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20 Jan

OIL AND GAS 2.3B REVENUE SHARING FORMULA

SHARING FORMULA?

Having established that the property in oil is vested in the Federal Government. The next question is: How is the Revenue Generated therefrom shared?

Well, the answer to this question has never been straightforward. Various commissions and committees have been set-up to determine the sharing formula. We have had; Phillipson Commission (1946), the Hicks-Phillipson Commission (1951), The Chicks Commission (1968, The Raisman Commission (1958), The Binns Commission (1964), The Dina Interim Committee (1968), the Aboyade Technical Committee (1977), the Okigbo Commission (1980), the Revenue Mobilization Allocation and Fiscal Commission (1989), various military decrees and so on. Then finally, we had the Revenue Mobilization  and Fiscal Commission which was established as a legal and permanent entity to deal with fiscal matters on a more regular basis as the need arises[1].

 

For the sake of brevity, the table below shows the various committees and their recommendations.

Table 1:          Revenue Allocation Commission and Recommendation of various                commissions.

Commission or

Commission

Recommended Criteria Other basic features of recommendations 
Phillipson, 1946 i) derivation. ii) even progress Balance after meeting central Government’s budgetary need allocated to regions
Hicks-             Philipson, 1951 i)derivation. ii) fiscal autonomy iii) Needs, and iv) National interest Proportion of specified duties and taxes allocated to regions on the basis of derivation, special grant capitalization, education and police
Chick, 1951 i)Derivation ii) fiscal autonomy Bulk of revenues from import duties and excise to the regions on the basis of consumption and derivation.
Raisman, 1958 i)derivation ii) fiscal autonomy. iii) Balance development iv) Need Proportion of specified revenues distributed on the basis of derivation. creation of distributable pool account (DPA) with fixed regional proportional shares: North 40%, west 31%, east 24%, and Southern Cameroun 5%.
Binns, 1964 Same as above plus financial comparability Composition of DPA relative share slightly altered, North 42%, East 30%, West 20% and Mid-West 8%
Diana 1968 i)Even development ii) Derivation iii) Need iv) Special grant account introduced, recommended the establishment planning and fiscal commission.

Recommendation rejected.

  minimum             responsibility             of government  
Decree No. 13 of 1970 i)population 50% ii)Equality of states 50% Export duties states reduced from 100% to 60%.
Decree No. 9 of 1971 Same as above Transferred rents and royalties of offshore petroleum mines from the states to the federal government.
Decree No. 6 of 1975 Same as above Onshore mining rents and royalties to states reduced from 45% to 20%. Remaining 80% to the DPA. Import duties on motor spirit and tobacco to be paid 100% into the DPA. 50 0f excise duties to be retained by the federal Government, 100% to DPA.
Decree No. 15 of 1976 Same as above Regional proportion share of DPA split among the 12 new states, 6 Northern states receive 7% each, East and Western states share in accordance with relative population
Aboyade, 1977 i)Equality of access 25%. ii) National minimum standard 22% ii) Absorption Capacity 20% iv) Independent revenue

18% v) Fiscal efficiency 15%

Replaced DPA with federation account. Fixed proportional share ot of this account between the federal 57%, states 30%, Local Government joint account created.
Okigbo Commission

1980

Considered equality, derivation but placed 55 percent on the Federal Government. Federal Government – 55%

State Government – 35%

Local Government – 10%

1981 Act Same as above Federation account to be shared: federal Government 55%, State Government 30.5%,   Local Government 10%, special fund 4.5%
Decree No. 49 of 1989 Same as above Federation account to be shared: federal Government 55%, State Government 32.5%,   Local Government 10%, special fund 2.5%
Danjuma

Commission 1989

Same as above Equality of states 40%. Population 30%. Social development effort 10%. Tax effort 10%. Land mass%.
Decree No. 49 of 1989 i)Equality of states 40%. ii) Population 30% iii) Internal revenue effort iv) Land mass v) Social Development factor 10% Federation account to be shared: federal Government 47%, State Government 10%,   Local Government 15%, special fund 8%
Decree No. 3 of

January 1992

Same as above Federation account to be shared: federal Government 50%, State Government 25%,   Local Government 20%, special fund 7%
2009 Same as above Federation account to be shared: federal Government 48.5%, State Government 24%,   Local Government 20%, special fund 7%

Source: Akujuru, Chukwunonye Abovu[2], From Otaha.

Please you do not need to cram everything. Just note the progression so far.

Under the 1960 and 1963 constitutions, allocation of revenue was based on a 50 percent derivation basis. For example, Section 134 of 1960 Constitution provided: (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”.

The present 1999 Constitution does not take a firm ground on derivation interest. Its position on this can at best be found in Section 162 (2) of the 1999 Constitution which (after listing the various principles) provides that the derivation interest should not be less than 13 percent.

 

In conclusion, I am of the opinion that the host communities and regions be included in the exploitation process either by involvement or granting them greater derivation interest. This should foster cooperation and pacify the belligerence of the indigenes

 

 

 

[1] Victor I. Lukpata, Ph.D, Revenue Allocation Formulae in Nigeria: A Continuous Search INTERNATIONAL JOURNAL OF PUBLIC ADMINISTRATION AND MANAGEMENT RESEARCH (IJPAMR), VOLUME 2, NUMBER 1, OCTOBER, 2013,

[2] Revenue Allocation In Nigeria And The Dependency On Oil Revenue: The Need For Alternative Solutions Published by European Centre for Research Training and Development UK. Global Journal of Arts Humanities and Social Sciences Vol.3, No.2, pp.19-36, February 2015.

Isochukwu

Quite eccentric really

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