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The Long Road To Resource Control By Dr. Emmanuel Ojameruaye
The National Political Reform Conference (NPRC) ended on Monday, July 11, 2005 without consensus on the two most important and contentious issues of the conference, namely the tenure of the president and state governors, and the resource control issue. It appeared that the Chairman of the conference was under some directive from “above” to formally bring the conference to a close by adopting a hodge-podge conference report - “recommendations of the conference”. Even with virtually all the South-South (SS) delegates absent, the Chairman called for a motion to adopt the report while at the same time appealing to the delegates to see the endorsement of the report as their 65th birthday present to him. At the same time, he refused to entertain any counter motion. In fact, when one of the delegates observed that the recommendations had not been formally adopted, the Chairman was overheard saying "these people want to put us in trouble again".
To some candidates like Alhaji Umaru Dikko, the NPRC was a success because “it has proven skeptics wrong that the leaders of Nigeria can come together and discuss issues without exchanging blows, that we can talk frankly and honestly and that we are prepared to ensure that our country goes well." However, to some other delegates such as Mr. Oronto Douglas, the conference was a colossal failure because their views “were not accommodated in the spirit of mutual understanding and respect, consensus, compromise and give and take". To Mr. Adams Oshiomhole and other delegates, "The greatest weakness of this confab is the leadership... I don't think that we can consider the conference as successful”.
The fact that the conference was unable to arrive at a consensus on its two most important agenda items is clearly an indication of failure, unless we assume that the conference was not intended at consensus building. As a classic example of transfer of responsibility on the resource control issue, the NPRC recommended that: i) “an expert commission should be appointed by the Federal Government to study all the ramifications of the industry including revenue allocation with a view to reporting within a period of not more than six months, how the mineral resources concerned can best be controlled and managed to the benefit of the people of both the states where the resources are located and of the country as a whole”. But on a positive note, it recommended that: ii) “A clear affirmation of the inherent right of the people of the oil producing areas of the country not to remain mere spectators but to be actively involved in the management and control of the resources in their place by having assured places in the Federal Government mechanisms for the management of the oil and gas exploration and marketing. iii) an increase in the level of derivation from the present 13% to 17%, in the interim pending the report of the expert commission. Delegates from the South-South and other oil producing states insisted on 50% as the irreducible minimum. Having regard to national unity, peace and stability, they agreed to accept, in the interim, 25% derivation with a gradual increase to attain the 50% over a period of five years.
In spite of its shortcomings, the NPRC represents a milestone in the tortuous road to resource control by the federating units of Nigeria. In what follows, I briefly review this journey showing how the country veered away from the road, the efforts of re-tracing the road and staying the course during the past four decades, and possible future directions.
At independence, the founding fathers of Nigeria agreed to have a “true” federation of three regions, i.e. one federal government and three autonomous (not independent) regional governments as the federating units. In 1963, the Mid-West region was carved out of the Western region, as the fourth region of the federation. The 1963 constitution was fashioned to reflect some of the tenets of true federalism. For instance, it included a provision for the payment of 50% derivation (of rents and royalties from mineral resources) to the regions from where such mineral resources were obtained. This provision can be regarded as the first milestone on the road to true (fiscal) federalism or what is now known a resource control by the federating unit. The next stages or milestones would have included the replacement of the 50% derivation with a constitutional provision that “ the federating units own and control their resources and pay appropriate taxes to the centre” (Prof. Kimse Okoko, Daily Punch, July 17, 2005) and ultimately the replacement of the regions by ethnic nationalities as the federating units. Unfortunately, this journey was terminated when the military struck in January 1966 putting an end to the dreams of the founding fathers. The military opted for a unitary system of government, in line with military ethos, and quickly moved to dismantle the regional governments by dismembering them, first to 12 “states”, then 19 states and finally to 36 states before handing over to a democratically-elected regime in May 1999. In line with the centralization of fiscal powers, the military regime quickly abolished the 50% derivation in 1969 without any opposition since there was nobody (“rebel”) who dared to raise a dissenting voice. The centralization model meant to arrest the political crisis led to a full-blown civil war from 1967 to early January 1970 claiming about a million lives.
After the civil war, crude oil became the major source of government revenue, after the sharp increase in crude oil prices in 1973/74 and the rapid increase Nigeria’s crude oil production. For instance, Nigeria’s crude oil production increased from 76,500 barrels a day in 1963 to 2,255,000 barrels a day in 1974 while the average price also increased from about $1.5 per barrel in 1963 to $10.73 per barrel in 1974. It is important to note that before 1973, Federal Government had little or no investment in the oil industry. The main investors were the multinational oil companies while the main source of oil revenue to the federal government was through “rents and royalties”. In an attempt to assume control the “commanding heights” of the economy, the Federal Military Government entered into joint venture “participating agreements” with the multinational oil companies acquiring between 50% and 80% of the equity of the major oil companies, using the massive oil revenue it was receiving. For instance, in April 1973, the Federal Government signed the first participation agreement with Shell-BP and acquired 35% shares in the company’s leases. A year later, it signed the second agreement and increased its equity shares to 55%. On July 1, 1979 it signed the third agreement, increasing its equity shares to 60%, and a month later, on August 1, 1979, it signed the fourth agreement extinguishing BP’s shareholding in Shell operations and increasing its equity shares to 80%. The fifth agreement was signed on June 30, 1989 with the Federal Government rationalizing its interest in the Joint Venture from 80 to 60% while that of Shell was increased from 20 to 30% and Agip and Elf acquired 5% each in the NNPC/Shell/Agip/Elf Joint Venture that was accounted for about 50% of total crude oil production. The Federal Government also signed Memorandum of Understanding (MOU) with the JV partners that determines the “split of the barrel” and assures that the federal government gets the bulk of the revenue from oil production. For instance, under the 2000 MOU, at $19 per barrel (pb), the FG take (revenue) in taxes, royalties and equity is $13.78 pb while the "margin" for the private JV partners (Shell, ChevronTexaco, Mobil, Agip, Total, etc) is $1.22 pb and the operating cost/future investment cost is $4.00 pb. At $10 pb, the FG take falls to $5.12 pb while the margin of the private JV partners also falls to $0.81pb. At $30 pb, the FG take increases rapidly to $24.13 pb while the margin for private JV partners increases marginally to $1.87 pb and remains at that level for any price above $30 pb. Thus, at $50 pb, the FG take increases to $44.13 pb while the margin of the PV partners remains at $1.87 and operating cost/investment at $4.00 pb.
By the mid 1970s, oil had become the mainstay of the economy, accounting for over 85% of federally-collected revenue and over 95% of foreign exchange revenue. All the oil was produced from the Niger Delta region (the SS zone) and its adjoining offshore but the region remained neglected and impoverished despite the negative impacts of oil exploration and production activities. For instance, while the cumulative oil production from 1958 to 1963 was only 81.668million barrels, it reached 7,636million in 1979, and 19,171million barrels in 1999. Yet the successive military regimes dominated by generals who were not from the Niger Delta region did not deem it fit to tackle the development and environmental problems of the oil producing areas or allocate a good percentage of the revenue accruing from oil to the oil-producing states to address these problems. On their part, the people from the area were initially docile and probably afraid of military force. However, with the return to civilian administration on October 1, 1999, the Shagari Administration established a Presidential Task Force (popularly known as the 1.5% Committee) in 1980 and 1.5% of the Federation Account was allocated to the Committee to tackle the developmental problems of the oil-producing areas. The committee was ineffective and most of the revenue the Committee received ended up in private accounts of bureaucrats and contractors and did not reach the poor people of the oil producing communities.
With the return of the military in 1984, the 1.5% Committee was scrapped. Meanwhile discontent and restiveness continued to grow in the oil producing areas of the Niger Delta. For instance, on August 26, 1990, the leaders of the Ogoni ethnic group in Rivers State adopted the “Ogoni Bill of Rights” which they presented to the federal military government and peoples of Nigeria in November of the same year. Sections of the bill read as follows: “ i) That the Ogoni people, before the advent of British colonialism, were not conquered or colonized by any other ethnic group in present day Nigeria. ii) That in 1951 we were forcibly included in the Eastern Region of Nigeria where we suffered utter neglect. iii) That oil was struck and produced in commercial quantities on our land in 1958 at K. Dere (Bomu oilfield).
iv) That in over 30 years of oil mining,
the Ogoni nationality have provided the Nigerian nation with a total
revenue estimated at over 40 billion Naira (N40 billion) or v) That in return for the above contribution, the Ogoni people have received NOTHING. vi) That today, the Ogoni people have: No representation whatsoever in ALL institutions of the Federal Government of Nigeria, No pipe-borne water, No electricity, No job opportunities for the citizens in Federal, State, public sector or private sector companies, ) No social or economic project of the Federal Government. vii) That the search for oil has caused severe land and food shortages in Ogoni viii) That neglectful environmental pollution laws and sub-standard inspection techniques of the Federal authorities have led to the complete degradation of the Ogoni environment, turning our homeland into an ecological disaster ix) That it is intolerable that one of the richest areas of Nigeria should wallow in abject poverty and destitution.
x) That successive Federal administrators
have trampled on every minority right enshrined in the Nigerian
constitution…. and have by administrative structuring xi) That the Ogoni people wish to manage their own affairs. xii) Now therefore, while reaffirming our wish to remain a part of the Federal Republic of Nigeria, we make demand upon the Republic as follows: xiii) That the Ogoni people be granted political to participate in the affairs of the Republic as a distinct and separate unit by whatever name called, provided that this Autonomy guarantees the following: Political control of Ogoni affairs by Ogoni people; The right to the control and use of a fair proportion of OGONI economic resources for Ogoni development; Adequate and direct representation as of right in all Nigerian national institutions; …The right to protect the OGONI environment and ecology from further degradation. xiv) We make the above demand in the knowledge that it does not deny any other ethnic group in the Nigerian Federation of their rights and that it can only conduce to peace, justice and fair play and hence stability and progress in the Nigerian nation. xv) We make the above demand in the belief that, as Obafemi Awolowo has written: "In a true Federation, each ethnic group no matter how small, is entitled to the same treatment as any other ethnic group, no matter how large."
The Ogoni Bill of Rights brought some of the Ogoni leaders into direct confrontation with the federal military government leading to some form of “military occupation” of Ogoni territory. Following an internal feud within the ranks of Ogoni leadership which lead to the brutal murder of some Ogoni leaders, nine activists of the Movement for the Survival of Ogoni People (MOSOP) including its leader, Mr. Ken Saro-Wiwa, were hanged by the Abacha military regime on November 10, 1995 despite pleas for clemency by several world leaders and oil company executives.
Meanwhile, in an attempt to address the growing restiveness, the military regime of Gen. Babangida established the Oil Mineral Producing Areas Commission (OMPADEC) in 1992 allocating 3% of federally-collected oil revenue to it to address the developmental needs of the Niger Delta. Although OMPADEC initially raised the spirit of the people, it became clear that the 3% allocation cannot address the problems of the area adequately. Worse still, OMPADEC became inefficient and corrupt and ended up as great disappointment. Between 1992 and 1999 when it was scrapped, OMPADEC completed several projects but bequeathed very many abandoned/unfinished projects and huge debt, most of which were dubious. There is no reliable information on the total amount OMPADEC received from the Federation Account but critics say that the Federal Military Government did not disburse the full 3% of the Federation Account to the Commission throughout the period. OMPADEC failed to abate discontent and restiveness in the region. In fact, the degree of restiveness increased leading to the proclamation of the "Kaiama Declaration" by the Ijaw Youth Council (IYC) on December 11, 1998 which some observers regard as the beginning on the current wave of “resource control” struggle. Sections of the Kaiama Declaration read as follows: “all land and natural resources within the Ijaw territory as belonging to the Ijaw communities… because they are the basis of our survival… peoples and communities right to ownership and control of our lives and resources". Some other ethnic nationalities in the Niger Delta followed the example of the Kaiama Declaration by declaring their own "bills of rights", "charters of demands", "Resolutions" and "Declarations", etc, all demanding greater control or ownership of mineral resources within their territories. To address this growing discontent, the federal military government inserted a “minimum 13% derivation” clause in the 1999 constitution which it bequeathed to the civilian administration in May 1999. According to section 162 (2) of that the constitution: “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 13% of the revenue accruing to the Federation Account directly from any natural resources."
One of the first immediate actions taken by President Obasanjo following his inauguration in May 1999 was to send a Bill to the National Assembly for the establishment of the Niger Delta Development Commission (NDDC), to replace OMPADEC. After some delays, the NDDC was officially inaugurated on December 21, 2000 with a vision “to offer a lasting solution to the socio-economic difficulties of the Niger Delta Region” and a mission “to facilitate the rapid, even and sustainable development of the Niger Delta into a region that is economically prosperous, socially stable, ecologically regenerative and politically peaceful”. The NDDC Act provided for the following funding sources for the commission: · Federal Government contribution, which shall be equivalent to 15% of the monthly statutory allocation due to member States of the Commission from the Federation Account. · Oil and gas processing companies’ contribution of 3% of their total budget. · Fifty percent (50%) of the Ecological Fund Allocations due to the member States. · Proceeds from NDDC Assets and miscellaneous sources, including grants-in-aid, gifts, loans and donations. However, there are reports that the Federal Government has consistently refused to meet its obligation to the Commission. In fact, there have been some controversies over the funding of NDDC. Despite its promise, the NDDC has not lived up to expectation. The Niger Delta is still ravaged by “poverty in the midst of plenty”. Hence, the clarion call for resource control has grown stronger since 1999. Unfortunately, in what appeared to be a counter action, President Obasanjo re-introduced the offshore/onshore oil dichotomy (which was implicitly abolished by the provisions of the OMPADEC Decree and NDDC Act) when he took office by applying the 13% derivation to onshore oil production only which was roughly 60% of total oil production. In other words, only about 8% of total oil revenue was paid to the oil derivation fund. Worse still, several spurious “first line” charges (such as NNPC Priority Projects, Funding of JV contracts, external debt service, funding of judiciary and allocation to the Federal Capital Territory) were deducted from the total oil revenue before the application of the percentage derivation. To settle the ensuing controversy, the Federal Government took the littoral states (mainly oil-producing states of the Niger Delta) to the Supreme Court in 2001. On April 5, 2002, the Supreme Court delivered its judgement upholding the offshore/onshore dichotomy but declared as illegal the spurious “first line” charges mentioned above. The debate during and after the Supreme Court case further intensified the “resource control” issue and further galvanized the SS governors. Some analysts believe that President Obasanjo fueled the resource control debate by taking the littoral states to Supreme Court to adjudicate on the offshore/onshore oil dichotomy. They argue that President Obasanjo had the leeway to pay 13% of total oil revenue (not onshore oil revenue only) to the littoral states because the 1999 constitution did not did indicate the type of revenue (or was ambiguous at best on the issue) and the 1992 OMPADE Decree and the 2000 NDDC Act abolished the offshore/onshore oil dichotomy “by implication”. It was during the heat of the offshore/onshore court case, that the SS governors met in Benin and defined their struggle as ultimately one of “resource control” which, according to them, them is "The practice of true federalism and natural law in which the federating units express their rights to primarily control the natural resources within their borders and make agreed contribution towards maintenance of common services of sovereign nation state to which they belong. In the case of Nigeria, the federating units are the 36 states and the Sovereign nation is the Federal Republic of Nigeria”.
The decision of the Supreme Court in favor of the federal government in the offshore/ onshore case increased the demand for resource control and widened the cleavage between the SS states and Federal Government on the one hand, and between SS states and the Northern states who supported the federal government on the other hand. Thus during the 2003 presidential election campaign, the abolition of offshore/onshore oil dichotomy became synonymous with resource control and a major campaign issue, with President Obasanjo promising to “revisit the issue” after the election. In 2004, the Federal Government decided to abolish the dichotomy thus paving the way for the allocation of the 13% of oil revenue to the oil-producing states in 2005 in accordance with the 1999 constitution. But the resource control issue had become more radicalized and a key issue in the clamor for a sovereign national conference (SNC). When President Obasanjo, who had opposed the SNC, decide to stage the NPRC in place of the SNC in early 2005, many of the protagonists of resource control were apprehensive but some SS leaders saw the NPRC as an opportunity to continue the struggle and cover some distance in the resource control journey. Because of the limited mandate of the NPRC, the SS delegates apparently decided to focus on the “narrow” definition of resource control, i.e. increase in percentage derivation, as against the “wider” definition as contained in the Ogoni Bill of rights or the Kaiama declaration or the “Benin Declaration” of the SS governors. As a starting point, the SS delegates demanded for 60% derivation but eventually settled for “25% now and 50% within 5 years”, i.e. a return to the 1963 position, i.e. the ante bellum, within five years. However, the majority non-SS delegates, especially those from the North, insisted on 17% which was eventually adopted by the NPRC. Those opponents of the SS position at the NPRC hinge their arguments on two major points. The first point is that a sudden increase in percentage derivation from 13% to 25% will be very disruptive to the federal government and non-oil producing states. Secondly, they argue that the 50% derivation specified in the 1963 constitution applied to “rents and royalties” only and that other sources of oil revenue such as federal government sale of equity oil and petroleum profit tax are not included in the 50% derivation. They further argue that “when people make allusion to 'resource control' in the past with references to cocoa in the South West and groundnut pyramid in the North, they should also not forget that production of these commodities were not developed with money from the centre as has been the case with oil on which the investment has been by the federal government from the outset” (Olusegun Adeniyi, One Billion Naira Down the Drain, Thisday, Thursday, 14 July 2005). On the first issue, while it is true that the 50% derivation in the 1963 constitution applied to “rents and royalties” only, the fact is that these were the main sources of mineral revenue then. Thus it may be argued that the intent of the framers of the 1963 constitution was “mineral resources revenue”, not simply rents and royalties. On the second issue, it is not true that the federal government invested in the oil industry “from the outset”. As I have noted earlier, it is the multinational oil companies that invested from the outset. The federal military government’s direct participation or investment in the oil industry occurred in the mid 1970s when the “front end” work had been done by the multinational oil companies and production had peaked at about 2 million barrels a day. Furthermore, the funds invested by the federal military government came from the “petro dollars” of the oil boom of the 1970s and 1980s, not from “cocoa or groundnut dollars”. Furthermore, unlike the case of cocoa and groundnuts and the regional governments, the oil-producing states were not allowed to invest in the oil industry because it was the “exclusive preserve” of the federal military government. As I have argued elsewhere, it is possible to deal with the above concerns by adopting a incremental derivation model or the differential-incremental derivation model and by allowing state governments to acquire shares/equity in the oil joint venture companies. (see my article on Analytical Approaches to the Resource Control Debate in www.nigeriaworld.com and www.lagosforum.com ).
Undoubtedly, the recommendations on the resource control issue fall short of the expectations of the SS delegates who also had strong support from various groups. Although the SS delegates may regard the NPRC as a failure, it was certainly not a complete waste of time or a total loss. I think the SS gained on at least two scores. Firstly, the NPRC has raised national consciousness on the resource control issue and the SS has won more sympathizers and recruits for the struggle. Secondly, the recommended increase in the percentage derivation from 13% to 17% will translate to between N60 billion and N100 billion per annum in additional revenue for the oil-producing states if oil prices remain in the $30 and $40 per barrel range, respectively. Each of the states can therefore expect to get between N1billion and about N20 billion per year in additional revenue, depending on their oil production. As a tribute to the struggle, I would like suggest that each of the state governments should dedicate all the additional revenue accruing from the increase in the percentage derivation to sustainable and tangible projects that will benefit the poor in the oil-producing areas, e.g. low-cost housing, market stalls, water schemes, rural electricity projects, rural hospitals, etc, which should be named “resource control” projects.
It is still not clear if and when the recommendations of the NPRC will be approved by the Presidency, tabled at the National Assembly and passed into law for implementation. What is clear is that focus will henceforth shift to work of the proposed “Expert Commission”. Thus, the resource control debate will continue on the pages of newspapers and on the internet. I however do not think that the resource control debate collapsed at the NPRC because of lack of “expert information” even though the debate was somehow constrained and myopic with delegates focusing almost exclusively on the “percentage derivation”. In fact, it became a struggle between the delegates from oil-producing states (the SS zone) and those from non-oil producing states, particularly the North who saw any increase in the percentage derivation as a decrease in their share of oil revenue. By focusing on a single percentage derivation, the delegates seemed to have sidetracked the broader issues of resource control which include “percentages of what”, “who collects what” and “who does what” in terms of all natural resources (not crude oil and gas only) as well as other sources of revenue such as customs and excise taxes, VAT or sales tax, education tax, company profit tax, personal income (PAYE) tax, property tax, etc. Such a robust approach to the resource control debate is what the proponents of a sovereign national conference (SNC) had in mind and it is what that could convince the non-oil producing states that “there is something in it” for them in the resource control struggle. By adopting the narrow approach to resource control debate, the delegates inadvertently played into the hands of those who were opposed SNC. At the heart of the SNC (and presumably the NPRC) is the assumption that all is not well with the current political arrangement in Nigeria, i.e. the current arrangement is faulty or “sub-optimal”. In other words, it can be restructured to attain a Pareto-optimal state or at least a “second-best” state. However, in spite of its apparent failure of the resource control issue, the NPRC still represents a move in the right direction and it is hoped that proposed expert “Expert Commission” will take a more robust view of the resource control issue and come up with recommendations that will move the country towards greater resource control by the federating units
By recommending the establishment of an expert commission within a period of not more than six months, the NPRC has admitted that the resource control debate is still urgent and not foreclosed. In other words, the “17%” is a temporary solution. It is difficult to estimate the remaining “distance” to the end point of the “resource control” struggle given the fact that the term is now subject to different interpretations. In other words, it is difficult to predict how much longer the protagonist of the struggle will have to wait or how many bridges, rivers, valleys and mountains they will to have to cross until they reach the “promised land”. They can only hope that the recommendations of the Expert Commission will bring them closer to the end of the journey, a journey that reminds me of the events in South Africa.
Following his triumphant release in 1990 from more than a quarter-century of imprisonment, Mandela published his autobiography in 1994 which he aptly titled Long Walk to Freedom where he “tells the extraordinary story of his life - an epic of struggle, setback, renewed hope, and ultimate triumph”. The book also describes South Africa’s black population’s long road to freedom – the struggle against the apartheid system which was a form of internal slavery of the majority indigenous black population by the minority settler white population. It was a struggle that lasted for about half a century. Although the resource control struggle by the ethnic minorities in the Niger Delta is quite different in many respects, the few parallels are nonetheless poignant.
Dr. Emmanuel Ojameruaye Phoenix, AZ July 16, 2005
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