from FCCU to the HF Alkylation unit (HFAU); from HFAU to the dimer (DM).
Inasmuch as one may not really understand the technical process in each unit, but it is not doubtful that costs are accumulated along the various processing units. The suspicion of corruption in the oil industry was what necessitated the order by President Goodluck Jonathan of a forensic investigation o the operation of the oil subsidy regime by the NNPC and other related agencies in January 2012, shortly after the fuel subsidy protest. The mind boggling revelation of the Economic and Financial Crimes Commission, EFCC, under the new chairman Ibrahim Lamorde, of wide spread fraud, over-invoicing and related illegalities were not unexpected.
4.Resource Control and the Politics of Revenue Allocation Formula
The term resource control, was coined, sharpened and popularized by the Kaiama Declaration issued by the Ijaw youths on December 11, 1998 thus setting the tone for the present debate on the matter. It was after this that other civil society groups joined the demand for resource control and struggles against the Nigerian state and the oil companies. It is alleged that elected officials in the Niger Delta area, notably the governors, only became involved with the demand for resource control around December 1999, although the definition and demand for resource control as engineered by these officials differ remarkably from those canvassed by the youth groups.
One of the perennial problems which has not only defied all past attempts at permanent solution, but also has a tendency for evoking high emotions on the part of all concerned each time it is brought forth for discussion or analysis is the issue of equitable revenue allocation in Nigeria. It is an issue which has been politicized by successive administrations in Nigeria both military and civilian regimes. It is consequent on this that various regimes had attempted at establishing various commissions/committees on revenue allocations which attempted various criteria for sharing national revenue which have been distilled into a number of principles. The imperative of competition over sharing common wealth in the context of a plural society like Nigeria have resulted into a lot of contradictions despite the plethora of commissions so set up. The discovery of oil in some parts of Eastern Nigeria and the potential it had for growth altered the thinking about the place of minerals in the revenue allocation formula. As already mentioned, up till then, royalties from minerals fully belonged to the region of origin. In 1958, however, the discovery of oil in Nigeria coincided with the need to review the existing revenue allocation schemes, which were fallouts of the 1957/58 Constitutional Conference and the imminence of political independence.
Revenue means income. Allocation means to divide. Revenue allocation is defined as the division of available resources within an organisation or company. At a broader level, it is the process of assigning a cost to the amount of services and products generated. Government revenue is obtained from taxes, licenses and fees and allocated to public facilities. The issue of revenue allocation remains very volatile and constitutes a major source of political and governmental tension in Nigeria, and reducing this tension requires an examination of the impact of revenue allocation system on the nature of the federal arrangement as well as appropriate relationship between the two. Indeed, in virtually all federations in which the constitution shares power between the central and regional or state governments and, for each level to be “within a sphere co-ordinate and independent”, enough resources need be allocated to each tier to justify their existence. The nature and conditions of the financial relations in federal systems particularly one that is transfixed on a multi-ethnic society like Nigeria is crucial to her continuing existence because fiscal matters transcend the purview of economics alone. They have in most cases in Nigeria assumed political, religious and social dimensions. In the words of James O’Connor, allotments of money (and resources) must reflect “social and economic conflicts between classes and groups.” It is not surprising therefore, that the basis of federal statutory revenue allocation has always been one of the “most contentious and destabilizing factors in the Nigerian polity”. No doubt, ‘public finance is one of those subjects which lie on the borderline between economics and politics’. It needs be emphasized that whatever may be the origin of a federation, whether aggregation or devolution, its establishment at once raises three salient problems: how to allocate functions rationally; how to allocate taxing powers; and how to share revenue between the governments of that federation. Hence, revenue allocation formula must accomplish national unity; economic growth, balanced development, self-sufficiency and high standard of living for the citizens.
It could be an act of self-deception for anyone to argue that there is nothing wrong with the revenue formula. We have had basically two systems of revenue allocation in Nigeria. The first system which we practiced during the First Republic allowed the North to keep the proceeds from its groundnut and cotton, the West to keep the proceeds from its cocoa, and the East to keep the proceeds from coal and oil produce. Then the system was changed so that the federal government got its hands on the proceeds from onshore and offshore crude petroleum proceeds, and yet we don’t expect the minorities in the oil producing areas to perceive that as an injustice done to them. The South-South zone that in order to address past anomalies in the allocation scheme that it should be given 25% instead of 13% (or 17%) as a first step toward boosting the percentage to 50%. In spite of the empirical evidence to support the claims of the South-South at the confab, the north, as represented by some of its oligarchs argue against a change in the formula that would address the needs of the ethnic minorities whose territory houses the country’s bread winner – crude oil. The north argues for a 17% derivation for the oil producing area.
The politics of resource control has its genesis in the manner by which revenues from petroleum related economic activities have become the mainstay of the Nigerian political economy. Presently, these revenues contributed about 90% of Nigeria’s foreign exchange earnings. More than 50% of these are allocated to the federal government as its share of the federation account, while what remains is shared out to the states and local governments using a sharing formula, which especially the six oil producing state consider unjust and inequitable. Protracted military rule in Nigeria, presided over by a faction of officers of predominantly northern extraction, has exacerbated the perceptions of marginalization and inequity in the generation and sharing of these revenues, and have contributed significantly to the current politics of resource control.
The hitch over revenue allocation in Nigeria currently revolves basically around three issues namely: (i) the relative proportions of federally collected revenues in the federation account that should be assigned to the centre, the states, the localities and the so-called ‘Special Funds’ (vertical revenue sharing), (ii) the appropriate formulae for the distribution of centrally devolved revenues among the states and among the localities i.e. local governments (horizontal revenue sharing) and (iii) the percentage of federally collected mineral revenue that should be returned to the oil-bearing states and communities on the account of the principle of derivation and compensation for the ecological risks of oil production. Prior to the discovery of oil in Nigeria, other sectors of the economy thrived. Agriculture, for instance, was a major source of revenue for the Western Region. The Eastern Region that was less endowed devised other sources of revenue. All this has however changed since the discovery of oil in the country. This has led to the demise of the other productive sectors of the economy. In fact, Nigerians are poorer today than they were in the pre-oil boom days. This is mainly because of the methodology of sharing the oil revenue. The struggle for the control of the oil wealth has led to an unfortunate shift from a revenue-oriented principle to an expenditure-oriented principle of revenue allocation. It is important to note that since the oil boom in the early 1970s, the revenue allocation formula has been bedevilled by time inconsistencies – a tendency of one of the parties in a consensual agreement to change the terms after the negotiations have been completed. The formula has been continually manipulated in the service of interregional and inter-ethnic cross-subsidization. Suffice to say that revenue allocation formula are warped because they are have not been ‘‘open covenants openly arrived at’’. Rather, they reflect the views of commissions, individuals, or groups within the commissions, which have shown proclivity for embracing theories, beliefs ideals and approaches which have not only proved unrealistic, but have thereby contributed to the dislocations within the Nigerian state.
Unfortunately, the current controversy between Northern Governors and their Southern Counterparts, over how oil revenues accruing to Nigerians should be shared has created a deep gulf in the ranks of the governors. In 2013, the governors alongside Political and opinion leaders across the polity were polarized under ethnic and regional lines over who gets what from the Federation Account. It is the wish of the north that the PHC fund be abolished or its percentage significantly reduced because its sustenance not only puts the north at a disadvantaged position but also poses danger for the part of the country where literacy, poverty, ignorance and general backwardness are on the rise. The oil producing states, on the other hand are determined to fight back to protect their right and push for a progressive increase in the derivation formula up to fight (50) percent to cushion the impacts of years of marginalization and environmental degradation by the oil companies in the region. Dr. Babangida Aliyu, governor of Niger State stirred the hornet’s nest when he and his colleagues of the Northern Governors’ Forum in 2012, called for the review of the revenue allocation formula, which puts more money in the coffers of the southern states, specifically, the oil-producing states of the Niger Delta. It was the argument of Gov. Aliyu, chairman of the Forum that a state like Niger cannot be receiving a paltry N4.5bn monthly, as its share of revenue allocation, while a state in the south-south could get almost N20bn monthly, when the 13 percent derivation is added to its share of revenue allocation. In other words Gov. Aliyu was querying how states in the North with paltry allocations could be compared to its southern counterparts in terms of developmental pace. Before Aliyu’s lamentation, Mallam Sanusi Lamido Sanusi, the swashbuckling Governor of the Central Bank of Nigeria, had been a forerunner to Aliyu in lamenting the poverty in the North which he blamed for the Boko Haram insurgency ravaging the nation. According to the CBN helmsman, there are rampant uprisings in the north primarily due to the mass poverty and underdevelopment in that part of the country of the country. Compared to the south, Sanusi noted that the north suffered paucity of funds, just as he hinted that there would be need to review the nation’s resource allocation. Of course, southern leaders dismissed the northern leaders cry as mere ranting of disgruntled envious brothers, while still claiming that even the 13 percent derivation already enjoyed by the oil producing states is grossly inadequate to cushion the effects of the environmental hazards ravaging their terrain.
A Reconsideration of some Contending Issues for National Survival
One of the major challenges confronting Nigeria under the current dispensation is how to devise an equitable and generally acceptable revenue sharing formula for all the major stakeholders in the federations, especially the thirty-six states, which are the component units of the federation, and in seventeen of which there are currently agitations for resource control. The apparent failure to devise, in spite of several attempts in the preceding decades, has led to the increased frictions in intergovernmental relations and the rising pitch of the demand for resource control by some communities and states in the federation, which have gone a long way to weaken the already tattered fabrics of the Nigerian federation, threaten the basis for national cohesion and unity and significantly constrain the foundations of stable growth and socio-economic development. How soon Nigerians are able to address and resolve this impasse will significantly determine how stable, viable and secure the Nigerian federation becomes in the foreseeable future.
Whatever the theoretical and practical imperatives of federalism are, revenue allocation (livewire in authoritative value allocation or who gets what, when, how and where?) remains an object of intense politics and, unquestionably, a major source of inter-group or inter-regional antagonism. Nigeria is no exception to this rule. Politics, well-anchored possess the potential of balancing conflicting interests and resolving socio-economic and political contradictions in the society. The question of an acceptable formula for revenue sharing among the component tiers of the Nigerian nation is one of the most protracted and controversial debates in the political and macroeconomic management of the economy. This debate has its foundations in the history and evolution of the Nigerian federation.
Revenue allocation or the statutory distribution of revenue from the Federation Account among the different levels of government has been one of the most contentious and controversial issues in the nation’s political life. So contentious has the matter been that none of the formulae evolved at various times by a commission or by decree under different regimes since 1964 has gained general acceptability among the component units of the country. Indeed, the issue, like a recurring decimal, has painfully remained the first problem that nearly every incoming regime has had to grapple with since independence. In the process, as many as thirteen different attempts have been made in devising an acceptable revenue allocation formula, each of which is more remembered for the controversies it generated than issues settled.
A federal system of government often arises from the desire of the peoples to form a union without necessarily losing their identities. Federalism would, therefore, seem to provide an attractive system of government especially in the context of ethnic pluralism found in many African states. Federalism is generally accepted by many as necessary for managing the country’s ethnic diversity as reflected in the adage “unity in diversity”. Federalism in principle implies the construction of a system where consensus is reached between current demands of the union and the territorial diversity within an emerging society, by the creation of a single political system within which central and provincial governments are assigned coordinated authority in a manner defining both the legal or political limits of equality or subordinate functions. The choice of federalism as the preferred system of government for Nigeria was not accidental. The eventual transformation of Nigeria into a federal state started in 1954 as a result of the 1953 Lyttleton constitution conference. In a federal structure, adequate autonomy is given to each level of government to enable it perform its responsibility without frustration. This is the essence of fiscal federalism. Fiscal federalism refers to the scope and structure of the tiers of government responsibilities and functions as well as the allocation of resources among the tiers of government. Perhaps the most important issue of fiscal federalism is the revenue allocation formula, the sharing of national revenue among the various tiers of government (vertical revenue sharing) as well as the distribution of revenue among the state governments (that is, horizontal revenue allocation). The centralization of Nigeria’s fiscal federalism began with the report of the Dina Commission (1968) which argued that an appropriate revenue allocation system should result in a more equitable distribution of revenue among the states to achieve a balanced development of the federation.
Revenue allocation can be described as a method of sharing the centrally generated revenue among the different tiers of government and how the amount allocated to a particular tier is shared among its components. Nigeria is a federal state under the federal system of government, federation or centrally-generated revenue is shared among the three levels of government, namely; the federal government, the states and the local governments. The theory of revenue sharing in a federal state is that each level of government receives an allocation of financial resources tailored to their specific requirements as defined by the mandate of legislative competence, their actual situation and the statutory indices of calculation. In Nigeria, decisions as to what proportion of centrally-generated revenue that would be retained by the federal government, the proportion that will be shared among the state governments and the proportion that will go to the local government has always been a problem, due to the fact that there is no consensus of opinion as to what could be seen as an ideal formula. The issue of revenue allocation strikes at the very basis of existence of the Nigerian federation and the rules of entry and exit from the ruling class. The struggle for the control of the nation’s resources have also, to some extent been based on the regional cleavages. This, entwined with political conflict, has sometimes led to political manipulations and delineations with the aim of influencing wealth allocation. This has been especially so since 1958, revenue from oil gained prominence as the major source of revenue in the country. Along these lines, it has been suggested that: the setting up of three commissions on revenue allocation within a short period of twelve years is a manifestation of the instability that characterized the Nigerian polity. Between 1968 and 1980, income from petroleum constituted over 80 percent of federal revenue. The importance of the federal centre therefore increased proportionately. As a consequence of this major shift in revenue generation, a desperate struggle to win control of state power ensued since this control meant for all practical purposes, being all powerful and owning everything.
The most recent development in the struggle for the control of oil resources in Nigeria is the Supreme Court action instituted by the federal government against the oil producing states with respect to the offshore/onshore oil dichotomy. On February 8, 2001, the Federal Government of Nigeria (FGN) filed a case against the eight oil producing states in the Supreme Court, with a view to finding a legal solution to their persistent demand for resource control. The FGN sought for a declaration from the Supreme Court to the effect that:
It is only the federal government of Nigeria, and not the government of any of the states, that has power to exercise legislative, executive and judicial powers over the entire area designated as territorial waters of Nigeria.
Also, the FGN wanted:
A determination… of the seaward boundary of a littoral state within the Federal Republic of Nigeria for the purpose of calculating the amount of revenue accruing to the federation account: directly from any natural resources derived from the state pursuant to the proviso to section 12(2) of the Constitution of the Federal Republic of Nigeria.
There arose a dispute between the federal government on the one hand and the eight littoral states of Akwa Ibom, Bayelsa, Cross River, Delta, Lagos, Ogun, Ondo and Rivers States on the other hand as to the Southern (or seaward) boundary of each of these states. The federal government contends that the southern (or seaward) boundary of each of these states is the low water mark of the land surface of such state…. [or] the seaward limit of inland waters within the state, as the state so requires. The federal government therefore, maintains that natural resources located within the Continental Shelf of Nigeria are federal government’s contentions. Each of the states claims that its territory extends beyond the low water mark onto the territorial water and even onto the continental shelf and the exclusive economic zone. They maintain that natural resources derived from both onshore and offshore are derivable from their respective territory and in respect thereof each is entitled to the “not less than 13 percent” allocation as provided in the proviso to subsection (2) of section 162 of the Constitution.
On April 5, 2002, the Supreme Court of Nigeria delivered a landmark judgment on the suit against the states’ persistent calls for resources control. Substantively, the judgment favours the Federal Government’s assumption that the littoral states have no legal claims to revenues from offshore oil, although it declared unconstitutional the federal government’s practice of using first charge, special accounts and joint venture cash-calls, to draw funds from the Federation Account. The decision of the Supreme Court to exclude the revenue derived from offshore drilling in the calculation of the revenue attributable to the oil producing states based on the derivation principle, has failed to resolve the controversy. However, much as the judgment may have resolved a number of outstanding legal matters pertaining to the demands of the Southern governors for resource control, though not to the total satisfaction of all the parties involved in the suit, it has even more fundamentally, made clear the necessity of devising creative political solutions, as a complement to the imperatives of legality, in the resolution of some of the most persistent problems associated with the Nigerian brand of federal system of government. This persistent struggle for revenue has however the wide ranging effect on the sustainability of programs and reforms for the economic transformation of the entire Nigerian economy.
However, there are some issues which constitute challenges and contending issues confronting intergovernmental fiscal relations in Nigeria. These include among others:
1) Non – Correspondence Problem
Ideally, each level of government should be given adequate resources to allow it discharge its responsibilities. Because this is not possible, there is usually a lack of correspondence between the spending responsibilities and the tax powers/revenue sources assigned to different levels of government. It is this incongruence that is often referred to as the non-correspondence problem. In Nigeria, most of the major sources of revenue come under the jurisdiction of the federal government yet lower levels of government are supposed to generate internal revenue. There is, therefore, the need to resolve the imbalance between assigned functions and tax powers. The issues concerning fiscal relations among the constituent units of the Nigerian federation that remain mostly unresolved are the divergence between assigned functions and tax powers, principle of horizontal and vertical revenue allocation, dependence of states and local governments on federal sources of funding, tendency towards concentration and federal presence in the states. The five principles currently applied in the horizontal revenue allocation formula are far from acceptable to all the stakeholders
2) Fiscal Autonomy and Independence
The issue of relative fiscal autonomy and independence of the state and local governments in a true federal structure goes with the corollary issue of the correspondence of governmental functions and revenue sources. Since the creation of the twelve-state structure in 1967, states and local governments have been excessively dependent on the Federation Account. This independence must be reduced if the federating units are to be free to pursue their own development goals without being hampered by the unpredictable fluctuations in their shares of the Federation Account. It is important that revenue sources should be reallocated and made compatible with the fluctuations stated for each tier of government to enhance steady and proper funding of administrative and developmental activities instead of the often experienced unexpected financial constrictions at the two lower tiers of government.
3) Oil Producing States, Oil Producing Local Government Administrative Areas or Communities
In the year 2000, Professor Omo Omoruyi in his treatise “the Politics of Oil: who owns the oil, Nigeria, states or communities” raised three salient questions on true ownership of oil in Nigeria. The question of local control over local resources is an established constitutional principle in federal systems. But the way the Nigerian federal system developed under the external colonial order (1954-60) and continued under the period of geo-ethno-military internal colonial order (1960-1999) and in the democratic dispensation between 1999 to date is yet an unresolved contending issues in the discourse about Nigeria’s federalism. He challenged the “Tripod” approach to Nigeria’s problem where the three major ethnic nationalities decide the content and the trend of national issues. “This tripod approach to Nigerian politics, should have been done away with by now, with the introduction of the notion of ‘federal character’, which takes states in the federation as the units of representation. The tripod approach to Nigerian politics also applies to how the oil, which comes from the non-majority areas, is approached in the political and economic discourse. We should also be aware of the feeling among the majority ethnic nationalities that the areas producing oil by virtue of powerlessness in the military and politics should not be allowed to lay claim to the oil from their areas as of right.”
However, Professor Omoruyi drew a distinction between oil producing communities and oil producing states. This is the basis of the activities of the Traditional Rulers of the Producing Communities who are dealing with the President and want the money due to states on the basis of the 13% derivation in the Constitution should be paid to the “oil producing communities/local government areas”. The Traditional Rulers’ argument is that “communities” own oil and not “states”. This is an unresolved issue and separates the communities in riverside areas directly affected by oil spillages from their compatriots in landed areas from enjoying the full benefits of allocations to producing states. One does not know the end of this argument. How should the National Assembly address this matter? The federal government should find a way of making the oil producing local government administrative areas as shareholders in the joint venture arrangements with the oil companies, thus making them stakeholders in the oil industry. There was the issue of who should be spending the oil money. Should it be the Nigerian government in conjunction with the oil producing areas? Should it be the oil producing areas alone? The Constitution from 1960 till after the civil war up till 1978 gave the right of ownership to the federal government but the proceeds were shared between the federal government and the regions or states on the basis of derivation like the agricultural crops. Professor Omoruyi further averred, “for the avoidance of doubt, the ownership question was clearly spelt out in the 1979 Constitution and in subsequent enactments. From the 1979 Constitution, any claim of the right of ownership of minerals was denied the units in the federation called states. This rule also denies the right of ownership to local communities. We need to ask the extent to which this portends any solution to the Niger Delta crisis and its implication for a constitutional amendment.”
4) Federation Account and the Derivation Fund
It is important to define what constitutes the Federation Account to which the various vertical revenue allocation formulae have been applied and what should be directly financed from it. Up to 1990, the amount accruing yearly to the Federation Account was still over 96% of totally federally collected revenue; but since 1991, when it first dropped to about 75% and nose-dived to around 35% by 1997, it showed no sign of recovery. It is therefore clear, that in such a situation, whatever the vertical formula applicable, there must still be a serious fiscal imbalance between the federal government and the two lower tiers of government. It is crucial to redress this revenue imbalance in the spirit of balanced true federalism. What appears to account for this imbalance is the assertion of the self-claimed right by the federal government to finance various first-line charges from the Federation Account before the application of the vertical formula. The first-line charges include funding for external debt service, national priority projects, NNPC priority projects, special reserve account, and excess proceeds of the crude oil sales account, and in addition, the joint venture cash calls account.
These deductions are made from the proceeds of crude oil sales before the derivation fund in the Federation Account is arrived at, and after which further deductions for special funds and the funding of the federal capital territory are made. It will seem more logical, with the exception of the joint venture case calls, that these various charges which are federal government obligations be financed solely from the federal government’s revenue proper that is from its share of the Federation Account or from its revenue from other sources. Therefore, in order to determine what constitutes the derivation fund, resolving the issue of the Federation Account is crucial. Thereafter, the derivation formula to be utilized can be arrived at.
5) Oil – Producing Areas and the Derivation Principle
That the crude oil production has been the most important economic activity in the Nigerian economy since the early 1970s is not subject to debate. Its impact is not limited to its contributing almost 90% of Nigeria’s total foreign exchange earnings but also to the fact that the national budgets are predicated on the expected annual production and price of crude oil. Thus, crude oil is the primary engine for national economic growth and development. It is, therefore, quite reasonable to expect that the areas producing the nation’s crude oil would be very highly developed as compensation for what is taken away as well as for the devastation on the land engendered by the exploration process. There should have been development of physical and social infrastructures, human capital creation, and economic empowerment of the general citizenry in those areas. The Niger Delta area suffers near total neglect by both the federal government, which claims ownership of the oil, and the multinational companies, which actually exploits the oil reserves. It is a picture of wanton environmental degradation of all types – land (despoliation of farmlands), water (destruction of fishing areas and sources of drinking water), and air (release of many pollutants causing diseases in humans, animals and plants).
The people in the Niger Delta states who hitherto were able to cater for their needs are now being confronted with poverty through loss of their means of livelihood. The intervention of the federal government through the Niger Delta Development Commission (NDDC) seems to be a welcome development. However, the missing factor seems to be the proper treatment of the derivation principle in a way that would enable the state and local governments of the oil producing areas to handle their developmental problems according to their own felt needs and priorities. The minimization of the derivation factor over the years from the earlier 50% to 1% and now 13%, only as it affects crude oil is unjust and unfair when one considers that Igbeti Marble attract 55% derivation and the Value Added Tax (VAT) still attracts 20% derivation. The challenge will be to reexamine the issue of derivation particularly in line with the new democratic experiment.
6) Intergovernmental Fiscal Relations and the Economy
It is expected that fiscal decentralization would stimulate growth and development. There is the need to ascertain whether this has taken place in the country particularly as large amount of resources have been transferred from the center to both State and Local Governments. The latest of several official and unofficial constitution reform initiatives, the NPRC is charged with forging a national consensus on new constitutional blueprint for reinforcing the unity, cohesion, stability, security, progress, development and performance of the Nigerian federation. Yet, halfway into its proposed four-month tenure, the NPRC is already embroiled in the contradictions and divisions often associated with the politics of mega-constitutional change in deeply divided societies. Especially palpable is the increasing polarization of the Conference along a geopolitical fault-line that pits putative southern Nigerian constitutional reformers against more pragmatic northern conservatives
Recommendations
What do we make out of the whole gist on oily affairs in Nigeria? The focus on revenue sharing, as opposed to revenue generation and accountability in the utilization, is the primary cause of economic, social and political decays in the country, and never strictly, the paucity of funds either in the north or south. There is need for our leaders to look inwards and consider some other internally generated revenues for each state in the federation. It is has been argued before now that without quality and accountable leadership, even if the whole revenue from oil is channeled to the southern soil, the situation will not be different from what we have now. Rather, the major elements in the region will have their field day in what should serve the common good of all. In other words, the people of the area will be nailed to the apron strings of official kleptomaniacs. If poverty in the northern region is traceable to paucity of fund, then the leaders ought to be blamed. This is so because the Northerners had held sway in the helm of affairs in the country for so long a time. Is it possible that these leaders have deliberately starved the region of fund? Even till the recent time, can the destruction of government institutions, basic amenities and massacre of humans in the north by the Boko Haram also be blamed for paucity of funds even with the inability of the leaders to tame the menace? I still maintain that the quality of leadership in the region is far more responsible for the abject condition of the people and not fund. While to the delight of Governor Aliyu and Lamido Sanusi, they preoccupied themselves with whipping up sentiment against Southerners through their unsubstantiated claims, they were eloquently silent on the issue of Internally Generated Revenue, IGR, wealth creation, prudent resource management and how much their region contributes to the national coffers.
There is an unfortunate culture of dependency syndrome entrenched among our leaders. Everybody depends on oil for integral development. Nobody thinks inward for survival. And by so doing, an abject dependency syndrome is ensconced as a way of life of the people. The problem created by the dependency syndrome is that stifles creativity and initiative thereby leading inexorably to steady retardation of mental growth and stunted minds. Hence, there is an urgent demand for mental revolution among our leaders and the people if we are to survive.
It is not doubtful that the neglect of the environmental and ecological problems of the oil producing communities by the federal government, its tacit support of the reckless disposition of the oil companies, and its suppression of groups that have arisen to oppose these, have nurtured and strengthened resentment of the federal government, as well as given rise to deep seated feelings of northern, especially Hausa/Fulani domination of the polity and the attendant marginalization of the minority groups, from whose areas the oil revenues are derived. In any case, a combination of perceived and real lack of responsiveness on the part of the federal government have helped to nurture and mobilize negative sentiments by the popular masses, which have now created the foundations upon which the elites from these areas, especially the elected governors under the current democratic dispensation, have launched their demands for resource control, which intensified from the year 2000. Thus, there is need for a responsible approach to oil exploration in the oil producing areas. The Nigerian government has a unique opportunity to improve her public standing in the Niger Delta, by encouraging sustained effort that could cushion the effects of oil exploration in the affected communities. Added to this, there should be tough regulations imposed by the Federal Government to stop dangerous practices as gas flares and oil spillage, while the oil companies should be compelled to improve environmental and ecological protection standards.
From the preceding exposition of the controversy surrounding resource control, it is lucid that there are two major sources of friction/tension in Nigeria’s fiscal federalism and intergovernmental relations, which serve as the justification for the demand for resource control, thus fanning the embers of discord, and which invariably need to be properly addressed in order to come to terms with it. The first concerns the manner of the sharing of national revenues between the federal and state government’s appropriation of what the states have considered to be a disproportionately high percentage. Under the current formula in operation, 52.68% of monies collected and remitted into the Federation Account are ceded to the Federal Government; states get 26.72% while local government councils get 20.6%. Although the Revenue Mobilization, Allocation and Fiscal Commission, RMAFC, in December 2013 announced its readiness to unveil a new revenue allocation formula shortly after it submitted the graft to President Jonathan. The second source of friction in Nigerian fiscal federalism concerns the formula for the distribution of states’ share of the federation account amongst the federating units, which is presently characterized by strong feelings of being cheated or not getting a fair share, especially among the oil producing states. Hence, there is a challenge of how to balance the principle of derivation with the principle of equity and efficiency; the challenge of addressing historical injustice, especially neglect of ecological problems in the oil communities and the challenge of how to persuade Nigerians to recognize that federalism is the best system for Nigeria and that total resource control is incompatible with a federal arrangement. In this sense, the notion of resource control especially in its totality of ascribing full ownership of resources in one’s domain contradicts the spirit and letter of federalism. It can even lead to further brickbats between the oil producing states and the actual producing communities in the state. When dragged to an extreme, families can even push for resource control as the exploration pertains to their lands.
In this regard, it could be a humble recommendation that in such a federating system like Nigeria, the contribution of a federating unit as a source of national revenues has to be recognized such that in the sharing of the revenues, a reasonable compensation in proportion to the contribution is granted. This is without prejudice to the imperatives of equity, need and equalization. Special Funds allocated to cushion the effects of oil explorations through institutions such as the NDDC, Niger-Delta Ministry ought to be increased and JUDICIOUSLY spent to satisfy popular needs and aspirations. In this case, is recommended that communities have to be empowered and significantly involved in the activities of these agencies.
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