How Nigeria Short-Changed Oil Producing Areas

In the last 20 years, about 2,000 persons have been killed in pipeline_related explosions, and the Federal Government admitted that 40,000 oil spills had occurred in the past 53 years of oil exploration.

Since Nigeria started generating revenue from crude oil in 1958, the country has earned about N50.696 trillion or N1 trillion a year, Saturday Vanguard investigations have shown.

Of this princely sum, which accounts for about 80 per cent of the country’s federal revenue, only N6.577 trillion or less has been paid to the oil producing areas as derivation. The figure is N18.771 trillion less than the N25.348 trillion the oil-bearing regions should have got as derivation if 50 per cent derivation had not been jettisoned few years after crude oil became the chief revenue earner.

Between 1958 and 2007 (CBN Annual Report and Statement of Account, 2008), Nigeria earned N29.8 trillion from petroleum resources. And between 2008 and 2011, the country generated N20.895 trillion.

Oily death

However, the huge earnings, arguably, have not translated to improved welfare for the people of the oil producing areas, whose environment -land, water and air have been adversely contaminated and in many cases devastated and polluted. In the last 20 years, about 2,000 persons have been killed in pipeline_related explosions and accidents in the region.

Indeed, a World Bank report warns that 40 per cent of habitable terrain in the Niger Delta area would disappear in 20 years if strong-willed remediation was not carried out. And the Federal Government admitted that 40,000 oil spills had occurred in the past 53 years of oil exploration.

In the report, the World Bank claimed that the palm groves, shorelines, creeks and other habitable areas would be washed away by erosion as well as spills due to vandalism, system failure and crude oil theft.

Apart from effects of oil spills, gas flaring constitutes a veritable hazard. It causes acid rain which acidifies the lakes and streams and damages crops and vegetation. It reduces farm yields and harms human health; increases the risk of respiratory illnesses, asthma and cancer and often causes chronic bronchitis, decreased lung function, blindness, impotence, miscarriages and premature deaths.

Constant heat and the absence of darkness in some communities have done incalculable damage to human, animal and plant life in affected areas. Gas flares also cause affected places to be covered in thick soot, making even rain water unsafe for drinking.

A United Nations Environment Programme (UNEP) report, last August, criticised how the Shell Petroleum Development Company (SPDC) deals with the environmental damage it has caused in the Niger Delta, especially in ogoniland. UNEP said Ogoniland needed the world’s largest ever oil clean_up, which would cost an initial $1billion or N160 billion and could take 30 years.

How Ogoniland and other polluted communities would be cleaned is a matter of conjecture. If now that oil revenue is available the areas cannot be cleaned, is it when the revenues cease that the task will be embarked upon?

By projection, Nigeria currently has a proven crude oil reserves of about 37.2 billion barrels which at the current rate of exploitation (2.5mbp) may be exhausted in the next 40 years unless new deposits are discovered.

Like most oil-bearing areas of the world, the Niger Delta has a tough terrain, which needs huge funds to be developed. Often times, oil producing areas are marshy or arid and most part parts of the Niger Delta is marshy.

The devastation of the Niger Delta region has been attributed, among others, to many failures of policy in the region and refusal of the government to pay special attention and inject funds into the area for development. Till date, no city in the region has been mapped out for a special development as the government did in Lagos and Abuja.

In the beginning

In 1958, before crude oil became a critical factor in Nigeria’s development, Sir Henry Willink’s Commission recommended that the Niger Delta region deserved special developmental attention by the Federal Government because of its difficult terrain. In response, the government established the Niger Delta Development Board (NDDB) in 1960 to tackle the developmental needs of the region. The board in its seven years of existence achieved little or nothing. It was consumed by the military coup of 1966 and the outbreak of the civil war in 1967.

Before and shortly after Nigeria’s independence in 1960, the federating units (regions) retained 50 per cent of revenues derived from their areas and contributed the rest to the central pool. It was on this basis that the regional governments led by late Chief Obafemi Awolowo (West); Dr Nnamdi Azikiwe (East); Sir Ahmadu Bello (North) and later Dennis Osadebey (Mid-West) unleashed unparalleled development in their respective areas.

However, the 50 per cent derivation principle was kicked aside by the military in 1967 as earnings from crude oil skyrocketed. First, part of the proceeds were used to prosecute the Nigeria-Biafra civil war of 1967 to 70. After the war, the military rulers refused to return to the status quo and chose to disburse funds to the states as they deemed feat. The military also created numerous states and local councils, which were funded with oil money. The oil producing areas were short-changed in the series of state and councils creation sprees.

With crumbs coming from the centre as allocation and their primary occupations – fishing and farming inhibited by oil pollution, Niger Deltans embarked on vigorous agitation to save their lives and environment.

In response, the President Shehu Shagari Administration set up a Presidential Task Force (popularly known as the 1.5 % Committee) in 1980 and 1.5 per cent of the Federation Account was allocated to the Committee to tackle the developmental problems of the region. This committee could not achieve much. There were doubts if the government actually disbursed 1.5 per cent of the revenue to the committee. And most of the funds released were allegedly looted.

Discontent in the area was to continue. So, when General Ibrahim Badamasi Babangida came to power, he set up the Oil Mineral Producing Areas Commission (OMPADEC) in 1992 and allocated 3 per cent of federally collected oil revenue to it to address the needs of the areas. Like its forebears, the OMPADEC, which initially raised hopes also failed to deliver as it perceptively became inefficient and corrupt.

When General Sani Abacha took over, he set up the Petroleum Trust Fund (PTF) headed by Major General Muhammadu Buhari (rtd). The PTF did not meet the yearnings of Niger Deltans as its mandate covered all parts of the country. With critics saying that the PTF carried out more projects in northern parts of the country, restiveness in the Niger Delta assumed a higher gear. Abacha convened a National Constitutional Conference (NCC) in 1994, where conferees agreed on at least 13 per cent derivation. Abacha did not live to implement the recommendation.

His successor, General Abdulsalami Abubakar included it in the 1999 Constitution, which he handed over to President Olusegun Obasanjo on May 29, 1999.

On his part, Obasanjo scrapped the PTF and established a special body, the Niger Delta Development Commission (NDDC), to undertake rapid development of the impoverished oil region.

He foot-dragged on the payment of the 13 per cent derivation until the oil producing states got a court judgement, which forced him to pay the proceeds beginning from June 1999.

At the National Political Reforms Conference (NPRC) convened by Obasanjo in 2005, South-South delegates insisted on 25 per cent derivation and had to walk out on the gathering when the other parts of the country said they could not approve anything more than 18 per cent, which was later recommended.

However, this recommendation did not see the light of the day and died with Obasanjo’s alleged third term ambition. And the agitation for enhanced welfare continued.

On succeeding Obasanjo, late President Umaru Musa Yar’Adua established the Ministry of Niger Delta Affairs, to offer more palliatives to the region. When militancy took the upswing in the area and knocked down oil production to about one million barrels per day, he also offered amnesty to the militants, a progamme that has gulped billions of Naira.

President Goodluck Jonathan inherited the programme and has been implementing it.

Fire of controversy

The current fire of derivation controversy raging in the polity was ignited a few weeks ago when a host of northern leaders including Central Bank of Nigeria (CBN) Governor, Malam Lamido Sanusi; Niger State Governor and Chairman of the Northern Governors Forum (NGF), Dr Mu’azu Babangida Aliyu; the Arewa Consultative Forum (ACF) and Dr. Junaid Mohammed decried the huge revenues going to the oil producing states and sought reduction of the proceeds to free more money that could be allocated to northern states. Some of them attributed the Boko Haram insurgency ravaging many northern cities especially in the North-East geo-political zone to poverty arising from disproportionate revenue allocation to the North.

The northern demand drew the ire of some Niger Deltans, who demanded true federalism and 50 per derivation. The government extended the 13 derivation to cover other minerals as all states of the country have mineral resources that could be explored and exploited.

Governors meet Wednesday

Amid the raging controversy, Rivers State Governor and Chairman of the Nigeria Governors Forum, said on Thursday that the governors would meet on the issue on Wednesday.

Responding to a question on the governors’ disagreement on 13 per cent derivation at a lecture in Lagos, Amaechi said: “There is nothing like that apart from press-sponsored disagreement among the governors. The governors will meet on Wednesday to discuss the matter. The Nigeria Governors Forum position is that the states need more revenues than the Federal Government because there are more responsibilities in the states than at the federal level. We did not talk about derivation.”

Let’s return to true federalism – Anyaoku

Disturbed by the dangerous dimension the derivation question and other issues such as insecurity and stunted growth were taking in the country, former Commonwealth Secretary General, Chief Emeka Anayaoku, has canvassed a return to true federalism, to address the issues.

Speaking a colloquium to mark Asiwaju Bola Ahmed Tinubu’s 60th birthday in Lagos, he said: “I do believe that a true, rather than our current unitarist federalism, will better promote peace, stability and development in Nigeria.

There can be no doubt that Nigeria was making more progress in national development in the early years of its independence when it practiced a true federalism of four regions with more extensive powers devolved from the centre to the regions.

Those were the days of the significant export of groundnuts, hides and skins, and the tin ore from the North; of cocoa from the West; of rubber from the Mid-West; and of palm produce and coal from the East of Nigeria. They were also the days of such achievements as the free universal education and introduction of television in Chief Awolowo’s Western region, and of the budgeoning industrialization of Dr Okpara’s Eastern region.

“To return to true federalism, we need a major restructuring of our current architecture of governance. We would need six federating units, instead of our present 36, which not only sustains an over dominant centre, but also compels the country to spend not less than 74 per cent of its revenue on the cost of administration. If the existing 36 states must be retained in some form, they could be made development zones with minimal administrative structures within the respective six federating units.

“No one can seriously deny that there are major challenges currently facing our country. The challenges include the state of national insecurity which has been heightened by the activities of the Boko Haram; the raging debates over revenue derivation and allocation; the obvious decline in standards and scope of our public services, especially in education, health and the civil service.

“We need to convene a national conference of appropriately chosen representatives of the six geopolitical zones to dialogue on how to face these serious challenges.”

At the top of the agenda should be to reach a consensus on the fundamentals of our constitution including a new architecture of governance that will best promote peace, stability and development in Nigeria.

“I believe that if we are to recapture the zeal with which the then regional Premiers and their electorates embarked on the development of their regions, if we are to arrest the present destructive competition between our various ethnic groups for the control of power at the centre, and if we are to repair the collapse in our societal value system which is at the root of the pervasive corruption and degradation of our public services, we should aim at getting the national conference to reach a consensus on devolving from the centre to the six federating units responsibility for such areas of governance as internal security including the police, infrastructure, education, health and economic development.”

Anyaoku’s suggestion has the endorsements of many eminent Nigerians drawn from all parts of the country. How long the government will shy away from convening the confab is to be seen.

Crude oil production and revenue in Nigeria (1958-2011)

Year Prod(M ba) R(N) Dertn(N)

1958 2 0.2 M 50% (0.1M)
1959 4 3.4M 50% (1.7M)
1960 6 2.4M 50% (1.2M)
1961 17 17M 50% (8.5M)
1962 25 17M 50% (8.5M)
1963 28 10M 50% (5.0M)
1964 44 16M 50% (8.0M)
1965 99 29M 50% (14.5M)
1966 152 45M 50% (22.5M)
1967 117 30M 50% (15.0M)
1968 52 – –
1969 196 75.4M –
1970 396 167M –
1971 559 510M –
1972 655 764M –
1973 719 1.016B –
1974 823 3.724B –
1975 660 4.272B –
1976 758 5.365B –
1977 766 6.081B –
1978 696 4.556B –
1979 846 8.881B –
1980 760 12.354B –
1981 526 8.564B –
1982 471 7.815B 1.5% (117.9M)
1983 451 7.253B 1.5% (108.795M)
1984 508 8.264B 1.5% (123.96M)
1985 547 10.915B 1.5% (163.725M)
1986 536 8.107B 1.5% (121.60M)
1987 483 19.027B 1.5% (285.05M)
1988 529 20.934B 1.5% (314.01M)
1989 628 39.131B 1.5% (586.96M)
1990 661 55.216B 1.5% (828.24M)
1991 689 60.314B 1.5% (904.71M)
1992 711 115.392B 3 % (3.462B)
1993 695 106.192B 3 % (3.204B)
1994 692 160.192B 3 % (4.830B)
1995 715 324.548B 3 % (9.736B)
1996 682 369.190B 3 % (11.0758B)
1997 855 416.811B 3 % (12.504B)
1998 806 289.532B 3 % (8.686B)
1999 775 500.0B 13%-June (32.5B)
2000 828 1.34T 13% (174.2B)
2001 860 1.7076T 13% (221.91B)
2002 726 1.2309T 13% (160.017B)
2003 844 2.0743T 13% (269.659B)
2004 900 3.3548T 13% (436.124B)
2005 923 4.7624T 13% (619.112B)
2006 814 6.109T 13% (794.17B)
2007 880 6.70T 13% (871B)
2008 3.96T 13% (514.8B)
2009 2.22544T 13% (289.307B)
2010 9.15T 13% (1414.91B)
2011 5.561T 13% (722.9 B)

TOTAL 50.696T 6.577T

Source: Petroleum Inspectorate, NNPC (CBN
Annual Report and Statement of Account 2008 and Saturday Vanguard’s research.

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