The downside of excessive oil derivation

Recent news reports has it that Akwa Ibom governor, Goodswill Akpabio purchased 2 Toyota Prado SUVs for the wedding of a celebrity couple, then sponsored 29 people to Dubai for the same wedding. The spendaholic money-miss-road governor also reportedly splashed N10 million on a Church in Jonathan's Otuoke, N50 million on Madala bomb victims, N37.5 million on Super Eagles and hundreds of more millions on a fleet of 50 bulletproof SUVs & vans. Another Niger Delta governor is said to have purchased an executive jet.

These blatantly frivolous, wasteful and extravagant expenditures indicate that the derivation-collecting Niger Delta governors have more funds than they can spend sensibly… what I dub the “Gowon conundrum.” It would be recalled that back in the early 1970s oil boom, our then Head of State, General Gowon was reportedly baffled about how to wisely spend our surplus oil money. Akwa Ibom's governor Akpabuyo seems to be having a similar problem even as he borrows to augment his squandermania.

In a nation where some cash strapped states borrow funds for basic developmental projects, it is atrocious that other governors collect almost as much a whole geopolitical zone, not because the stupendously rich governors are resourceful whiz kids who utilized their brilliant managerial acumen to radically transform their states into highly productive money spinning economies.

Nope, these intellectually lazy fat cats who can't think beyond awoof oil money just sit back and let the easy petrobillions stream in… Thanks to our unfair revenue sharing formula in which littoral states claim a disproportionately large chunk of revenues from oil fields that are not on their territory, but from our distal offshore fields which our Supreme Court in April 2002 declared belongs to federal government, not to any state.

As I stated in another related article, not even in the United States (poster nation of Nigeria's “true federalists”) do state governments collect revenue from distal offshore drilling, or Outer Continental Shelf as it is called in America. It goes to the federal purse for the benefit of all Americans in all states. Even some of America's onshore oil such as Alaska's ANWR, are on federal land.

For major oil exporting nations like us - Russia, Venezuela, Gulf Arabs etc - which derive much of their national income from that high value natural resource, none of them misallocates a disproportionally large chunk of the nation's revenue to one small corner of the country in the name of derivation – 13% derivation, NDDC, Niger Delta ministry.

As I shall explain later, Niger Deltans would be far better off if our resources are judiciously utilized for balanced coordinated development across the entire nation.

Ideally derivation should apply to the productive output of the people in each federating unit i.e. agriculture, manufacturing, tourism etc. This kind of derivation encourages healthy competition among the component federating units as each state strives to create a conducive enabling environment for investment and job creating economic growth.

This is why derivation worked well in the first republic as revenue was mostly from the productive energies of the people in our then agro-based economy that was largely driven by exports of cocoa, cotton, oil palm, groundnuts, hides & skin, palm oil etc. Even the little low value mining that occurred (coal, tin) was the sweat of ordinary folks.

Applying derivation to revenue from a high value natural resource (crude oil) that people of the state don't work for, is a very bad idea. It encourages profligacy, fuels corruption and the resulting marked income disparity among states distorts our polity into a lopsided federation that is inimical to our long term stability as a nation.

More importantly, excessive derivation revenues breeds a counterproductive parasitic ethos of entitlement and dependency that undermines the whole point of derivation, which is to competitively boost economic productivity of our people for robust sustainable job creating economic growth.

Consequently, many Niger Deltans expect oil companies to cater for their every need and severally harassed the oil majors who now prefer to drill offshore where most of our oil revenues (>70%) now come from.

The most blatant example of this disturbing ethos of dependency and entitlement among our Niger Delta compatriots was when Jonathan arm twisted a foreign contractor to build a Church in his village. Elsewhere, locals contribute funds for such communal projects.

Going by his forced public asset declaration under the late President Yar'Adua, Jonathan is rich enough to have built that Church himself. But since many Niger Deltans have gotten used to being spoon-fed, the Ijaw President just couldn't help himself.

Even more outrageous, racketeering self serving Niger Delta militants extorted lucrative mouth watering multibillion naira contracts ostensibly to police our creeks - doing us the special favour of protecting us from themselves as they usurp the function of our security agencies.

Yet Niger Delta jingoists have the gall to insult we northerners as “lazy”, because the food our farmers sweat to produce and feed the nation, doesn't fetch high value dollars like crude oil Niger Deltans do not work for.

“Hard work” is now redefined as shaking down oil companies, and greedily making ludicrous claims on offshore oil fields hundreds of miles off our Atlantic coast where the rickety canoes of their ancestors could never reach. Our Niger Delta compatriots need to be reminded that international law conferred that piece of maritime real estate on Nigeria as a nation, not on any littoral federating unit.

Our federal legislators grievously erred when they allowed themselves to be intimidated and railroaded by the Niger Delta insurgency into passing the offshore derivation bill in contravention of our constitution as pronounced by the April 2002 Supreme Court verdict.

To be fair, the aforementioned unhealthy culture of over-dependency on easy oil money with its associated diminished economic productivity is not unique to Niger Delta, but to lesser extent plagues the entire nation.

It's called the Dutch disease, and is also prevalent among the oil rich Gulf Arab nations where many of their citizens are permanently on the dole. Such an underproductive culture can never lead to an innovation driven, technologically advanced prosperous nation like Germany, Japan, South Korea, United States… which is where we should be headed.

Given its limited consumer base, even if Bayelsa receives 100% derivation she is unlikely to provide meaningful employment for all her people. For similar reasons of limited opportunities in their home states, many southerners remain in our strife torn North despite the persistent threats to their lives as thousands of them have been killed in recurring ethno-sectarian violence and Islamist insurgency.

This underscores the retrogressive limitations of our small minded ethno-regional schisms – Niger Delta, South east, North etc – as no state or region can go it alone. So long as we refuse to look at the holistic big picture in the interest of the entire nation, and continue to obsess and bicker along divisive ethno-regional lines, we will never be able to optimally harness our greatest economic asset - Africa's largest market of over 160 million consumers that can support any industry, and potentially provide every citizen with a well paid job.

We can only realize that tremendous economic potential if available resources are deployed based on critical developmental needs across the nation, rather than pander to the misplaced sense of entitlement of some of our shortsighted Southern compatriots. At this stage of our underdevelopment when there are crippling infrastructural deficits and other developmental challenges around the country, we just cannot afford such small mindedness.

The prosperous fully employed industrialized Nigeria that ensues is in everyone's interest, including Niger Deltans. After all not all Ijaws live in Bayelsa, nor do all Ibibios live in Akwa Ibom. In this Nigerian Eldorado, there's no reason why a long term Urhobo resident in Zamfara can't be governor of that northwestern state… or a Shagamu Hausa in Ogun state.

Of course the clincher to making this work is focused visionary leadership that can judiciously utilize our resources in the best interest of the nation. It is the absence over several decades of such patriotic visionary leadership that can carry all Nigerians along, which has given rise to the small minded selfishness in certain quarters - “na our oil.”

Unfortunately, awoof oil money has also been a hindrance to the emergence of the required focused visionary leadership, as easy petrobillions tends to attract the wrong people to governance at all levels - unscrupulous inept kleptocrats who would do anything to grab power but lack the vision, commitment and brainpower to intelligently utilize available resources for meaningful economic transformation.

Consequently, even after over 4 decades of habitually bleating the usual platitudes about diversifying our economy, we are still over-dependent on revenue from petroleum exports, as there has been no serious attempt to decisively tackle the daunting problems plaguing the non-oil sector and militating against increased economic productivity.

Diversifying our economy away from oil & gas should be a very urgent national imperative. So many countries - even here in Africa - are now discovering commercially quantities of petroleum, which could cause another oil glut in the near future, with precipitous collapse of prices that could paralyze our economy as in the early 1980s.

The crippling challenges bedeviling our economic productivity which our inept leaders have so far being unable or unwilling to solve include corrupt extortionary government agencies, burdensome multiple taxation, smuggling, insecurity, poor electricity supply, undue union activism, port clearance bottlenecks and decrepit transport infrastructure among other problems.

Our inept handling of the pervasive insecurity is particularly troubling. Despite the thousands of unsolved murders, robberies, kidnappings and insurgency around the country, there is as yet no emergency Police response in the entire nation. Violent criminals operate with impunity sometimes for several hours in whole communities or neighbourhoods, without any police intervention. Elsewhere around the world someone would dial 911 and the police would be on their way within a few minutes.

CCTV cameras in public spaces and toll free emergency phone numbers are not rocket science, as they are operational in several developing countries. But our irresponsible leaders just don't give a damn since they have their retinue of police, security aides and bullet proof vehicles. Basic forensic tools like finger printing which is over a century old, is beyond the reach of most police formations in this country, as their only investigative tool appears to be torturing confessions out of suspects.

But for the unpardonable ineptitude and glaring stupidity of our failed leaders over several decades, there is absolutely no reason why an oil exporting nation like Nigeria should be importing refined petroleum products, and why as an energy-rich nation (crude oil, natural gas, coal, uranium, rivers for hydroelectricity) that wastefully flares natural gas, we are incapable of providing uninterrupted electricity, despite billions of dollars purportedly expended on these problems.

Back to the issue of excessive oil derivation, which some of its protagonists severally justify with the glib casuistry of oil spillage despoiling the environment. As I've severally explained in other blog commentaries, this excuse holds no water because state government do not clean up oil spills, nor do they pay compensation to affected communities.

Oil companies do these, so environmental degradation cannot be the basis for sharing of oil revenues, particularly as most of our oil spills are self inflicted by vandalization of oil installations. That much was established by a UNEP (UN environmental programme) investigation three years ago, and confirmed by the Senator Magnus Abe committee last year.

Compensation for self-inflicted oil spills is far more lucrative than tilling the land like we “lazy” northerners.

But for our failed dysfunctional nation that has occasioned frequent pipeline vandalizations, oil spills are supposed to be rare catastrophes, occurring may be once in 2 or 3 decades. It is therefore unreasonable and defeatist that what is supposed to be uncommon calamity should be the basis for monthly sharing of oil revenues. Defeatist in the sense that we now accept oil spills as national fact of life rather than decisively eradicate the problem.

In any case most of our crude is now from distal offshore fields in the Atlantic ocean where they are unlikely to despoil coastal lands.

The other commonly employed fallacious rationalization is that of 50% derivation in the First Republic. With our present 36-state pseudo-federation, it is patently unreasonable and mischievous to talk of 50% derivation as obtained in the 3 to 4 region First republic... the structure of our polity today being radically different.

Since there are now nine times more federating units as in the first republic, and our present states are accordingly nine times smaller, mineral resource derivation should also be nine times less i.e. 50/9 = 5.6%. That way, all Nigerians can equitably enjoy our collective national resources that none of us put in the ground.

This is particularly important because even though Nigeria is reportedly rich in natural resources, they are not evenly distributed across the nation. Consequently, in our primary commodity dependent neo-colonial economy, some states will end up with nothing as states get smaller with increasing balkanization of our polity occasioned by incessant demand for state creation.

Thus as I've severally stated in the past, if we are serious about 50% derivation then we have to restructure the federation into no more than 10 federating units – 3 North, 3 Middle belt, 4 South.

But for now, by their own hyped First Republic argument, the oil producing states are collecting way more than their fair share (5.6% derivation), and should start refunding those of us who have been cheated out of our fair share of the nation's wealth, rather than insult our intelligence as they pretend to do us a favour.

Nafata Bamaguje

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Articles by Nafata Bamaguje