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Dr. Leton on how Federal govt cheated Niger Delta (3)

By Eric Teniola

FOR the purpose of assessing what the mineral producing areas can obtain by way of derivation, let us look at three possibilities, viz, direct derivation, rents and royalties and a rehabilitation fund.

This requires that part or whole of the revenue contributed to the central pool by a State should be returned to that State. It is essentially an equity principle although, as we can show below, it could have some efficiency components. Section 150 of the Constitution is an example of this type of derivation. It provides that the net proceeds from certain types of taxes and duties should be distributed among the States on the basis of derivation.

It is the type of derivation that led to the strong but healthy rivalries among the former Regions in agricultural produce; groundnuts and cotton in the North,cocoa in the West, rubber in the Mid-West and oil-palm and rubber in the East. Nowadays, we all seem to sit around waiting for the oil money. If the States are to reduce, in any appreciable degree, their dependence on the Centre, then this type of derivation should be incorporated into the revenue sharing formula. It will then be not only an equity principle, in our, national interest, also an efficiency principle—a reward for a level of achievement.

The argument that, States that produce locally-consumed product do not benefit from this type of derivation does not hold water, because they benefit by taxing the producers in the form of income tax. As Dr. J.O. Okezie put it to the Commission”there is no way you can leave out the principle of derivation in revenue sharing in this country”. Derivation, across the board, should be a strong factor in the horizontal sharing among the States and among Local Governments.

Rent: By the provisions of the Land Use Decree(1978), rent is undisputably attributable to the States of origin. Even without the Decree, whenever rent was separated from royalties it has always been given 100 per cent to the States of origin by successive Commissions, from Phillipson(1946) onwards. Even Dina (1968), after reducing royalties to 10 per cent, conceded 100 per cent on on-shore mining to the States of origin. Rent, therefore, is an attribute of the States of origin. 20. This has been compared (rather misleadingly) to excise duty. Both are, of course, taxes on production.

The major difference, however, is that royalty is land –related. It is defined, with respect to mining, as “payment made to a landowner for the extraction of minerals from beneath his land”(source: Dictionary of Economics and Commerce by J.H. Harrison, 3rd Edition 1969 p. 406). The word royalty can be traced to feudal England where the King was the ultimate landowner; just as the Governor of a State is today in Nigeria according to the Land Use Decree. The tax on production of minerals from all lands within the King’s realm was, therefore, paid to him and, rather appropriately daubed ’royalty’.

The mineral producing States likewise have an intrinsic right to royalties paid on all minerals extracted from their lands. 21. This was recognized over the years by successive Commissions: (i) Chick(1953), recommend 100 per cent rent and royalties; (ii) Riasman(1954), recommend 50 percent; (iii) Binns(1964), recommend 45 per cent; (iv) Dina(1968), recommend 100 per cent rents and 10 per cent royalties; Decree No. 6(1975), recommended 20 per cent. 22. The mineral producing States have, as shown above, an inherent right in and, therefore, claim to a fair share of mining rents and royalties.

As Raisman(1958) put it,”the Government in whose Region oil Royalties originates should clearly have a significant share in it”. That is a strong endorsement coming, as it did, from an impartial observer. These States should realise, however, that they are part of a Federation and therefore must share whatever is due to them with their brother States. This is the reason why I am not here recommending 100 per cent but only 30 per cent of mining rent and royalties. The latter, by the 1980 Federal Budget, amounts to only 6.3 per cent of the total Mining Sector contribution to, and 5.3 percent of, the Federation Account. This cannot be regarded by any stretch of imagination as excessive, bearing in mind also the heavy burden imposed by the industry on these States as already stated.

23.The raw products of mineral oil/gas are hydrocarbons (liquid and gaseous). Hydrocarbons do not quite agree with living things directly or indirectly. Exposed to hydrocarbon in varying degrees, all living things eventually die. In addition, the flaring of gases generates not only heat but(much worse) carbon monoxide which is a very deadly poison to all living things especially human beings. The enormous heat and the eternal light, apart from affecting human beings cause various ecological changes.

In winning minerals therefore, lands are degraded; human beings are poisoned and deprived of their farmlands and fishing grounds; the atmosphere, streams, and land are polluted and thousands of valuable trees and land and sea life die. People migrate to other lands to look for alternative employment, otherwise they idle around while school fees and hospital bills are unpaid, meaning no education and death. Money is needed to reclaim the degraded land, to rehabilitate the deprived and displaced, to provide potable water, to research into the effects of pollution(especially the continuous atmospheric pollution) on human beings and on the ecology in general. This is the responsibility of all who benefit from the mining industry to the people who suffer so that we can all enjoy. We owe them that much.

I therefore recommend that 3 percent of the Federation Account should each year be put into a special fund for the rehabilitation of the mineral producing areas on the basis of derivation. An agency for the utilisation of this fund should be set up in each significant mineral producing state. This Agency should comprise representatives from the Federal Government, the State Government and oil producing Local Government Areas of the State. The fund should be used for the benefit of areas of production to cover, inter alia, land reclamation (rehabilitation), resettlement of displaced persons, provision of industries (re Scotland and the North Sea Oil) and research into the control and effects of mineral pollution.


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