The one is an erudite contribution to the discussion - to my mind - and the second introduces a second dichotomy to the controversial onshore/offshore issue: oil-producing/oil-endowed states.
Please read the two articles as fully reproduced in the Appendix.
On Prof. Umozurike's Piece
Let me first commend and comment on Prof. Umozurike's piece in the Guardian of May 28.
In a season of rants and raves over the Resource Control Supreme Court judgement, particularly coming from our Akwa Ibom compatriots, Professor Umozurike's rejoinder is the most academically concise that I have come across. Even Professor Itse Sagay's usually erudite rebuttal came a little too late - as a SAN, why did he not represent his own Delta State before the Supreme Court for example? - and quite too emotional, understandable under the circumstances of the prospect of seriously reduced revenues of some states and the need to pay their own debts.
The key sections of Umozurike's piece are the following:
Since the Constitution is silent on the matter, it falls to be decided through negotiations between the federal and state governments. Alternatively, the National Assembly could resolve the issue through legislation taking serious note of the losses suffered by the traditional users of the seas, the extent of their usage and the risks to which they are exposed. There is a world of difference to a coastal state of mining conducted one mile from the coast and mining carried out 200 miles away. The nearer the operations to the coast the greater the losses and the risks; the farther away the operations, the lesser the losses and the more remote the risks........
The whole issue should appropriately be discussed in a national conference which is curiously anathema to the Federal Government. What could be more democratic than to openly discuss all outstanding problems and the fundamental basis of national relations which could have been one of the greatest achievements of any administration?.......A distance geographically pertinent to the coastal state should be treated as though it was part of its territory for revenue purposes. The territorial sea and the contiguous zone should certainly be so treated.....
The present mantra of a "political solution" to the Supreme Court ruling will in fact be found in POLITICAL NEGOTIATIONS - most preferably in a National Conference - that MUST result in FAIRNESS to ALL of Nigeria, and not through bluster or threats. All of that must be realized within the reality that the littoral states make up only 8 out of 36 states (or 22%), 26.6% of Nigeria's population, 12.5% of the land area, 168 out of the 774 local councils (21.7%although those numbers are growing in leaps and bounds), 24 out of 109 Senators (22%) and 87 out of 360 National House of Representative members (24%). Thus, in general, they are a one-quarter to one-fifth-clout region, and their political maneouvarability in passing laws must be realistically evaluated within those numbers. President Obasanjo cannot just through legislative fiat - and for short-term political advantage - come up with a "political solution". After all, this is not 1976 - 1979 when he was a military dictator.
Prof. Umozurike highlights an important issue: the importance of certain jurisdictions in the sea beyond the ephemeral "low water mark (LWM) along the coast", which is referred to as the coastal baseline. I can assure you that if you pick the last most seaward village along the coast of a given state (say Akwa Ibom), and provided one mile is still 1760 yards, that "low water mark" cannot be more than 880 yards - or half a mile, even less - beyond that last village! Beyond this coastal BASELINE (CB), there is
- the 12 nautical mile Territorial Sea TS (by Article 3 of the 1982 United Nations Convention of the Law of the Sea UNCLOS)
- the High Seas, which is internationally recognized (according to several 1958 Geneva Conventions which have now been superceded by 1982 UNCLOS) as everywhere beyond this outer boundary of this territorial sea;
- the additional 24 nautical mile Contiguous Zone CZ (according to Article 33 of UNCLOS) making 36 nautical miles beyond the baseline;
- the 200 nautical mile Exclusive Economic Zone EEZ from the baseline [according to Article 57 of UNCLOS]; this makes the territorial sea AND the Contiguous Zone PART of the EEZ, with an additional 176 nautical miles to spare beyond Contiguous Zone;
- because of certain shapes of their Continental Shelf, some countries (eg the United States) are allowed to claim up to but no more than 350 nautical miles of the EEZ without challenge - some kind of Extended EEZ (EEEZ).
So the question is: what do we assign to eight littoral states: 13% of all oil revenue from CB (LWM), TS, CZ, EEZ or EEEZ off their coasts? Can we with a straight face claim that 350 miles away from Akwa Ibom disrupts the life of fishermen of Akwa Ibom - do their canoes go that far? - and a spill so far away pollutes their land? Or even 80 miles, like the Agbami offshore field is? Depending on the ocean currents, could such a spill not get to Lagos State coast before getting to Akwa Ibom?
Those are questions that inquiring minds want to know.
My suggestion is that oil revenue derived from oil fields only in the territorial seas TS (that is 12 nautical miles) plus half of the Contiguous Zone CZ (that is a further 12 nautical miles, making a total of 24 nautical miles) should be assigned to ALL THE LITTORAL STATES in a manner INVERSELY proportional to the distance between SPECIFIC oil fields and the state capital (40%) and local government headquarters. (60%). Any net revenues OUTSIDE the 24 nautical miles zone should be FULLY put in the Federation account to be split by all tiers of government.
On Prof. Sam Aluko's Piece
Prof. Sam Aluko, in the Champion newspaper of May 27, 2002, makes the case that what we gain NET from oil as a nation is not all what it is cracked up to be, and that an important distinction is to be made between oil-endowment and oil-production.
The key section of his piece is as follows:
"One thing that Nigerians don’t know and even the oil-endowed areas, not oil-producing areas – because they don’t produce oil or contribute to the production, is that the cost of earning that oil dollar is very high, so the net is very minimal." According to him, if the country earns $25 per barrel the net value accruing to it is about $15 before oil industry-related expenses. Prof. Aluko stated, however, that after meeting the cash call commitments to oil firms the government is left with only about $6 per barrel. These commitments, he said, include purchase of the oil firms’ equipment, high cost maintenance of Nigerian National Petroleum Corporation (NNPC), Company (PPMC), 28 depots and four refineries. He said if the country manufactured the equipment, "we would have been desiring money maximally from oil. If you look at it, we get more money on Customs, Federal Inland Revenue Service (FIRS) and some other company taxes than we get on oil. The total gross of oil contributes only 12 per cent of the Gross Domestic Product (GDP) the wealth of Nigeria," he said. Prof. Aluko also stated that in comparison, agriculture alone accounts for 42 per cent "or 3 1/2 per cent times that of oil," to the GDP..........
With respect to GDP contribution, Table 1, derived from a year 2000 Central Bank publication, gives the true picture from 1995 to 1999 (for which I have the most complete data. Thus we see that in fact during the years 1995 - 1999, the GDP contribution of oil never rose to more than 11 - 13%, while the contribution of agriculture was between 40 and 47 %, roughly four times higher as approximately stated by Prof. Sam Aluko.
The other issue he raised has to do with passivity of economic activity of the "oil-endowed" states. The indisputable fact of the matter is that these states as official entities are PASSIVE participants in the production of the oil, and expend little or no money of their own in the production. The question then arises: what REVENUE actually is to be shared?
For example, in the year 1999 (for which I have the most complete information), I have indicated certain oil earnings information in Table 2. What we see is that although the country earned N1,184,779.7 million in the entire year from 1.96 mbd of oil sales, our gross oil revenue was N738,798.7 million (or 62.4% of earnings), and after removing oil-related first charges of N209,581.5 million, that reduces to N529,217.2 (or 44.7% of earnings.) Thus in effect in 1999, we went from earning $17.90 per barrel to $11.2 per barrel to $8.0 per barrel.
The question that needs to be responded to is the following: what "revenue" is to be awarded, after we have decided whether it is the LWM, TS, CZ, EEZ, EEZ or no zone at all that we are talking about? Section 134 (1) of the 1960 constitution clearly stated that 50% of the proceeds of royalty and rents (SPECIFICALLY royalty and rents) received by the federation with respect to mining of minerals (including mineral oil) in any given region should be given to the state, with the continental shelf being part of that region "for the purposes of that section."
Obasanjo's 1979 Constitution made no explicit provision for revenue allocation, but Shagari's National Assembly did enact an Act [Cap. 16], and amended thereafter by various military decrees. If we fast forward to Babangida's decree 106 of 1992, this gave three percent "from mineral revenue" to OMPADEC for the development of oil producing areas BASED ON NEED, and another one percent of the revenue accruing to the Federation Account derived from minerals to be shared among the mineral producing states in proportion to the amount of mineral produced from each state, whether onshore or offshore. It is this decree which carried over to the 1999 Constitution, Section 162(2), which states, inter alia:
..Provided that the principles of derivation shall be constantly reflected in any approved formula as being not less than thirteen percent of the revenue accruing to the Federation Account directly from any natural resources.
Unlike the 1960 or 1963 Constitution, subsequent derivation clauses in Acts and in the Constitution have left enough ambiguity to drive a truck through. For example, for 1999, does the revenue referred to in the 1999 Constitution mean the crude oil export earning N1,184,779.7 million, the gross oil revenue N738,798.7 million or the net revenue after removing oil-related first charges of N209,581.5 million, the amount N529,217.2?
This are the questions that Prof. Sam Aluko's intervention bring to the fore. It is only reasonable that the revenue in question should be the NET revenue - which is less than half of the export earnings related to oil. This is why the Federal government is now talking about commercializing the NNPC, so that its financial support for it can cease. Also, FGN move (a la Falae suggestions) from Joint Ventures (which require all these cash calls because of joint development and production costs) to Production Sharing Costs (which have after-profit sharings with contractors only and no upfront costs) is to be commended.
Debt Payment Issue
There is an issue almost as equally momentous as the offshore/onshore dichotomy. This has to do with the issue that the federal government and the individual states should now be responsible for their own debt. For example, Bayelsa recently revealed that it owes $27.5 million dollars from debt it inherited from Rivers State 22 years ago; Adamawa owes about N20 billion (inherited from Gongola State), Lagos State owes N50 billion and Osun N42 billion. For example, since Nigeria used N149 billion to service its external debt in 1999, one would expect that about 85% of that (or N126.7 billion) was for the Federal government and N22.3 billion would be due to the states. Coming from Ekiti State which has traditionally has the least subvention from the Federal government (see Table 3) and little or no external debt, no political solution short of each state paying its own debt will suffice for Ekiti!
Let me explain with a graphic example, if contrived. Suppose person A lives in a 30 million dollar house, and I (person B) live next door in a 300,000 dollar house, and we pay the same mortgage interest rate (spreading that mortgage equally over 30 years). Each one of us is to share some 300 million dollars revenue in some EQUAL MANNER for the next 30 years. Before debt payment, each person would get 10 million dollars per year. Now, is it FAIR for someone to COMBINE our mortgages (30.3 million dollars), then ask EACH of us to SPLIT that mortgage equally (1.01 million dollars, paying 0.505 millon dollars each), before giving us our revenue money, so that we each get 9.495 million dollars each annually? Should Person A not pay his own annual 1 million dollar debt (and hence receive 9 million dollars annually) and Person B pay his own annual debt of 10,000 dollars - and hence receive net 9.99 million dollars annually? Otherwise, would that not mean that I am subsidizing Person A by about $500,000 annually, more than the TOTAL cost of my house of $300,000?
This blatant unfairness is what has been happening in our country with "First Charge" debt removal, in which some states with little or no debts have been SERIOUSLY subsidizing those with ENORMOUS debts and nothing to show for them. That is one of the things that the Supreme Court has ruled to be illegal - among other things that we should talk about in a Sovereign National Conference, and no "political solution" can cure it.
Epilogue
Using as props, I have analyzed the recent contributions of Professors Umozurike and Aluko in order to bring out some points concerning the Resource Control debate in Nigeria. The need for a political solution requires cool heads. Rather than inveigh against Chief Obafemi Awolowo and Chief Bola Ige and Chief Aremu Obasanjo and Chief Rotimi Williams and Justice Kayode Ogundare - the usual anti-Yoruba demagoguery coming this time from minority quarters and championed by Akwa Ibom drum majors like Governor Obong Attah - those who are unhappy about the Resource Control suit should buckle down to political solutions and stop threatening the universe.
They should also prepare for a Sovereign National Conference.
Best wishes all.
Table 1: Oil and GDP Contribution at 1984 Factor Cost
|
Activity Sector |
1995 |
1996 |
1997 |
1998 |
1999 |
1999
% of GDP |
|
1 |
Agriculture |
40.11 |
41.75 |
43.50 |
45.25 |
47.15 |
40.6 |
|
% of total GDP |
(38.7%) |
(39.0%) |
(39.4%) |
(40.1%) |
(40.6%) |
|
|
2 |
Industry |
20.26 |
21.23 |
21.47 |
20.53 |
20.08 |
17.3 |
|
(i) Crude Petroleum |
13.07 |
13.97 |
14.17 |
13.48 |
12.92 |
11.1 |
|
% of total GDP |
(12.6%) |
(13.1%) |
(12.8%) |
(11.9%) |
(11.1%) |
|
|
(ii) Mining and Quarry |
0.31 |
0.32 |
0.34 |
0.36 |
0.37 |
0.3 |
|
(iii) Manufacturing |
6.88 |
6.94 |
6.96 |
6.69 |
6.79 |
5.9 |
|
3 |
Building & Construction |
2.07 |
2.10 |
2.23 |
2.36 |
2.46 |
2.1 |
|
4 |
Wholesale/Retail Trade |
12.60 |
12.71 |
12.90 |
13.29 |
13.62 |
11.7 |
|
5 |
Services |
28.49 |
29.23 |
30.30 |
31.52 |
32.69 |
28.3 |
|
Total (GDP) |
103.53 |
107.02 |
110.40 |
112.95 |
116.00 |
100 |
|
Non Oil (GDP) |
90.46 |
93.05 |
96.23 |
99.47 |
103.08 |
|
Source: Central Bank of Nigeria Annual Report and Statement of Accounts, For the Year Ended 31st December 1999
Table 2: Information on Oil Production and Revenues for 1999
Crude Oil Production - 1.96 mbd = 715.4 mby
(including Condensate)
Export of crude oil - 1.66 mbd = 605.9 mby
Crude oil for - 0.26 mbd = 94.9 mby
(local consumption)
Crude oil lifted (PPMC) - 0.10 mbd = 36.5 mby
Crude oil delivered to - 0.10 mbd = 36.5 mby (on average)
local refineries
Average price (Bonny Light) - $17.91 pb
Average price (Forcados Light) - $17.85 pb
Will use average price - $17.90 pb
Exchange Rate (Jan – October 25)- $1 = N91.8
Exchange Rate (Oct. 25 – Dec.) - $1 = N96.12
Exchange Rate (Jan – December) - $1 = N92.52 (on average)
Crude Oil Exports (estimate from above) - N1,184,779.7 million
Oil Revenue(Gross) - N738,798.7 million 77.8%
Non-oil revenue - N210,389.2 million 22.2%
Gross Federally collected Revenue - N949,187.9 million 100%
Crude Oil Exports - N514,038.9 million
PPT, Royalties, - N164,273.4 million
Domestic crude oil costs - N 46,110.2 million
Taxes on Petroleum Products - N 14,376.2 million
Oil Revenue(Gross) - N738,798.7 million
FIRST CHARGES:
Non-oil related:
External Debt Service - 148,818.1 million
Special Res./Excess Proc. - 29,981.3 million
Total Non-Oil Related - 178,799.4 million
Oil-related:
JVC Cash Calls - 185,470.6 million
NNPC Priority Projects - 24,110.9 million
Total Oil Related - 209,581.5 million
Grand Total First Charge - 388,290.9 million
Source:Central Bank of Nigeria Annual Report and Statement of Accounts, For the Year Ended 31st December 1999
Table 3: Profile of Subventions from Federation Account
(In Billions of Naira)
State 2nd half 2000 2001 Increase
1999 Ratio
A B C C/A
Lagos 3.0 9.3 17.9 5.97
Ogun 2.1 6.7 10.8 5.14
Ondo 2.0 10.2 17.2 8.60
Oyo 2.4 7.6 12.7 5.29
Ekiti 1.6 5.2 8.6 5.38
Osun 2.0 6.2 10.6 5.30
-----------------------------------------------------
Total SW 13.1 45.2 77.8 5.94
Anambra 2.0 6.3 11.0 5.50
Imo 1.9 7.5 12.9 6.79
Ebonyi 1.6 4.9 9.4 5.88
Enugu 1.7 5.5 10.05 5.91
Abia 1.7 6.2 11.2 6.59
-----------------------------------------------------------
Total SE 8.9 30.4 54.55 6.13
Rivers 2.6 17.7 30.2 11.62
Bayelsa 2.07 15.9 26.5 12.80
Akwa Ibom 2.6 19.7 31.0 11.92
Cross River 2.0 6.3 10.4 5.20
Edo 2.0 6.7 10.9 5.45
Delta 2.8 24.7 41.7 14.89
-----------------------------------------------------------
Total SS 14.07 91.0 150.7 10.71
Sokoto 2.0 6.4 10.0 5.00
Zamfara 1.8 5.7 9.9 5.50
Kebbi 1.9 5.6 10.3 5.42
Katsina 2.6 8.09 12.6 4.85
Kaduna 2.6 8.3 13.3 5.12
Kano 3.0 9.4 15.5 5.17
Jigawa 2.1 6.7 11.4 5.43
----------------------------------------------------------
Total NW 16.0 50.19 84.0 5.25
Kwara 1.9 6.0 9.6 5.05
Kogi 1.9 6.0 9.6 5.05
Niger 2.4 7.4 11.9 4.96
Nassarawa 1.6 5.2 8.8 5.50
Plateau 1.9 6.07 12.7 6.68
Benue 2.4 6.7 12.3 5.13
-----------------------------------------------------------
Total NC 11.1 37.37 64.9 5.85
Adamawa 2.1 6.5 10.9 5.19
Gombe 1.6 5.1 8.9 5.56
Borno 2.4 7.7 12.6 5.25
Bauchi 2.2 6.8 11.6 5.27
Yobe 1.9 5.9 10.4 5.47
Taraba 1.9 6.1 10.1 5.32
-----------------------------------------------------------
Total NE 12.1 38.1 64.5 5.33
FCT 3.0 30.0 45.0 15.00
-------------------------------------------------------------------
Source:Supreme Court Ruling: How Does It Affect the States?
EDITORIAL April 8, 2002 This Day
Appendix
ARTICLE ONE:
Resource judgement: Review and prospects
The Guardian
May 28, 2002
By U. O. Umozurike
THE opponents of the Supreme Court judgement on resource control have been unrelenting in their criticism and this is understandable. A judgement that reduces the revenue of a littoral state by millions or even billions of naira attracts very close scrutiny. Though regrettable, it is unfortunate to impute that the Supreme Court was out to sing a tune pleasing to the President or that it allowed itself to be used to achieve the President's objective. It is equally unfair for the political rivals of a governor to claim that the judgement was a reprisal for his confrontational attitude to the President all of which are a baseless indictment of the Court, the President and the Governor.
A careful and objective assessment of the judgement puts it in a landmark category delivered with clarity and perspicacity. Of course the Court received immense help from the counsel on both sides who had gone to great lengths to fish out relevant authorities in other jurisdictions which though not binding were very persuasive. Bonsor V LA Macchia (1969-70) 122 CLR 177, Reference Ownership of Offshore Mineral Rights (1968) 65 DLR 2nd 354 (Canada) and New South Wales & Ors V Commonwealth (1975-6) & ALR 1 (Australia) were very much in pari materia with the case on hand. The constitutional importance and the financial implications placed a high premium on the case. It is not often that legal scholars have such a relish in a single case which saw an interfacing of so many aspects of the law" International Law, Tort, Constitutional Law and Land Law. Aspects of the judgement expose the Federal Government's refusal to implement the law on 13 per cent derivative revenue since May 19 1999. Nor could the Federal Government have bargained for the Court's pronouncement on gas as a natural resource.
>> read complete article
* Professor Umozurike is with the Abia State University, Uturu.
ARTICLE TWO:
There are no oil producing states - Aluko
Champion
May 27, 2002
From Bisiriyu Olaoye, Akure
FORMER Chairman of National Economic Intelligence Committee (NEIC), Prof. Sam Aluko, has said contrary to widespread belief that oil contributes the bulk of the national wealth, the mineral resource actually accounts for not more than 12 per cent of the nation’s Gross Domestic Product (GDP).
Prof. Aluko also frowned at the usual reference to communities with oil deposits as oil producing areas, saying that such communities do not produce oil. He said the proper reference to them should be oil-endowed communities. Speaking to Daily Champion in Akure, Ondo State capital, Prof. Aluko said: "One thing that Nigerians don’t know and even the oil-endowed areas, not oil-producing areas – because they don’t produce oil or contribute to the production, is that the cost of earning that oil dollar is very high, so the net is very minimal."
According to him, if the country earns $25 per barrel the net value accruing to it is about $15 before oil industry-related expenses. Prof. Aluko stated, however, that after meeting the cash call commitments to oil firms the government is left with only about $6 per barrel. These commitments, he said, include purchase of the oil firms’ equipment, high cost maintenance of Nigerian National Petroleum Corporation (NNPC), Company (PPMC), 28 depots and four refineries.
>> read complete article
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