Mobolaji E. Aluko, PhD
Burtonsville, Maryland, USA

June 23, 2005


This is an essay of short sentences and a few long tables:  so please
bear with me.

It is inspired largely by the dramatic developments in these dying
days at the National Political Reform Conference (NPRC), when a
fundamental disagreement over resource control and mineral derivation
funds has arisen,  leading to serious contentions and a walkout by
the South-South delegation and threats of walkouts by the Northern
delegation - and a suspension of the NPRC until cooler heads prevail.

Since mineral derivation is almost exclusively petroleum oil at this
time, delegates from:

(i)  the oil-resource-rich 6-states South-South Niger-Delta zone
(Delta, Edo,  Bayelsa, Rivers, Akwa-Ibom, Cross Rivers)  are
insisting on increased derivation percentage: immediate increase from
13% first to 25%, then to 50% over a five year period.

(ii) the oil-challenged 19-states Northern zone are saying "Ba
Hanya !" (no way!), arguing (correctly) that such a sudden increase
would stifle the funds and hence economic development of all the
other zones. They appear ready to settle for an immediate increase to
17%, with any other adjustments being made within the framework of
the RFMAC  as mandated by the Constitution. (RFMAC stands for
Resource and Fiscal Mobilization and Allocation Committee).  The
conservative zone's agenda even beyond the derivation principle is
apparently simply to maintain the status quo of the Nigerian polity
as much as possible.

(iii) one half of the 6-states South-West zone delegates (Lagos, Ogun
and Ondo) and one half of the 5-states South-East zone (Abia, Imo)
are voicing muted support for the South-South zone, each probably
because of some currently limited (Ondo, Abia, Imo) or potential
(Lagos, Ogun) oil-resource-rich status of their states.

(iv) the other half of the South-East zone (Anambra, Enugu, Ebonyi)
is prepared to support the South-South zone in exchange for the
granting to its zone of a sixth state (maybe Orlu State (?) ).  This
would increase the number from the current five states (to equalize
the number of states per zone).  A guaranteed 2007 presidency slot
for the zone is also in the bargain.

(v)  the other half of the South-West zone delegates (from Osun, Oyo
and my Ekiti State) is  apparently confused and bewildered, having
been thrust into the conference in turmoil without an agreed agenda
in mind, under thumb of the president and his PDP agenda.  The
allegation is that the earlier zones-as-federating-units and
parliamentary system agenda of the Yoruba has been sabotaged by the
PDP governors of the South-West.

In this essay, we will briefly review some historical information on
revenue allocation in Nigerian and then evaluate the effect of
increasing the derivation percentage from 13% to 50% of state and
federal allocations.  We will finally suggest a phased and mixed
resource control/derivation regimen that will be a win-win for all

One hopes that cool heads will eventually prevail.

But first things first.


In order to survive, all animals and human beings need air to breathe
and for plants to thrive; water to drink, wash, cook, fish and cool
with, land (earth) to move, farm and live on, and of course the Sun
(as a primary source of energy) to light, to warm, and to
photosynthesize plants.

In short, whoever controls the natural resources of air, water, land
and energy controls Man's survival.  True unadulterated "resource
control" is therefore the ability to control, by one's self and for
one's own uses, these stated resources and whatever may be contained
within them.  It means the ability to harness or to withhold or to
somehow limit, with little or no hindrance, the development  by that
community itself (and/or with the assistance of people of its choice)
of these resources for the benefit (biological, financial and
economic) of that  individual or community and their posterity.

It may happen that an individual or a community willingly gives up
that right to determine the use of those resources to some other
community or external governing body, but then negotiates some
economic or financial benefit in a mutually beneficial manner.  The
level of this derived benefit or revenue allocation - or derivation
fund - would be based  on the willingness and ability of the
benefactor-community to harness the said resources, and the
negotiating prowess of the benefactor and the host community.

There is a third situation however:  complete deprivation or
enslavement, where there is an external marauding, ravaging community
or entity that completely takes over another community's resources
and uses them completely for their own benefit without taking into
consideration the feelings of the host community.  This circumstance
completely violates the dignity of the community of human beings and
is clearly unacceptable.

It is in the above context that we should in the ensuing discussion
view derivation as a veritable way station between resource control
and complete enslavement, even within the context of a federal system
of government.


With about 130 million people, almost 1 million square kilometers of
area , 1 federal government, 36 states, 774 local governments, 8,810
wards and 375 ethnic groups, and innumerable identifiable
communities, Nigeria is certainly a country where survival is a
premium, competition is keen, and the battle between the contending
situations of resource control, derivation and enslavement is
evident.  With the British first as colonial enslaving masters, some
official coming-together of the country first occurred in 1900,
followed by formal amalgamation in 1914, limited rule in 1957/59,
independence in 1960, military dictatorial rule from 1966 to 1979 (a
period punctuated with a civil war in 1967-1970), return to civilian
rule from 1979 to 1983, another prolonged era of military rule from
1983 to 1999, and then finally civilian rule from 1999 to date.
During all of these periods from pre-independence to date, there have
been various  power relations between various communities and levels
of government in the country, leading to various revenue allocation
formulas from the central government to the lower tiers of government.

The story of such formulas starts with the Phillipson Report of 1946,
but it is the Reismann Commission of 1958 which cleared the way and
was adopted for Independence in 1960 for a country comprising one
Federal (Republican) Government and at first three (North, East and
West) and then  four regions (with the Midwest added in 1963).  Key
to the Reismann report was  the notion of a Distributable Pool
Account (DPA) to be constructed and then distributed among the
regions on the basis of  ?continuity, minimum responsibility,
population and balanced development of the federation?

Key  revenue sources of this DPA that got carried into the 1960
Independence and 1963 Republican Constitutions were mining royalty
and rent revenue - not of total mining revenue -  of which  50% was
to be returned to region of derivation, 30 percentage to other
regions and 20% to the federal government.  However, 100% of taxes on
sales produce and motor vehicles were to be returned to the relevant
regions.  [See Table 1 for  sample revenue allocations for the period

Since Independence, the revenue allocation formulas have witnessed a
number of adjustments,  with the derivation percentage coming down as
low as 1.5% OF SOME TOTAL REVENUE, but in 1995, attaining a height of
13% OF SOME TOTAL REVENUE up until present, even though the
percentage of "what?" (is it of mining rights + royalties or of some
total revenue or what?) concern has always been an issue. [See Table
2 - a historical overview of revenue allocation formulas of Nigeria.]

Therefore with respect to derivation, the confusion, often glossed
over even by the best of minds in Nigeria, but certainly with the
mischievous knowledge of many politicians,  has been not only over
"percentage numbers" but "percentage of what" as well.

We need not further rehash history except to state that in 1978 a
departing military regime inserted a Land Use Decree into our
Constitution  granting all land and minerals contained thereon, to
federal and state governments (not communities or individuals).  The
sea and its mineral contents as being held in trust by the federal
government had also been enacted some years earlier.

This therefore is the summary:  our governments control the
resources, and the communities/individuals "derive" benefits
there-from from the government.  Revenue allocation is from higher
levels of governance to lower levels, and special derivation funds to
certain selected communities are based on high-value derivations


Suppose the total revenue accrued to the federation (TFF)  in a given
year is R billion naira, of which a fraction [a] is oil revenue (OR)
and the rest is non-oil revenue NR.   [A further fraction y of the OR
is mining rents and royalties.]

The traditional budgeting method is for the Federal Government to
remove a fraction m of this through Memorandum items (MF), and
another fraction t via transfers (TF) to certain dedicated accounts.
The rest of the money R(1-m-t) is called the Federation Account (FA),
which is a Distributable Pool Account (DPA).

Out of the FA is taken the Derivation Fund (DF), according to a
fraction d. The rest is then distributed thus according to various

Federal Government:         g   {A fraction z goes for further oil
area development}
State Government:            s
Local Government:       (1-s-g)

[See Table 3 for display of Budget and Revenue Allocation Items.]

After the determination of R, the fractions of importance for revenue
allocation, grouped according to decreasing importance, are thus:

(R) (a) (m, t) (y, d) (g, s) and (z)

The interesting thing is that by manipulating m and t, the value of
DF, FGF, SGF and LGF can be kept as low as desired  even if d, g, s
and z are revised despite increases in R.

So it could easily be a case of "the more you have, the less you see".

True resource control enables the local community to determine R, a,
m, y, t and v.  In focusing our energies on derivative fund -
essentially the ratio d - we lose focus as to where we should be in
terms of managing our own affairs.

For derivation fraction d,  at the moment what goes into their pocket
is Rd(1-m-t) billion naira.  For full resource control, a
federal taxation rate (1-d) would leave oil-producing areas with aRd
billion naira in their bank.   So it is only when

             a = 1 - m - t

that  resource control and derivation amount to the same thing for d fraction!

If 1 - m - t < a, derivation is NOT to the advantage of the oil
producing states.

Typically, we have a = 0.8;  m = 0.25 and t = 0.2, hence we see that
in that case, derivation is not kosher !

In general, if under resource control w is the government tax rate, then:

            a(1-w) > (1-m-t)d

for resource control to be advantageous . For example, if we have
that  a = 0.8, w=0.5, m = 0.25, t = 0.20, d = 0.13, we have  that
 0.4 > 0.0715


Since military incursion in Nigeria in 1966, m (Memorandum items) and
t (transfers) have been kept high and d (derivation fraction) has
been kept low in the 1.5-3% range, until the Abacha Constitution
Conference of 1995 fixed it to 13%, and the 1999 Abdusalami Abubakar
Constitution engrained it AT A MINIMUM of 13% .  It was not however
until 2002 when a Supreme Court ruling forbade a number of Memorandum
items and transfers (thereby reducing m and t) ? and in its aftermath
d was positively fixed by the RFMAC at 13% - that substantial monies
have started to accrue to the oil-producing states.

Table 4 shows financial operations of the Federal Government of
Nigeria in 1997 (the last full year of Abacha's rule), when compared
with 2000 (the first full year of Obasanjo's civilian rule),  2002
(the last full year BEFORE the major Supreme Court ruling on
dichotomy/resource control/derivation) and 2003 (the first full year
AFTER the Supreme Court ruling).  Table 5 shows all the revenue
allocations from June 1999 to July 2004, and Table 6 shows the
allocations for May 2005.

What is unmistakable in these tables even to the naked eye - despite
the disproportionate control of funds at the federal level -  is the
substantial improvement in the financial fortunes of the nine
oil-producing states, particularly the AkBaDeRi oil states
(Akwa-Ibom, Bayelsa, Delta, Bayelsa and River), which constitute 90%
 of the derivation. For example, the 13% derivation fund increased
from N2 billion in 1997 to N137 billion in 2003, at a time when the
gross oil revenue increased from N417 billion to N2.1 trillion. Most
or all of these nine states continue to obtain money from three
sources:  the 13% derivation fund, the Niger Delta Development
Corporation (NDDC) funds AND the federation account pool for all
states based largely on population.


As stated before, the present impasse at the NPRC is based on demands
for increase of the derivation percentage from 13% to 50% of revenue,
largely based on the argument that 50% was the original figure in the
1960/1963 Constitutions, but forgetting that that 50% was of mining
royalties and rents, NOT of revenue.

We will now be concrete by showing what an increase from 13% to the
range of 17% to 50% would have been if  it had been effected on the
country?s revenue allocation in May 2005, for example.

The data are presented in summary form in Tables 7a and 7b.   In May
2005 (see Table 7b) at 13%, the derivation fund was N22.7 billion and
at 52%, it would have been N70.7 billion, with the Federal Government
budget reduced from N110.9 billion to N68.4 billion with the state
and local governments absorbing the rest of the reduction.   Delta
States total May 2005 intake (N8.94 billion) would have gone to
N31.2, at a time when the average state intake in May 2005 was N1.7
billion, which would have reduced to N1.1 billion.

More generally,  the effect of such an increase being proposed is
unmistakable: it would have led to a transfer of N7 billion to N70
billion to the oil producing states, with the highest budgets of
those states being tripled and the budgets of many non-oil producing
states being halved from their original values.  This would have led
to a traumatic effect on 27 states and a possibly unmanageable influx
of  finance into the oil-producing states, bearing in mind that one
questions how much improvement has been seen in those states since
1999 when they have experienced substantial increases already.  [This
accountability question applies to all levels of government in
Nigeria.]  Furthermore, the highest-to-average allocation ratios
would have increased from 6-to-1 at 13% to 30-to-1 at 50%, leading to
much greater unhealthy inequity in the country with respect to state


We have sought here to distinguish clearly between resource control
and percentage derivation.  100% resource control - meaning the local
ownership of land such as to harness, withhold or limit development
thereon, with rent, royalty and taxes accruing  - is very supportable
and achievable, is consistent with human dignity, and would be
favorable to ALL states in the federation.  However, resource control
 is NOT equal to 100% derivation as Nigeria?s federation is currently
 structured, wherein in effect many non-oil-producing states are
being compensated for opportunities LOST due to their inability to
tap their many resources by themselves.

We will therefore like to propose a win-win situation that will
ultimately end in resource control.  That is a phased  and mixed
resource control / derivation regimen where, starting in 2007 and
over a twenty-year period, we move immediately from 0% resource
control that we have now to 100% resource in steps of 25% increase
every four years. During the transition period, present derivation
formula should be fixed at 20% for the resource-uncontrolled portions
of the resources.

In practical terms, the portion of land and sea that states and
communities control and can harness resources independent of
government - with appropriate taxes being paid to government - would
increase in quanta of 25% every four years until in Year 2027, we
would have full resource control.

I believe that this proposal will reduce financial shocks that would
otherwise arise in many other proposals, and will give enough time
for economic development plans to be properly effected.


The issues of revenue allocation, derivation and resource control
generate a lot of passion in Nigeria and among Nigerians.  However,
if we are to remain a united, strong, happy and democratic country
moving towards nationhood, then cool heads must prevail as we right
historical wrongs without creating new ones.

I rest my case for now, and comments are, as usual, welcome.


For storage size and formatting reasons, the tables referenced in
this essay have been archived as part of the essay in the URL on my