Revenue Allocation and Nigeria’s CBN Governor, Sanusi Lamido Sanusi’s (SLS) Justification of Terrorism Emanating from Northern Nigeria – A Constitutional Analysis of the Best Way Forward

By

Bunmi Awoyemi, Ph.D.

awoyemi@gmail.com

When Nigeria’s maverick CBN Governor recently in an interview justified the sadistic, sub-human and horrific terrorist activities going on in the North of Nigeria by attributing it to the fact that oil revenue was being unfairly shared on the basis of derivation primarily instead of population which is the North's competitive advantage, I was shocked that such a flawed argument could come from such a respected Nigerian whose controversial reform of the Nigerian banking sector has won him praises and awards locally and internationally. SLS traced the root cause of terrorism in the North to grinding poverty in the North which he claims was caused by Nigeria’s use of the derivation principle instead of population as the primary yardstick for allocating revenue among the states. He believes that this preference for the derivation principle has short-changed the North and disadvantaged it.

I totally disagree with SLS and will articulate in this article my reasons for disagreeing with him and my suggestions on the way forward for Nigeria using history as a guide to arrive at what I believe is a just solution that will be favorable to all. In the 1960 Constitution that ushered in independence, extensive provisions were made in Section 130-139 for revenue allocation. The most striking is section 134 which reads:

"134. (1) There shall be paid by the federation to each region a sum equal to fifty per cent of -

(a) the proceeds of any royalty received by the federation in respect of any minerals extracted in that region; and

(b) any mining rents derived by the federation during that year from within that region.

(2) The federation shall credit to the distributable pool account a sum equal to thirty per cent of -

(a) the proceeds of any royalty received by the federation in respect of minerals extracted in any region; and

(b) any mining rent derived by the federation from within any region.

(3) For the purposes of this section the proceeds of a royalty shall be the amount remaining from the receipts of that royalty after any refunds or other repayments relating to those receipts have been deducted therefore or allowed for.

(4) Parliament may prescribe the periods in relation to which the proceeds of any royalty or mining rents shall be calculated for the purposes of this section.

(5) In this section 'minerals' includes mineral oil.

(6) For the purposes of this section the continental shelf of a region shall be deemed to be part of that region."

In the 1963 Constitution, a provision, verbissima verbis with section 134 outlined above was section 140, this section also contained sub-section (6) which allowed for the revenue derived from mineral mining activities in the continental shelf to be paid to the Region

contiguous to it. There was clearly no justification for NOT

retaining these sections of the 1960 & 1963 Constitutions in subsequent Constitutions such as the 1979 Constitution and the subsisting 1999 Constitution which gave a 74.5% hair cut to the 1960 derivation formula by reducing it from 50% of the revenue derived from that region or state to 13%. This daylight robbery negates the principles of true federalism which we claim to practice. It is clear that these Constitutions did not proceed from the Nigerian people. The 1979 and 1999 Constitutions were drafted by Nigerians who were selected by Military Governments whose governing of the country itself was illegal and unconstitutional so it should not surprise anyone that they came up with flawed constitutional documents that did not reflect the thinking and vision of our founding fathers at independence in 1960.

That was not the only injustice that was committed, the 1979 and 1999 Constitutions did not include a provision similar to section 134(6) of the 1960 Constitution and section 140(6) of the 1963 Constitution which expressly provided that the continental shelf of a region shall be deemed to be part of that region. This particular omission took away the rights of some states or regions to enjoy substantial revenue accruing from their Continental shelf.

What is the Continental Shelf? Part VI of the 1982 U.N. convention on the Law of the Sea deals with the Continental Shelf. Article 76 of the Convention defines a continental shelf thus:

"1. The continental shelf of a coastal state comprises the sea-bed and subsoil of the submarine areas that extend beyond its territorial sea throughout the natural prolongation of its land territory to the outer edge of the continental margin, or to a distance of 200 nautical miles from the baselines from which the breadth of the territorial sea is measured where the outer edge of the continental margin does not extend up to that distance."

Articles 77 and 78 of the convention sheds some light on the rights a coastal state has over its continental shelf and the limits of those rights. They state as follows:

"Article 77

Rights of the coastal state over the continental shelf

1. The coastal state exercises over the continental shelf sovereign rights for the purpose of exploring it and exploiting its natural resources.

2. The rights referred to in paragraph 1 are exclusive in the sense that if the coastal state does not explore the continental shelf or exploit its natural resources, no one may undertake these activities without the express consent of the coastal state.

3. The rights of the coastal state over the continental shelf do not depend on occupation, effective or notional, or on any express proclamation.

4. The natural resources referred to in this part consist of the mineral and other non-living resources of the sea-bed and subsoil together with living organisms belonging to sedentary species, that is to say, organisms which, at the harvestable stage, either are immobile on or under the sea-bed or are unable to move except in constant physical contact with the sea-bed or the subsoil.

Article 78

Legal status of the superjacent waters and air space and the rights and freedoms of other states

1. The rights of the coastal state over the continental shelf do not affect the legal status of the superjacent waters or of the air space above those waters.

2. The exercise of the rights of the coastal state over the continental shelf must not infringe or result in any unjustifiable interference with navigation and other rights and freedom of other states as provided for in this convention."

As can be seen from the foregoing provisions of the U.N. convention on the Law of the Sea, coastal states enjoy enormous rights and can exercise tremendous amount of power over their continental shelf and this gives them the right to enjoy the benefits of any mineral resources that can be found therein. That is the nature of the benefits that accrued to the coastal oil producing areas that was

taken away by the 1979 and 1999 Constitutions. The 1979 and 1999

Constitutions were two-edged swords that sounded a death knell to the concept of true federalism in Nigeria.

This means that the potential iron ore production from Kogi and most of the Northwest states and Oyo states, the potential bitumen production from Ondo & Ekiti State, the potential coal production from Ebonyi and Enugu States would be subjected to this constitutional provision as well and the states involved would only be entitled to 13% of the revenue derivable therefrom as against 50% that was the norm in the 60s. This is a disincentive for the states where these natural resources exist to make efforts to explore and exploit these resources and is probably the reason why Nigeria is so over-dependent on Niger Delta Crude oil which accounts for over 80% of the revenue accruing to the Federation Account.

In the United States and many other advanced nations, the owner of land also owns the minerals found under the land 100% and in cases where he or she lacks the resources to explore and exploit the minerals, a 3rd party company is allowed by the owner to come in to lease the land and then pays to the land owner royalties of 1/8 or 1/16 of the profits derived from the sale of the minerals which could be oil, coal, gas, bitumen, gold, diamond etc.

The Nigerian constitutional provision vesting minerals rights in the Federal Government should be expunged in favor of a similar provision as the one outlined above - where mineral rights reside in the land owner. As for the continental shelf, the 1999 Constitution should be amended and a provision similar to section 134(6) of the 1960 constitution should be included. A tax of 10% of the profits made by individuals and corporate bodies and 20% of that of the states can be payable to the FG and this should be included in the constitution. Individuals, Corporate bodies, states or regions should be allowed to own and control 100% of the revenues derivable from the exploitation of mineral resources found on their land as it is in the United States of America. We don't need a huge federal beauracracy that serves the interest of a corrupt few of all tribes. This change to our constitution will make Nigeria a true Federation.

The land use Act of 1978 vesting ownership of state land in the Governor of the state ought to be repealed very quickly so that surface and mineral rights can reside in the land owner. The constitution should have a provision vesting surface and mineral rights in the land owner!

SLS’ myth of higher Northern population based on flawed census

figures: SLS’s assumption that the North has a higher population is also flawed! He did not even consider the thousands of lives that terrorism has claimed in the last two years. When it comes to population we don't have an accurate census. We don't even have a valid Identity Card scheme that could help us ascertain the true population of Nigeria. In the 2006 Census, LAGOS state was said to have 4.5m houses but when the census figures came out, LAGOS was given a population of just 9m people. Everybody knows that LAGOS cannot have less than 20m people - could each of those 4.5m houses have only 2 occupants each?

36 state structure: In addition, we need to abolish the 36 states structure that we currently have and adopt the 6 regions/geo-political zone structure with each region producing or electing a Regional Governor and then with a President at the center at the Federal level. The current states would become provinces within a region and should be able to elect a provincial governor. The CBN Governor himself has advocated for the merger of the 36 states to a size and number that can make them viable. He once lamented the current state of affairs where most states expend 94% of their budget on recurrent expenditures such as salaries of civil servants and political appointees leaving only 6% for capital projects. I expected SLS to stay on message by pushing aggressively for an amendment to the constitution or a Sovereign National Constitutional Conference where these critical issues can be discussed and a way forward forged by participants. If this happens the level of poverty in all regions of Nigeria not just the North, will reduce drastically because it will most likely be possible for 75% of the budgets of the merged states to be directed to capital projects such as construction of critical infrastructure the country so badly needs. Most Nigerian roads are regarded by most Nigerians as death traps, the hospitals death centers and public schools are regarded as places where educated illiterates or half illiterates are produced. A lot unemployed Nigerians would find jobs because solid infrastructure attracts foreign investments which create jobs.

The Federal Government should devolve more powers to the states or regions that make up the federation: Also, a lot of the items on the Exclusive legislative list of the current Constitution such as customs, ports, police etc should go to the residual legislative list. The level of insecurity in the country requires state police who would be in a better position to curb crime using the community policing model. The personnel of the state police will be drawn largely from the residents of that state who are automatic stake holders in the peace and tranquility of their states. Governor Raji Fashola of Lagos state and several state governors have been calling for this for years but it has fallen on deaf ears. How can you hold the Governor of a state liable for the insecurity being experienced in his domain when the commissioner of police only reports to the Inspector General of Police and not the state governor? For the state Governors to be true chief security officers of their states, they must be allowed to create a state police that reports to them. The Tin Can Island Ports and Apapa Ports in Lagos and the Calabar Port in Calabar generates hundreds of billions of naira for the Federal Government in revenues from import and export duties but this is an aberration because these revenues ordinarily should accrue to the Lagos state and Cross river state governments who should in turn pay taxes of 20% of the revenues to the Federal Government. The collection of revenue by the Nigerian customs at these ports negates the principles of true federalism because these coastal states own these port resource and thus should not be deprived the benefits accruing from its exploitation.

We cannot afford the status quo where the federal government or the center continues to hold as much power and influence as it currently does over mineral resources located within the states and region. We need to return to the practice of true federalism as suggested in my article. We need strong regions and a weak center which is the hallmark of a true federation. When the amount of money flowing to the Federal Government reduces drastically because of this restructuring, corruption will die a natural death because the era of jumbo pay for legislators and N3m per day meals at the Presidency and maintenance of 11 Presidential Air crafts will be effectively over. The do or die politics that too much money at the center has engendered will also come to an abrupt end.

Bunmi Awoyemi, Ph.D is a political commentator, oil & gas consultant, community organizer and project finance consultant – awoyemi@gmail.com