by Haruna Y. Sa’eed,
President Muhammadu Buhari met the leaders/representatives of the Niger Delta, or rather the oil producing states, on November 1, 2016 on the lingering economic and security issues in the oil producing areas. The Niger Delta leaders presented a list of 16 demands as condition for peace in the region. Further, two other demands were added: that there should be no mistake of announcing policies and plans, relating to the issues, without vigorous public scrutiny and inputs; and that the problem would remain if those affected were excluded from the process of designing the solutions to those problems. Yet, the leaders were said to have condemned criminality and destruction of national assets in the region. On his own part, the President told the leaders that he did not want a quick solution to the issues they raised, but that he needed to get to the root of the matter.
Indeed, the President’s quest and responsibility for first getting to the root of the issues is what leadership demands. However, that is where the real problem lies. We all want to go to heaven, but none of us wants to die or even obey the Lord’s commands as preconditions. We want to take all the money, but expect someone else to take care of our needs. Nearly all the 16 demands of the Niger Delta are cost related and justification given for previous interventions received, including some that were not sought for. But, then, where is the money? It is with oil producing states. In this month (October) alone, while the states in the federation (including the oil producing) shared N135.56bn, eight oil producing states first received N28.4bn under derivation. Nothing was given to solid mineral producing states. Therefore, to address these issues the rights of the oil producing states must be known and appreciated by the Federal Government on the one hand and the oil producing states, communities and individuals on the other.
These rights, as specific to the region and general to all the federating units, are imbedded in the constitution and other international laws and agreements. Yet, these documents were thrown away by two arms of government: the Executive and the Legislature. We cannot blame the Judiciary as no interpretation was demanded of it. The seed of the problem was sown by the former. As far back as 2000 when I was on the Federation Accounts Allocation Committee as the Accountant-General of Kaduna State, I drew the attention of the committee’s obvious errors in the computation of the mineral revenue as a basis for implementing the 13% derivation to no avail. To drive the point further, I wrote a paper to show the error being committed by the committee for which no correction was made. As if this error was not enough, the National Assembly came and abolished the onshore-offshore dichotomy in the determination of the mineral revenue.
Every dialogue and negotiation starts with each party sitting on its right and understanding the rights of the other followed by concessions. The Federation Account Allocation Committee, FAAC, had unilaterally, against the constitution and outside the demand of the oil producing states, grouped revenues not provided by the constitution into mineral revenues. Historical antecedents and constitutional provisions are very clear on this. Drawing from my 2000 paper, I shall summarise this.
The inclusion of derivation as a factor in the allocation of national revenue is not new. The Phillipson Commission Report, 1946, considered three principles for sharing non-declared revenue (revenues collected by the Central Government) to include: derivation, even progress and population of the then regional governments. This was implemented from 1948-1952. The Hicks Phillipson Commission Report of 1951 considered four factors: Independent revenue, derivation, need and national interest. This ran for two years only. The Chick Commission of 1953 had, as part of its terms of reference, the task of ensuring “that the total revenue available to the nation are allocated in such a way that the principle of derivation is followed to the fullest, compatible with meeting the reasonable needs of the centre and each region”. This operated for five years, 1954 -1959. While mineral royalties were allocated in full to the regions from which the mineral was extracted, company tax (including companies engaged in mining) proceeds were retained in full by the centre. There was also Raismen Commission (1958) whose report was implemented from 1960 – 1965. In this, revenue from mining rents and royalties were allocated among the regions whose areas the mining existed, the centre and the distributable pool. There was also the Binns Commission Report (1964) that had among its terms “examining the appropriateness, in the prevailing circumstances (then) in the country, of the formula for the allocation of the proceeds of mining rents and royalties laid down in Section 140 of the Nigerian Constitution”. The commission focused on the Distributable Pool Account and rejected sharing among the regions on the basis of derivation. The principle of financial needs was also rejected and the Distributable Pool was allocated in the ratio of 42:30:20:8 to Northern Region, Western Region, Eastern Region and Mid-Western Region respectively. The basis for the distribution was “financial accountability”.
With the coup in 1966, the constitution decree No 15 of 1967 was promulgated and 12 states created. The only change the military did was to share to the states in each region what accrued to the regions. There was also the Okigbo Report, after which little modifications were made to the formula of sharing the distributable revenue for some time. A weight of 1% on mineral revenue had been allowed for derivation until the 1999 constitution put a final seal on the issue of derivation – a minimum of 13% inserted. Section 162(2) which took effect from 1st January 2000;
“…Provided that the principle of derivation shall be constantly reflected in any formula as being not less than thirteen percent of the revenue accruing to Federation Account directly from any natural resources”(Emphasis provided).
The stock of literature provided by the reports of the various ad-hoc committees/commissions for the review of the fiscal arrangements has not provided the list of revenue items that constitute the mineral revenue – as well as the constitution. However, mention was frequently made of mineral rents and royalties whenever derivation principle was recommended. Interestingly, all agitations for derivation were only on the two – rents and royalties. The constitution drafters must have, also, had this in mind to have used the phrase “directly from any natural resources”. Only the two qualify: rent payable on land allocated and royalty payable on oil realised.
Despite the clarity of the reports and the constitution, the FAAC ignored the provisions therein and decided to be calculating and paying the 13% on a sum of six revenue items, namely: Crude oil receipt, petroleum profit tax, royalty, rent, penalty for gas flared and petroleum inspectorate charges. It also ignored all international conventions that stipulate off shore as only under national governments – not states. Additional explanation can be given.
One, crude oil receipts represent the sale proceed from the sale of the share from investment in the joint venture with some oil majors. This crude should have been charged royalty on the total volume, including the portion attributable to the oil major. Further charges is like a farmer letting a piece of land for a fee and token (royalty) on yield then coming round to demand share from sales proceed from the sale of farm produce realised and/or profit. Two, profit tax is payable by the companies engaged in the oil business on their operations after realising oil and payments of rents and royalties. Every company is subjected to taxation. Having received rent and royalties, receiving tax income will amount to double charges by the OPS and negating the constitutional provision – direct and natural. Three, penalty for gas flared has an inverse relationship with the quality of natural resources realise, the more gas a company flares, the more money it pays. As in the name, it is a penalty for refusing to use natural resources and not for derivation. Four, inspectorate charges has nothing to do with real oil, but a kind of levy to help fund the Ministry or the Inspectorate Department in the discharge of inspectorate activities.
Therefore, while the President struggles with the 16 demands from the Niger Delta, the first is to follow the advice of the leaders: subjecting the demands to vigorous public scrutiny and inputs, including all those affected in the process of designing the solutions to these problems – this will include all federating units; as well as his promise to take his time to get to the root of the matter. Doing these will take him to understanding that a number of things have gone wrong, especially duplications in resource allocation and institutional arrangements – MDAs, states, appointments, projects and other incentives created. He will also realise that even with Fiscal Federalism and full resource control, the OPS will not partake in crude oil sale and they also agree to let go tax. Thus, the President needs to understand these fully and also make the region understand as well. While the centre can handle some, others will call for understanding and acceptance of other stakeholders – states and local governments. A constitutional tinkering may also be required for some. This, I strongly caution, as the obvious consequences are dare and historically unpleasant. It further needs to be understood that whatever is agreed upon should be a standard applicable to other oil producing states, including Lagos and those likely to come on board in the Chad Basin, Bida Trough and Benue Valley, as well as a solid mineral producing areas.
As a general guide, every negotiation should, in meeting the yearnings of any group or political enclave, work towards achieving the objective of allocating scarce resources as to enhance national development and unity. To the oil producing states or rather, mineral producing states in general, that receive deviation, it will be prudent, transparent, accountable and purposeful for each to create a fund into which the monthly collection will be budgeted, lodged and utilised independently with active participation of all stakeholders in the state. This fund should cater for most of the issues the states agitate for and the reasons for the derivation principle.
Haruna Y. Sa’eed wrote from Kaduna