Oil quest in Northern Nigeria to set off 13% derivation demand

President Muhammadu Buhari has flagged off the crude oil drilling on Kolmani Oil Prospecting Licence 809 and 810 at the Kolmani field sites in Bauchi and Gombe states, fulfilling a life-long ambition to explore oil in the north but could spur fresh agitations for revenue sharing.

Nigeria’s constitution gifts oil-producing states 13 percent of crude oil sales, called a derivation fund, to cushion the effects of the devastations of oil exploration, as well as to recompense oil-producing communities for divesting them of their proprietary right.

This is shared in proportion to the perceived value of crude exploited from the states.

Analysts say the excitement about oil discovery among northern elites hinges mainly on the prospect of being included among beneficiaries of the derivation fund. But with the record of misgovernance from their counterparts in the South and their own history of inept leadership, there could be little to cheer for millions of people in northern Nigeria living under abject poverty.

Read also: Obasanjo replies Clark, says he granted 13% statutory derivation to Niger Delta

Some people from the region are already calling for inclusion among states that are entitled to 13 percent derivation despite the first barrel of crude not being sold.

“Crude oil from Kolami Oil Field Alkaleri, Bauchi. Gombe next, then Adamawa, Borno, Yobe & Sokkoto states. Dear Baba Buhari, Where are our 13 percent derivatives? We are now an oil-producing region of Nigeria too,” tweeted Adamu Garba, a former senator from Yobe State.

Kogi State recently won the tag of oil-producing state after the Federal Government revenue agencies ruled that the oil well previously declared to be in Anambra state ought to be classified as belonging to Kogi.

Yahaya Bello, the state governor, in October, said: “I am elated to announce to the good people of Kogi State that my administration has received our first derivation allocation as an oil-producing state. This announcement is in line with my administration’s commitment to transparency and accountability,” he said.

The Nigerian Extractive Industries Transparency Initiative describes the 13 percent derivation fund as a financial incentive that is enshrined in the constitution to be disbursed to oil -producing communities as a way to encourage them to create a more enabling environment for more production of crude oil and gas.

Yet in these communities, little benefits trickle down to the people. This has worsened agitations in the Niger Delta, leading to sabotage of oil and gas facilities and rising spate of crude theft.

Communities in Ibaji Local Government Area of Kogi where the oil well was drilled have already written to the governor asking for what would be due them from the money in first signs of trouble ahead.

Based on the constitutional provision of derivation, state governments in the Niger Delta region, such as Rivers, Akwa Ibom, Delta, Edo, Abia, Ondo, Imo, Cross River, and Bayelsa, have received over N9 trillion as 13 percent derivation funds between 1999 and 2018. This is aside from other monetary allocations accruing to these states as development funds, according to a research on the fund by Emmanuel Nwakanma and Sofiri Joab-Peterside, from the University of Port Harcourt.

“However, despite this huge revenue available to the state governments in the region, the Niger Delta and its communities have remained a model for impoverishment and agitations,” they said.

Political leaders from Northern Nigeria have railed against the payment of derivation funds to mainly southern states. Representatives in the National Assembly from the region have been vocal in criticising the abuse of funds meant to develop the Niger Delta region.

If the trend of political agitations in Nigeria is any indicator, these criticisms about abuse of the derivation fund could start to fizzle out.

Qualifying for derivation fund

Section 162, sub section (2) of the 1999 Constitution as amended provides that “the President, upon the receipt of advice from the Revenue Mobilisation Allocation and Fiscal Commission, shall table before the National Assembly proposals for revenue allocation from the Federation Account, and in determining the formula, the National Assembly shall take into account, the allocation principles especially those of population, equality of States, internal revenue generation, land mass, terrain as well as population density.”

It says the principle of derivation shall be constantly reflected in any approved formula as being not less than 13 per cent of the revenue accruing to the Federation Account directly from any natural resources.

Lawmakers pass constitutional amendment bills including states that qualify and they are approved by the Revenue Mobilisation Allocation and Fiscal Commission. The funds are shared based on the contribution to the state from oil derived in the region.

Experts say the essence of revenue allocation is for host governments and oil-bearing communities to be able to utilise these funds to reduce the social, economic, and environmental challenges created by the extraction of these minerals.

The oil-producing states have all created oil-producing area development commissions to execute development projects in their oil-producing and impacted areas. But very little of these funds flows to these commissions.

In Abia State, for example, the government budgeted N2.04 billion for its oil-producing development commission in 2019 but received N6.8 billion derivation fund.

Last year, lawmakers raised key concerns following proposals to include Lagos, Ogun and Bauchi as oil-producing states. It was not clear if they would also be included in the Niger Delta Development Commission, a commission created to address poor infrastructural development in oil-producing states in the region.

It is not also clear if the conditions would allow full exploitation of the crude oil found in the North set to be of commercial quantity. Previous attempts were scuttled in 2016 by Boko Haram terrorists who attacked the engineers and kidnapped some of them.

Get real time updates directly on you device, subscribe now.