Special Report
Today we publish the second batch of the South South’s reaction to the “Key Issues before the Northern delegates to the 2014 National Conference,” issued by the North.
By By Ayakeme Whisky
INTRODUCTION: One subject that has remained contentious since contributions of oil and gas proceeds became dominant in the fiscal arrangements of the Nigerian federal state has been how the revenue should be shared between the federal government and the constituent units.
INTRODUCTION: One subject that has remained contentious since contributions of oil and gas proceeds became dominant in the fiscal arrangements of the Nigerian federal state has been how the revenue should be shared between the federal government and the constituent units.
This is more so since the military took over the reins of administration and power was made to effectively oscillate among the top Northern military brass, using the barrel of the gun in the country. But it must be noted that the country had practiced fiscal federalism by allowing regions that produced resources to earn 50 per cent of the proceeds in accordance with the provisions of Section 140 of the Constitution of the Federal Republic of Nigeria 1963, which states inter alia:-
(1)There shall be paid by the Federation to each Region a sum equal to fifty percent 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 from within that Region
2) The Federation shall credit to the Distributable Pool Account a sum equal to thirty percent of-
(a) the proceeds of any royalty received by the Federation in respect of any minerals extracted in any Region; and
(b) any mining rents derived by the Federation from within any Region.
Constitutional conferences
Even the above provisions were influenced by the report of the Sir Jeremy Raisman and Prof. Ronald Tress Fiscal Review Committee put together at the aftermath of the 1957/58 constitutional conferences in London. The conferences had received strong agitations from the regions, including the minorities of the Oil Rivers Province and Calabar-Ogoja Province who were agitating for separate states. The Raisman’s Committee recommended as follows:
Region of origin •50 per cent
Federal Government •20 per cent
All other regions •30 per cent
It is important to state that the Raisman Committee feared that the great potentials of oil proceed, which had then earned an estimated 65,000 Pounds Sterling could unbalance the development of the country in favour of the Eastern Region. Accordingly, it introduced four variables to wit: continuity, minimum responsibility, population and balanced development of the federation as indices for revenue allocation. Before then, the Chicks Commission of 1953 had recommended the full allocation of proceeds to regions of origin, providing 100 per cent allocation of mining royalties and rents to the regions of origin.
When the Midwest region was created in 1964, the Federal Government headed by Sir Abubakar Tafawa Balewa appointed Mr. K. J. Binns to review the fiscal arrangement with respect to proceeds on mining royalties and rents and duties payable on any commodity aside from some items. Central to the recommendation of the Binns Committee was the increase in the proportion of distributable pool funds from 30 per cent to 35 per cent as a result of the increased responsibility incident on the creation of an additional region. Further, it remarkably recommended that proceeds of excise duty imposed on locally produced motor spirit and diesel oil shall be paid to the regions based on the consumption in the various regions.
Whereas all the recommendations clearly elected the practice of fiscal federalism in a pluralized Nigeria, the military incursion into governance following the January 1966 coup and counter coup and the subsequent 30 months civil war necessitated an alteration of the fiscal order. Consequently, the Gowon administration reduced the derivation percentage from 50 per cent to 25 per cent.
The Murtala/Obasanjo military administration that overthrew the Gen. Gowon regime further engaged in systemic reduction of the derivation proportion to zero and this even applied until the famous resource control suit instituted by late Prof. Ambrose Ali, then Governor of Bendel State overturned it in 1982.
Although the Gen. Gowon regime was said to have paid about 25 per cent as derivation on inception, it set up the Dina Commission in 1968 which report was rejected by the Council of Commissioners of Finance, chaired by foremost nationalist and apostle of federalism, late Chief Obafemi Awolowo who was the Federal Commissioner of Finance.
The Dina Commission had recommended the reduction of the derivation percentage to 15 per cent and the transfer of “all rent royalties of offshore mining to the federal government”. Despite the rejection by the Council of Finance, the Gowon administration went ahead to enact Decree No. 9, 1971 and effectively transferred all offshore proceeds to the federal government. What the helpless resource owners consistently experienced was that each succeeding Military government which was headed by a northerner had as a priority the establishment of revenue review committees, starting from Prof. Aboyade in 1976, with specific prescriptions to ensure that the ‘ghost’ of derivation as a core principle of revenue sharing in a federalized system of government was buried.
Derivation principle
These self appointed leaders whose access to political power was “pulling the trigger” neither understood the politico-economic logic nor the advice of history behind the fundamental essence of derivation principle. They failed to understand that the Nigerian nation came on stream in 1914 and, therefore, actions and practices had become precedents.
They were merely interested in appropriating the commonwealth of the people to enrich themselves and their cronies while those who bear the brunt of the oil and gas exploration and exploitation activities wallow in disease, poverty, squalor, environmental and ecological degradation.
But the facts of history are that before oil was discovered in 1956 and explored in commercial quantity at Oloibiri in present day Bayelsa in 1958, the economy of Nigeria was sustained by groundnut, cocoa, timber, tin, coal, hide & skin. Interestingly, the Northern region was the major producer of groundnut, cotton, tin and hide and skin, the major export earners. The Western region was known for timber, rubber, bauxite; and a predominant producer of cocoa, a produce that earned so much wealth. And the Eastern region was host to coal, oil palm, rubber and timber. At the time the Nigerian economy was sustained mainly by these produce receipts, derivation allocation was in the following order;
1914 – 1946 – All proceeds were commonly administered in line with the unification order of 1914 (there were no regional governments)
1946 – 1950 - All declared revenues were retained 100 per cent by regions. Undeclared revenues were shared as follows: Northern Region 46 per cent Western Region 30 per cent Eastern Region 24 per cent
1951 – 1953 - The derivation principle to the regions was applied as: •50 per cent of the import and excise duties on tobacco •100 per cent of the import duty on motor spirit
1953 – 1957 - 100 per cent derivation on mining royalties and rent •50 per cent of proceeds from other duties to Federal Govt.•50 per cent residue from other duties for the distributive pool to be shared as follows:
• Import and Export tax - on the basis of consumption
•Duty on Motor spirit - on the basis of consumption
•Export Tax on Hides and Skins – 100 per cent to the North
•Mineral royalties – 100 per cent to region of extraction
•Company Tax – 100 per cent to the Federal Govt.
1957 – 1960 - 50 per cent to Region of origin of mining rents and royalties
•20 per cent Federal Government •30 per cent Distributable Pool for all regions
1961 - 1963 -50 per cent to Regions of Origin of mining rents and royalties •20 per cent Federal Government •30 per cent Distributable Pool for all regions
1964 – 1967 - Applicable distribution formula until the civil war broke out in 1967 •50 per cent to Regions of origin of mining rents and royalties •15 per cent to the Federal Government •35 per cent to the Distributive Pool for all regions.
Mining royalties
We have earlier noted that General Gowon who prosecuted Nigeria’s war of unity was magnanimous enough to permit the allocation of 25 per cent of proceeds of mining royalties and rent to the region/state of origin. Although he introduced the vexatious Decree No. 9 of 1971 transferring offshore proceeds to the Federal Government it is incomprehensible that subsequent Military governments defiantly confiscated and denied the natural resources bearing states their right to resource ownership, including benefiting from the proceeds through the introduction of draconian laws.
The late sage, Chief Obafemi Awolowo in absolute deference to his federalist principles even as the then Federal Commissioner of Finance that should have presided over an over-enriched federal treasury, used the instrument of the Council of Finance to reject the recommendations of the Dina Committee on Fiscal Review and had this to say in his triology: In a capitalist society whether is a Federation or not, it is dishonest in the extreme to insist on sharing another state’s wealth on any basis other than that which the rules of the capitalist game allow. In this kind of society every state is perfectly entitled to keep whatever accrues to it eitherby the sweat of its brow, by cunning of the unaided bounty of nature. And to accuse a rich state of lack of fellow feeling or patriotism simply because it insists o keeping practically whatsoever accrues to it is unrealistic and untenable”
It is against the background of our historical past that we find it ridiculous and absurd when a group of persons in the name of Northern intellectuals deliberately embarked on a voyage of misinformation to sway opinion based on fathom claims, to insult the sensibilities of natural resources bearing states. Some Northerner irredentists, desperate in their attempt to survive on blackmail, having lost their “supremo” mien with the exit of military government arrogantly wrote in their advice to the Northern delegates to the on-going National Conference in Abuja that:
We recommend a vertical revenue sharing formula as follows: Federal Government, 26 per cent; States 39 per cent; Local Government Areas 45 per cent. Also we recommend a horizontal revenue sharing formula for the states and local government areas as follow: equality 35 per cent; population 30 per cent; population density 2 per cent; land mass 20 per cent; terrain 5 per cent; internal revenue generation effort 5 per cent; and social development factor 3 per cent.
They further recommended a downward review of the derivation percentage from the present 13 per cent to a debasing 5 per cent and attempted to reintroduce the offshore/onshore dichotomy which had since been settled by an Act of the National Assembly in 2004.
Spurious use of population size
This band of intellectuals also tried as usual to continue to justify the spurious use of population size as a basis of revenue distribution. Expressing some elements of audacity, they wrote: The North rejects the frequent assertions by the South on the population figures of the North and state clearly that the rate of population growth attributed to the North over the years is extremely understated.
The above statements clearly smack of enlightened self-interest and a shameless recourse to fraudulent fabrication for self emulation. It is in a bid to use population to strengthen and justify their unwarranted share of the federal revenue that population, population density and social development factors were assigned weights in their proposed horizontal distribution formula, having used same in the past to enrich their state treasuries. Similarly, in their proposed vertical formula, local government is given a weight of 45 per cent.
The intriguing question is how and when did local government councils become federating units in a federal system of government where states exist as constituent structures? Are we now justified in saying that the basis for the whimsical creation of the 774 local government areas by the Hausa-Fulani hegemony that superintended over the affairs of this country for almost 40 years was to create avenues to milk the federal treasury funded with oil and gas revenues? We are little surprised even in this age that our Northern brethren is full of democratic rhetorics and aristocratic assumptions.
All apostles of federalism and genuine democrats like Alhaji Atiku Abubakar and Prof. Charles Soludo are united in their prescriptions for a federalized Nigerian state, a tax focused revenue base, controlled and managed by the constituent states in line with the greater authority given to them.
Highest epitome of ingratitude
Whilst the audacious call for the reduction of the derivation percentage to 5 per cent is both arrogant, insolent and full of indignation, and expresses the highest epitome of ingratitude, we regret that a people that have been parasitic, who contribute nothing to the national coffers (see Table B below) but have persistently enriched themselves at the expense of resource owners, would not stop at disparaging their benefactors.
If such innuendoes were intended to blackmail those who produce oil and gas, and on whose sacrifices our parasitic ingrates have continued to command wealth and prosperity to cheaply jettison the demand for proper tax based revenue allocation formula in line with globally practiced federalism, we wish to state without equivocation that such blackmail would be a total failure.
Our advise to these self seeking Northern apologists is to take wholeheartedly the advice of Alhaji Atiku Abubakar, a Northerner scion and former Vice President, that those seeking economic perpetual reliance on the resources of others should study and adapt the fine points of federal Unions in other climes for self sustenance and subscribe to a smaller, leaner federal government with reduced responsibilities. Alhaji Atiku’s views found corroboration in Charles Chukwuma Soludo’s postulates in his paper, “Restructure Nigeria for Posterity”.
He argues for the:
•Expunge of Section 162 establishing a Federation Account as this has created “a feeding bottle syndrome” of all federating units.
•Restore the part of 1963 Republican Constitution that deals with fiscal federalism of 50 per cent as derivation or grant rights over mineral resources to the respective regions and states and let them pay taxes to the Federal Government.
•Ensure True Federalism and a new fiscal federalism that is developmental.
•Devolution of revenue power to the States, especially VAT and Corporate Tax Laws.
•Review of derivation principles to provide incentive for states/regions with natural resources endowment to exploit them.
•Debate on how a far leaner and more effective Federal Government should be funded on a sustainable basis and the kind of transfer to distressed States/regions. These unassailable reasoning are recommended for every patriotic citizen as we build a just and egalitarian Nigerian society.
The law of giving and taking
There is a natural law that says a giver never lacks. This is perhaps responsible for a number of philanthropic acts by some wealthy individuals and corporate groups. Similarly, it is also said that there is a “curse” on someone who perpetually takes without giving. That makes you a chronic debtor. There is no debt without conditions; you lose certain opportunities and privileges.
Debtors don’t dictate, they plead for understanding and help. When a debtor attempts to dictate or show signs of arrogance, it provokes the patience of the creditor benefactor. And the consequences are dire, better imagined than said.
This is why we are saddened that a group of authors who prepared the brief for Northern delegates titled “Northern Agenda” could exhibit such bigotry to assault the sensibilities of the people of Southern Nigeria who have been providing the financial resources to fund their infrastructure, build their schools, pay their salaries and emoluments and provide opportunities for the emergence of billionaires amongst them.
For these same persons to have the audacity to not only dictate a reduction of derivation percentage to 5 per cent but also query the right of ownership of resource bearing states is an absurdity. For a people who contribute virtually nothing to the distributable coffers of Nigeria to challenge the propriety of others over ownership and what they receive as compensation for making available the resources for our common good defines shamelessness.
As can be seen from Table A below, Nigeria continue to depend only on oil revenue despite the billions of naira annually budgeted to explore and exploit other resources. Hence till date, oil revenue accounts for about 74 per cent, 80 per cent and 75.4 per cent of total federally collectable revenue (TFCR) in 2010, 2011 and 2012 respectively.
Table B: SCHEDULE OF OIL AND NON-OIL REVENUE (N’Million)
STATE 2009 2010 2011 2012
ABIA 41,495 2,066 59,324 2,384 62,153 2,799 0 0
ADAMAWA 0 0 0 0 0 0 0 0
AKWA IBOM 1,062,903 2,066 1,332,096 2,385 2,379,572 2,979 2,391,734 3,287
ANAMBRA 0 1,653 0 1,908 0 2,238 0 2,629
BAUCHI 0 0 0 0 0 0 0 0
BAYELSA 405,371 0 825,144 0 1,713,647 0 1,500,853 0
BENUE 0 1,653 0 1,908 0 2,238 0 0
BORNO 0 0 0 0 0 0 0 0
CROSS RIVER 0 3,305 0 3,815 0 4,476 0 525,754
DELTA 584,118 2,479 879,075 2,861 1,971,138 3,357 1,725,580 3,943
EBONYI 0 0 0 0 0 0 0 0
EDO 16,052 1,653 48,538 1,908 177,580 2,238 168,545 2,629
EKITI 0 0 0 0 0 0 0 0
ENUGU 0 0 0 0 0 0 0 0
GOMBE 0 0 0 0 0 0 0 0
IMO 351,109 0 539,310 0 976,690 0 802,595 0
JIGAWA 0 0 0 0 0 0 0 0
KADUNA 0 0 0 0 0 0 0 0
KANO 0 0 0 0 0 0 0 0
KATSINA 0 0 0 0 0 0 0 0
KEBBI 0 0 0 0 0 0 0 0
KOGI 0 0 0 0 0 0 0 0
KWARA 0 0 0 0 0 0 0 0
LAGOS 0 1,322,160 0 1,526,080 0 17,903,200 0 2,103,017
NASSARAWA 0 0 0 0 0 0 0 0
NIGER 0 0 0 0 0 0 0 0
OGUN 0 0 0 0 0 0 0 0
ONDO 175,554 0 177,972 0 328,523 0 3 04,980 0
OSUN 0 0 0 0 0 0 0 0
OYO 0 0 0 0 0 0 0 0
PLATEAU 0 1,653 0 1,908 0 2, 238 0 2,620
RIVERS 871,388 165,270 1,143,337 190,760 2,148,718 223,790 1,781,761 262,877
SOKOTO 0 0 0 0 0 0 0 0
TARABA 0 0 0 0 0 0 0 0
YOBE 0 0 0 0 0 0 0 0
ZAMFARA 0 0 0 0 0 0 0 0
Source: Federation Accounts Allocation Committee
Table A: SCHEDULE OF OIL AND NON-OIL REVENUE (N’Million)
Description 2009 2010 2011 2012
Oil Revenue 3,191,900.00 5,396,100.00 8,879,000.00 8,025,953.48
Non- Oil Revenue 1,652,700.00 1,907,600.00 2,237,900.00 2,628,771.39
Total Revenue 4,844,600.00 7,303,700.00 11,116,900.00 10,654,724.87
% of Oil Rev. to TR 66% 74% 80% 75.4%
Source: Federation Accounts Allocation Committee
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