OrderPaperToday – The recommendation by the Revenue Mobilization Allocation and Fiscal Commission (RMAFC) that communities hosting petroleum exploration and production activities receive 40percent of derivation revenues to oil producing states is laced with ripples-generating potentials.

No to extra funding…

RMAFC made the recommendation in its submission on the Petroleum Industry Bill (PIB) based on calculations that oil producing states received the sum of N389.4billion as derivation revenue in fiscal year 2020.

The Commission also said receipts from mineral resources to the country’s coffers stood at a total sum of N2.999 trillion in the same period under review.

RMAFC data on derivation fundRMAFC made these disclosures in its memorandum to the National Assembly on the PIB wherein it submitted that the Host Community Development Trusts proposed should be funded from the 13% derivation revenue accruing to the oil producing states.

Specifically, RMAFC has proposed that 40% of 13% derivation revenue accruing to the states be used to finance the Host Community Development Trusts. Part of its submission reads: “The Revenue Mobilisation Allocation and Fiscal Commission is fully in support of the Establishment of the host community development trust fund.

“However, the Commission is opposed to the source of funding of the trust fund. This is because the Constitution of the federal Republic of Nigeria has already made adequate provision for the Fund. Section 162 (2) of the 1999 Constitution of the Federal Republic of Nigeria (As amended) States 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 per cent of the revenue accruing to the Federation Account directly from any natural resources”

“Accordingly, the Commission is proposing that 40% of the 13% derivation revenue accruing to each beneficiary state should be used in funding the host community development trust fund.”

Producing states versus communities…

The 2020 disbursement to the states is the 13% per cent derivation revenue provided for in the constitution of the Federal Republic of Nigeria, 1999 (as amended). The benefitting states are: Akwa Ibom, Delta, Bayelsa, Cross River, Rivers, Edo, Abia, Imo and Ondo States.

Communities in the oil producing states who have suffered decades of environmental degradation, insufficient and unfair compensation from the exploration of petroleum resources have continued to agitate for a better deal for the lives of the people and their living conditions.

This agitation is reflected in the PIB which has a chapter dedicated to the development of host communities.

The PIB prescription…

The Host Community component of the PIB is seen to have attracted more attention from a cross-section of stakeholders, according to an analysis by OrderPaper Nigeria which distilled memoranda submitted to the National Assembly during the public hearing on the bill.

The bill provides for a Host Community Development Trust to be financed with 2.5% of the annual operating expenditure (OPEX) of the previous year of oil companies. Although many stakeholders, especially from host communities, have demanded for more to finance the Trusts, the companies have kicked against the model and recommended instead that they be funded from the contribution to the Niger Delta Development Commission (NDDC) currently being paid.

The federal government through the Ministry of Petroleum Resources has however described the proposed 2.5% as fair.

13% controversy…

13 per cent of the revenue accruing from crude oil sales is paid to oil and gas producing states on a monthly basis in order to provide development in the region. However over the years, there have been agitations by oil bearing communities accusing state governors of diverting the fund to other uses without due transparency and accountability, thereby denying these communities the basic necessities of life and other development projects

The secrecy surrounding the use of the oil fund by state governors has generated a lot of heat in the polity with many calling for direct payment of the fund to the oil-producing communities due to the fact that most governors don’t release details on the amount and how these monies are spent.

Senator Ita Enang, Special Assistant to the President on Niger Delta, took this position when he featured on the OrderPaper Nigeria PoCOPAN Webinar in September 2020.

Speaker, House of Representative, Femi Gbajabiamila, while speaking at same webinar on “Resolving the Host Community Question” strongly denounced the increasing poverty in the Niger Delta and insisted on an extensive review of the 13 per cent revenue for oil producing states.

RMAFC 40% to hostcomVulnerability to volatility

Analysis of the breakdown of earning from oil in 2020 shows that using the 40% of 13% derivation will expose the Host Community to the periodic volatility in oil price.

For instance, when COVID-19 restrictions started biting on the world economy, by March 2020, oil price plummeted, thus reflecting in the oil derivation receipts. In March therefore, 13% derivation dropped to N32.2billion from N43.2billion in February; that is about N10billion drop. Using that same calculation, funding for the Trusts would have dropped from N17.2billion to N12.9billion between February and March.

September and October figures were really poor, as the 13% derivation were N21.6billion and N21.5 for the two months respectively. The implication of the RMAFC recommendation is that the Development Trusts in the PIB would be subjected to the unpredictable volatility of the international oil market.

 

Additional Reporting by Chnonso Kenneth

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