Introduction

The principle of derivation as encapsulated under the proviso to Section 162 (2) of the 1999 Constitution as amended, is geared towards providing a recompense to the producers of any natural resources for the expropriation and sequestration of their rights to control and manage same, by the Nigerian State.

Instructively, however, and in the implementation of the above proviso, Government has neither reflected nor implemented the proper and true meaning of the derivation principle and it is yet to even deem it necessary, and expedient as a matter of utmost urgency to increase the 13% derivation through a periodic review of Revenue Allocation Act as provided for under Section 32 (b) of Item N of the Schedule to the Constitution thereby bringing same into conformity with changing realities, such as in this instance, the dwindling price of crude oil in the Global Market.

This anomaly has led to a situation, where the 13% derivation has not been increased for 16years now!

Principle of Derivation in Nigeria  Section 162 (2) of the 1999 Constitution as Amended

The germane provisions are contained in Section 162 (2) and the proviso thereof of the Constitution which has directed the mandatory payment of not less than 13% derivation to the producing States. That Section 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

“Provided that the principle of derivation shall be constantly reflected in any approved formula as being not less than thirteen percent of the revenue accruing to the Federation Account directly from any natural resources “               The cardinal plank upon which the 13% derivation can be effected is through a Revenue Allocation Act as provided under Section 162 (2) above.

A Revenue Allocation Act, is the constitutional medium through which approved appropriations are encapsulated for the benefit of the tiers of Government.

AG of Bendel V AG of Federation & Ors 1981 3 NCLRI  Revenue Allocation Act and Principle of Derivation

Instructively, it is also through a Revenue Allocation Act, that the 13% derivation can be provided for and implemented as well.

Unfortunately however, since this incipient democracy came on board on 29th May 1999 by virtue of Section 320 of the 1999 Constitution as amended, both the Executive and Legislature have regrettably been unable to enact a democratically accepted Revenue Allocation Act under the 1999 Constitution as amended.

It is indeed very sad to note, that rather then enact a new Revenue Allocation Act, under the 1999 Constitution, it is Act 106 of 1992 a Decree deemed to be an Existing Act under Section 315, that was restyled as an Act by erstwhile President Olusegun Obasanjo in May 2002, that is still being applied as the Revenue Allocation Act since 29th May 1999 till date.

AG of Federation V AG of Abia & Ors (2002) 6 NWR (Pt764) 542.     13% Derivation Can Be Increased Without The Need For A Constitutional Amendment

It is indeed much easier to increase the percentage of derivation through a Revenue Allocation Act than through a constitutional amendment.

Accordingly, that was why the proviso to Section 162 (2) thereof , provides that in any Revenue Allocation Formula adopted by Parliament, NOT LESS THAN 13% should be set aside as reflecting the principle of derivation.

The portion “…not less than 13%” as stated above presupposes and admits of an increase in the derivation percentage which must not fall below 13%, but indeed can be increased well beyond 13%.

This is the gravamen of this discourse and indeed, too, the hub of the matter at hand.

President Muhammadu Buhari and the National Assembly can Increase 13% percent Derivation 

We posit with profound respect, that President Muhammadu Buhari and the National Assembly in the light of the falling crude oil prices, should increase the 13% derivation by virtue of a new Revenue Allocation Formula enacted under Section 162 (2) thereof, to keep the tenor and vision behind the development of the Niger Delta alive through the veritable principle of derivation.

In retrospect, the framers of the Constitution had this in mind, by providing for a periodic review of every five years to any Revenue Allocation Act in force, to bring same into conformity with the changing realities such as in the crashing and free fall of crude oil prices, now affecting the meagre 13% derivation flowing to the producing States of the Niger Delta.

Section 32 (b) of Item F of the 1999 Constitution as amended augments this postulation by providing that the Revenue Mobilization Allocation our Fiscal Commission (RMAFC) shall;

“….. review from time to time, the revenue allocation formula and principles in operation to ensure conformity with changing realities ….”       

The above Constitution provision augments, corroborates and further espouses our adumbration for an urgent upward review of the 13% derivation to the producing States, thus bringing the extant Act 106 of 1992 (i.e.  the current Revenue Allocation Act)  into conformity with the changing realties of the falling price of crude oil and/or revenue accruing therefrom as it affects the producers of the resources vis a vis the derivation percentage and/or the development plan of the Niger Delta as enshrined in the Constitution.

Illegalities in the Implementation of 13% Derivation

The Excess Crude Oil Account established sometime in September 2004 by the Administration of erstwhile President Olusegun Obasanjo, has further reduced the 13% derivation as it retains payments of the gross earnings from the sale of crude oil from been paid into the Federation Account in crass violation of Section 162 (1) of the Constitution.

The Excess Crude Oil Account, receives payment above the Oil benchmark price in the budget. For example, if the budget benchmark price is 38 US dollars per barrel, but same sells for 70 US dollars in the international market, the Federal Government pays into the Federation Account, only the budget benchmark price of 38 US dollars multiplied by the existing production rate i.e. 2.2 mbp, whilst it pays the excess 32 US dollars multiplied by 2.2 mpd into the Excess Crude Oil Account and/or Sovereign Wealth Fund.

Put succinctly, the Federal Government pays only 13% of Oil benchmark price in the budget as derivation as against 13% of the actual international market price of crude oil, which is in tandem with the true intention of the provisions of the Constitution.

This is one of the foremost debilitating acts of financial terrorism the Government unleashes on the producing States in the implementation of the 13% derivation Accordingly with these state of affairs, there will no doubt be a groundswell of opinion and agitation as it will eventually unfold, for the immediate and prompt increase in the 13% derivation to the producing States of the Niger Delta as reflected in the Constitution.

Oil Producing States And 13% Derivation 

Indeed, it will be counter productive if we are claiming for an increase in 13% derivation, whilst our States of the Niger Delta are unable to show what they have so far done with the funds hitherto received as derivation from December 2000 till date.

It is on this note that we call for the establishment of State Oil Commissions by all States in the Region, to enable us channel a substantial percentage of the 13% derivation and/or its increase, to the Oil Producing Communities for their development and well being, since they are the primary producers of the Oil & Gas resources upon which derivation is being paid. And such Oil Commissions should be duly supervised by the Revenue Mobilization Allocation and Fiscal Commission (RAMFC) as well as the Ministry of the Niger Delta in partnership with Transparency International, IOCs, Local Content Oil Companies and NEITI to ensure service delivery and that derivation funds are not misappropriated or diverted by those who administer these said Oil Commissions.

Conclusion

The principle of derivation is a recompense for sequestered rights and/or interests. Consequently the percentage of same must be duly reviewed upward to reflect changing economic realities in the light of the plummeting price of crude oil in the international market.

For the principle of derivation, to have its desired effect, same must actually and eventually restore the owners of the expropriated resources back to their viable economic status before the “Unjustified Acquisition” of  their interest, rights and resources by the Nigerian State.

By Dr Akpo Mudiaga Odje

* Dr. Akpo Mudiaga Odje, LLD, LL.M (Merit) (London),

   BL, FHINR, is the Facilitator of the

   Niger Delta Democratic Union (NDDU)