REVENUE DERIVATION UNDER THE 1999
CONSTITUTION OF THE FEDERAL REPUBLIC OF
NIGERIA (AS AMENDED): APPLICATION AND
CONSTRAINTS
BY
DR. BALKISU SAIDU
(Senior Lecturer, Department of Public Law and
Jurisprudence, Faculty of Law, Usmanu Danfodiyo
University, Sokoto, Nigeria)
AT THE SIXTH ANNUAL NAEE/IAEE
INTERNATIONAL CONFERENCE, AT THE
SHERATON HOTEL LAGOS, NIGERIA
22-23 APRIL 2013
INTRODUCTION
 Nigeria is blessed with numerous abundant natural energy
resources
 petroleum (oil), gas, coal, solar, wind, sea-tides, etc
 Country’s income capacity has expanded exponentially over the
years
 especially from revenues accruing from the exploitation and sale of
petroleum products
 exports of oil and gas, in the last three decades, account for more
than 98% of Nigeria’s export earnings and 83% of Federal
Government Revenue
 exploitation of the resource is largely carried out in the Niger-Delta
region
 Absence of concomitant economic development in the region
 environmental degradation and damage to the fishery industry
 widespread peaceful and violent agitations
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Dr. Balkisu Saidu
BRIEF HISTORY OF THE DEVELOPMENT
OF NIGERIA’S OIL INDUSTRY
 Advent of the oil industry in Nigeria can be traced back to
1908
 Nigerian Bitumen Corporation-Araromi area
 Disrupted by the outbreak of the First World War in 1914
 Oil prospecting efforts resumed in 1937
 Shell D'Arcy (the forerunner of Shell Petroleum Development
Company of Nigeria)
 Interrupted by the Second World War, but resumed in 1947
 First commercial discovery on-shore in January 1956 at Oloibiri
in the Niger Delta region
 Actual oil production and export from the Oloibiri field in present day
Bayelsa State commenced in 1958
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Dr. Balkisu Saidu
HISTORY OF THE DEVELOPMENT OF
NIGERIA’S OIL INDUSTRY-CONTD
 Oil production rose from 5,100 barrels of crude oil per day in
1958 to 2.0 million barrels per day in 1972 and a peaking at 2.4
million barrels per day in 1979
 Nigeria ranked 7th major oil producer in the world in 1972
 Nigeria joined the Organisation of Petroleum Exporting
Countries (OPEC) in 1971
 established the Nigerian National Petroleum Company (NNPC) in
1977
 Petroleum production and export account for about 90% of
Nigeria’s gross earnings
 34 billion barrels of recoverable crude oil reserves
 159 trillion cubic feet (Tcf) of proven natural gas reserves
 In 2012, Nigeria was Africa’s largest producer of oil and the sixth
largest oil producing country in the world
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Dr. Balkisu Saidu
OWNERSHIP OF PETROLEUM
RESOURCES IN NIGERIA
 Passage of the Petroleum Act in 1969 seen as a major
milestone in the history of the industry
 vests the ownership of all on-shore and off-shore petroleum
resources and revenue derivable there-from in the Federal
Government
 Section 1(1)
“The entire ownership and control of all petroleum in, under or upon any
lands to which this section applies shall be vested in the State.”
All petroleum in, under or upon land, including land covered by water,
which is in Nigeria; or is under the territorial waters of Nigeria; or forms
part of the continental shelfs; or forms part of the Exclusive Economic
Zone of Nigeria belongs to the Government of Nigeria
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Dr. Balkisu Saidu
OWNERSHIP OF PETROLEUM
RESOURCES IN NIGERIA-CONTD
 Revenues that accrue to the Federal government from petroleum
products comprise of monies from payment of bonuses, fees and rents in
respect of licences and leases, royalties on exploration of these products
at prescribed rates, sale of the products in the international or domestic
markets, Oil Terminal dues and Bank Commissions, AND Taxes
 Subjects of taxes
 Exploration or oil-producing companies, which are taxed under the
Petroleum Profits Tax Act 1959 (as amended)
 Oil marketing companies, taxed under the Companies Income Tax Act 1961
 Contracting and servicing companies to the oil-producing companies also
taxed under the Companies Income Tax Act 1961
 Section 2 of the 1999 Constitution (as amended) provides for the
various units that collectively make up the federation of Nigeria
 36 states, the Federal Capital Territory Abuja, and 768 local government
areas - second column of part II of the first schedule of the 1999
Constitution
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Dr. Balkisu Saidu
APPLICATION OF REVENUES DERIVED
FROM PETROLEUM RESOURCES
 Revenues that accrue from the exploration and sale of petroleum
products are usually shared among the three tiers of government
along with other revenues generated from other sources
 petroleum production and export account for about 90% of Nigeria’s
gross earnings
 raises significant contention among the three tiers of government and
between the Federal Government and oil producing states
 Sharing formula thereof determined by statutes
 In the past, such statutes did not usually disaggregate the revenues
that accrue to the Government by the sources they accrue from
 Modalities for the implementation of the statutes had raised
controversies along the line of the sources the revenues accrue,
particularly petroleum
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Dr. Balkisu Saidu
APPLICATION OF REVENUES-CONTD
 Inclusion of provisions in the laws to cater for the special interests
of producers of the resources
 Less controversial areas for the application of the revenues:
1. Petroleum Equalisation Fund
 Petroleum Equalisation Fund (Management Board, etc) Act 1975
2. Defunct Petroleum Trust Fund (PTF)
 Petroleum (Special) Trust Fund Act 1993 (as amended) Gfjhj
3. Petroleum Technology Development Fund (PTDF)
 Petroleum Technology Development Fund Act of 1973
 Petroleum Training Institute established by the Petroleum Training
Institute Act of 1972
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Dr. Balkisu Saidu
MANIFESTATION OF TENSION IN THE
ALLOCATION OF RESOURCES
 Nigeria is culturally heterogeneous, politically pluralistic and
economically unequal
 cultural diversity or cultural pluralism of the country had played
significant but not the dominant role in the exacerbation of
tension in the determination of the formula for the allocation of
revenues derived from utilisation of energy resources
 dominant prodders of the existing tension had been the political
pluralism and economic inequality in the nation
 Balewa - Cultural pluralism is “the degree to which the citizens
of a nation are divided into mutually exclusive and culturally
distinctive groups”
 “the greater the cultural pluralism in a nation the greater the likelihood of
political instability in that nation.”
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Dr. Balkisu Saidu
MANIFESTATION OF TENSION-CONTD
 Nigeria is a nation of cultural diversity yet with relatively
compatible and mutually inclusive values
 multifarious problems
 wide economic gap among the citizens
 clamour for special allocation
 created difficulties in terms of the formulation of ways to appease the
aggrieved segments without, by so doing, enraging the other segments
 Niger-Delta region
 Amnesty programme for the militants
 yet to bring an end to violent activities
 Joint Task Force (JTF)
 ‘flush out’
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Dr. Balkisu Saidu
LEGAL AND POLITICAL FORMULATIONS
ON RESOURCE ALLOCATION
 Neglect by the Government and the multinational oil
companies
 demand for special formulation in the distribution of income
generated from petroleum exploitation
 Section 162 of the 1999 Constitution
“(1) The Federation shall maintain a special account to be called
‘the Federation Account’ into which shall be paid all revenues
collected by the Government of the Federation ……..
 Provided that the principle of derivation shall be constantly reflected in any
approved formula as being not less than thirteen per cent of the revenue accruing to
the Federation Account directly from any natural resources.” (Emphasis mine)
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Dr. Balkisu Saidu
LEGAL AND POLITICAL FORMULATIONS
 Before 1999, revenue allocation was governed by the
Allocation of Revenue (Federation Account, etc) Act, Cap. 16
Laws of the Federation of Nigeria 1990 as amended by the
Allocation of Revenue (Federation Account, etc) Decree No.
106 of 1992, which by section 1(a) to (e) provides inter alia:
(a)
The Federal Government
…… 48.5%
(b)
The State Government
…… 24%
(c)
Local Government
…… 20%
(d)
Special Funds
…… 7.5%
(i)
Federal Capital Territory
…… 1% of the
Federation Account
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Dr. Balkisu Saidu
LEGAL AND POLITICAL FORMULATIONS
a. Development of the mineral producing areas…… 3% of the
revenue accruing to the Federation Account derived from minerals
b. General ecological problems…… 2% of the Federation Account
c. Derivation…… 1% of the revenue accruing to the Federation
Account derived from universals
d. Stabilisation Account…… 0.5% of the Federation Account plus
the revenue arising out of using mineral revenue, instead of the
Federation Account, as the base for allocation to the fund for
development of the mineral producing areas and derivation
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Dr. Balkisu Saidu
LEGAL AND POLITICAL FORMULATIONS
 In 2002, the Government issued an Order ‘Allocation of Revenue
(Federation Account, etc) (Modification) Order 2002’, which
altered the previous formula to bring it in line with the proviso to
section 162 of the 1999 Constitution. The Order provides that:
“The amount standing to the credit of the Federation Account, less
the sum equivalent to 13 percent of the revenue accruing to the
Federation Account directly from any natural resources as a first
line charge for distribution to the beneficiaries of the derivation
funds in accordance with the Constitution, shall be distributed
among the Federal and State Governments and the Local
Government councils in each State of the Federation on the
following basis, that is to say –
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Dr. Balkisu Saidu
LEGAL AND POLITICAL FORMULATIONS
(a)
The Federal Government
56.00 percent;
(b)
The State Government
24.00 percent;
(c)
The Local Government Councils 20.00 percent”
56% allocated to the Federal Government shall be utilised in
the following manner:
(a)
Federal Government
38.50%
(b)
General Ecological Problems
2.00%
(c)
Federal Capital Territory
1.00%
(d)
Stabilisation Account
1.50%
(e) Development of Natural Resources 3.00%
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Dr. Balkisu Saidu
LEGAL AND POLITICAL FORMULATIONS
 24% standing to the credit of all the States in the Federation
Account shall be distributed among the States of the
Federation using the factors specified in the Act.
 20% standing to the credit of Local Government Councils in
the Federation Account shall be distributed among the States
of the Federation for the benefit of their local government
councils using the same factors specified in the Act
 Passage of the Order prompted ATTORNEY GENERAL OF
ABIA STATE & 35 ORS VS. ATTORNEY GENERAL OF
THE FEDERATION (2003) 1 SCNJ 131
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Dr. Balkisu Saidu
LEGAL AND POLITICAL FORMULATIONS
 Supreme Court “the exercise of the power to modify the
allocation formula in the existing Allocation of Revenue
(Federation Account, etc) Act, Cap. 16 Laws of the Federation of
Nigeria 1990 as amended by the Allocation of Revenue
(Federation Account, etc) (Amendment) Decree No. 106 of 1992
is constitutional and within the scope of the right of the President
under the 1999 Constitution”
 Not inconsistent with the decision in ATTORNEY GENERAL OF
ABIA STATE & 35ORSVS. ATTORNEY GENERAL OF THE
FEDERATION (2002) 6 NWLR (PT. 762) 542, wherein the
Court held that the charges on the Federation Account are
inconsistent with the provision of section 162(3) of the 1999
Constitution and therefore invalid
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Dr. Balkisu Saidu
LEGAL AND POLITICAL FORMULATIONS
 Thorny controversy of whether, in the determination of the 13%
accruable to oil producing States, there ought to be demarcation
between onshore and offshore production
 For example ATTORNEY GENERAL OF THE FEDERATION VS.
ATTORNEY GENERAL OF ABIA STATE (2002) 6 NWLR (PT. 764)
542
 In determining whether the resources derived from the littoral States
included oil drilled offshore, the Supreme Court held that “the southern
boundaries of the littoral States of Nigeria is the sea, that is, the low water
mark or the seaward limit of their territorial waters.”
 Passage of the Allocation of Revenue (Abolition of Dichotomy in the
Application of the Principle of Derivation) Act 2004
 ATTORNEY GENERAL OF RIVERS STATE VS. ATTORNEY
GENERAL OF AKWA IBOM & 1 OR. (2011) 8 NWLR (PT. 1248)
31
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Dr. Balkisu Saidu
LEGAL AND POLITICAL FORMULATIONS
 Derivation formula is not limited to petroleum resources; it
applies to all natural resources
 Non-oil producing communities have expressed reservations over the
existing arrangement, especially with the abolition of the onshoreoffshore oil dichotomy
 They posit that the formula, as constituted, has reduced the
distributable funds from the Federation Account to all tiers of
government.
 Counter argument from oil producing littoral States is to the effect
that the derivation formula ought to be raised from the current 13
percent to 50 percent; signifying that the debate on the derivation
formula is far from over.
 Establishment of Niger Delta Development Commission
 Niger-Delta Development Commission (Establishment, etc) Act 2000
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Dr. Balkisu Saidu
CONCLUSION
 The existing legal and political formulations for the sharing of Nigeria‘s
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revenue, oil and non-oil related, may not be the most acceptable to all
the sections of the country
It evoked mixed reactions from various interest groups and has
continued to be a divisive issue in the polity
It was arrived at after difficult, arduous and tumultuous years of
deliberation, negotiation and experimentation
To jettison such formulation and begin the same process all over again,
especially in the volatile clime Nigeria finds itself, would be counterproductive
Nigeria and Nigerians, collectively, stand to benefit from the continued
existence of the country as one united nation
There is the need for the scope of the issue to be refined from being a
problem to being an opportunity for progressive design of ‘project
Nigeria’
Dr. Balkisu Saidu