Untitled Document

THE 13% DERIVATION FUND CONTROVERSY

Senator David Dafinone's submission on the Fund

IN colonial times, the authorities acknowledged the need to recognise the derivation principle in revenue allocations. Between 1949 and 1964, the following revenue allocation recommendations were made and adopted.

(a) Phillipson Commission (1946) Recommended 50 per cent to be retained by the region of origin, 35 per cent to be shared among the regions including the region of origin while the central government was left with 15 per cent.

(b) Hicks-Phillipson (1951) Recommended Derivation Area of Origin 50 per cent, Regions 35 per cent and Central Government 15 per cent.

d) Ralsman (1958) Derivation 50 per cent, Regions 30 per cent and Central Government 20 per cent.

e) Binn (1964) - 50 per cent to the Region (area of Origin).

By 1964, the Regions started arguing about factors like population and land mass but Binn observed that the overall environmental devastation and health hazard caused be petroleum exploration and exploitation activities demanded that the region of origin should have nothing less than 50 per cent. Furthermore, Binn queried the 20 per cent Federal share by Ralsman and returned to the 15 per cent Federal share suggested in 1951 by Hicks-Phillipson. This formula remained in force till 1970 and was practised as a workable formula by the regions and later 12 states (from 1967).

Decree 13 of 1970 (the Yakubu Gown Military Administration) distorted the existing formula by appropriating the entire offshore revenue and further removed 20 per cent from the then 50 per cent of the allocation to states. Thereafter, it became safe and regular to distort or totally derange revenue sharing exercises without principle or rationale. General Gowon’s excuse then was that the funds were required to prosecute the civil war and keep Nigeria one.

Obasanjo/Yar’adua (1977) - Reduced the states share on derivation to 25 per cent (through the instrumentality of the Technical Committee on Revenue Allocation headed by Late Prof. Aboyade).

Shagari (1981) - Reduced it to 5 per cent.

Buhari (1984) - Further reduced it to 1.5 per cent.

Shagari attempted to administer this Fund from the Presidency but in a court action, instituted by the Bendel State government under Governor Ambrose Ali, the Federal Government lost the case. We think this should have been the last attempt (from 1952 - 1981/82) to nurture the now 20 years or so old Niger-Delta development process from the presidential orphanage.

In fairness to General Babangida, though for different reason, he raised the derivation content from 1.5 per cent where the Buhari administration had placed it, to 3 per cent, and instituted an independent Oil Mineral Producing Areas Development Commission (OMPADEC) which was not housed in the Presidency.

It must therefore be brought home to all concerned that Nigeria as a federation must adhere to the principle of true federalism where the resources accruing to the Federal Government must be derived from contributions or levies from the component states.

It is also necessary to draw a distinction between the funds arising from the derivation principle and those other funds which will eventually arise from the recently approved Niger Delta Development Commission Act. The latter is intended to correct the neglect and degradation on the environment and the psyche of the people of the Niger Delta region in the past.

It is also necessary to take this opportunity to appeal to the oil producing states to reinforce their arguments on the on-shore/offshore dichotomy as applied to the revenues accruing to their states. The oil and gas revenues earned offshore by the country arises because of international law which defines the area offshore as part of the territory of the Federal Republic of Nigeria. Let it be averred that the rights accruing to the Federal Government are deemed to arise from the sovereignty of the Federal Government but this should not in any way override the rights of the indigenes of the seashore areas which are governed by an earlier legislation which hitherto was in force. Specifically the Law of Property Act 1925 and the Interpretation Act 1964 were unmistakably not repealed when the offshore/onshore decree was passed and now brought in as Section 44 (3) of the Constitution. The Federal Government then failed to realise that when equities are at par the first in time prevails.

They should be charged with the responsibility of evaluating and monitoring of all projects to be embarked upon.

It goes therefore without saying: The funds are not intended for the give us and chop philosophy that has overshadowed similar development schemes in the past.