Akani Alaka
Nigeria’s nine oil producing states in Nigeria were short-changed by over N2.5 trillion in a period of seven years, spanning 2011 to 2017 because of the refusal of the Nigerian National Petroleum Corporation, NNPC, to fully apply the 13 per cent derivation principle to accruals from the sale of crude oil, a report exclusively obtained by The Nigerian Xpress indicated.
The report was the findings of a consultancy firm employed by the oil producing states to carry out independent study of implementation of payment of 13 per cent derivation as stipulated in section 162(2) of the 1999 Constitution as amended. This section of the constitution stipulates payment of 13 percent of funds derived from sale of crude oil to the states in which territories the oil is derived from.igeria’s nine oil producing states in Nigeria were short-changed by over N2.5 trillion in a period of seven years, spanning 2011 to 2017 because of the refusal of the Nigerian National Petroleum Corporation, NNPC, to fully apply the 13 per cent derivation principle to accruals from the sale of crude oil, a report exclusively obtained by The Nigerian Xpress indicated.
States benefit from the derivation payment, which was meant to “provide a recompense to the producers of any natural resources for the expropriation and sequestration of their rights to control and manage same, by the Nigerian State,” according to the volume of oil produced within their territories. Nine oil producing states are currently benefitting from the 13 derivation revenue, according to the report.
The oil producing states covered in the report are Akwa-Ibom, Rivers, Cross Rivers, Delta, Cross River, Edo, Bayelsa, Abia, Ondo and Imo.
But the report, which was a product of a study conducted by Periscope Consulting Ltd on the Federation Account and Allocation Committee (FAAC) allocations/distributions to Nigerian States over the period 2011 and 2017, noted that NNPC’s continuous deduction of funds at source for payment of subsidy and other purposes has affected, among other disbursements to various states of the federation, the payment of the constitutional 13 per cent derivation.
The consultancy firm noted in the report that NNPC’s adoption of the principle of “revenue receipt” instead of “accrual” as intended by the Constitution in the calculation of derivation revenue payable to the oil producing states has resulted in gross underpayment of derivation revenue to the oil producing states
As noted in the report, the adoption of the ‘accrual principle would have ensured that derivation is calculated on all revenue earned from the sale of crude oil.”
“To this end, the 13% Derivation is due to the Oil Producing States once revenues are earned in that regard. However, a recent review of the Federation Account and Allocation Committee (FAAC) allocations/distributions to Nigerian States over the period 2011 and 2017, carried out by our firm – Periscope Consulting Ltd., revealed that the 13% Derivation due to the Oil Producing States, have been severally computed using the basis of “revenue receipt” as against the “accrual concept” intended by the spirit of the Constitution,” the firm said in the report.
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“We have observed that there has been a deficit in the amount paid to the Nine Oil Producing States as 13% Derivation, to the tune of N2,501,550,882,026.71 (Two Trillion, Five Hundred and One Billion, Five Hundred and Fifty Million, Eight Hundred and Eighty-Two Thousand, Twenty-Six Naira, Seventy-One Kobo), during the period reviewed,” the report noted of the amount that has been denied the oil producing states because of the adoption of the allegedly wrong accounting principle.
The shortfall in payments to the oil producing states as noted in the report, include derivation due on the contentious N6,430,890,322,306.37 held back by the NNPC from the N15,259,070,879,388.50 earned from export of crude oil between January 2011 and December 2017.
The NNPC had claimed that it used the unremitted balance of N6,430,890,322,306.37 to pay subsidy to itself, to maintain pipelines among other sundry uses.
But the Federation Accounts Allocation Committee, FAAC had faulted the claim by NNPC as it argued that the corporation had not been able to provide proof to back up its claims.
But the consultancy firm said a total sum ofN836,015,741,899.83 was due for payment to the oil producing states as derivation on the withheld N6,430,890,322,306.37).
See table for the calculation of the amount due to each of the oil producing states.
The payment of subsidy to petroleum marketers from the Excess Crude Account is another area that the firm indicated that NNPC has been cheating the oil producing states.
According to the report, a total of N5, 510,046,155,363.25 was paid as subsidy from Excess Crude Account in the period under review to independent marketers while the NNPC also claimed N3,615,046,155,363.25 as subsidy payments for itself.
The report noted that when the constitutional 13 per cent derivation payment is applied on the subsidy payment of N5,510,046,155,363.25 from the excess crude account, it will be discovered that the nine oil producing states have been shortchanged to the tune of N716 billion.
See the table below for the amount that should have been paid to each of the nine oil producing states from the funds taken by the NNPC to pay subsidy.
“Findings reveal that Oil Producing States contribute to pay for subsidy from their 13% derivation and statutory allocations while other States contribute to subsidy from their statutory allocations only,” said the firm.
Also, the firm noted that out of the N8,531,440,995,091.19 earned from the sale of crude oil in the period under review, only N1,229,678,380,247.66 was shared to the three tiers of government while the remaining balance of N1,114,472,267,272.92 was transferred to excess crude account. NNPC claimed it used the N6,187,290,347,570.61 withheld amount to pay for Joint Venture cash calls.
But as noted in the report, deduction of the amount shared to three tiers of government from the total amount earned, will leave a balance of N7,301,762,614,843 on which 13 per cent derivation should have been paid to the nine oil producing states.
This, as noted by the firm, was because the Nigerian constitution stipulates payment of 13 per cent derivation on all crude accounts.
On this, the report noted that a total of N949,229,139,929.66 is due to the oil producing States.
The consultancy firm, therefore, recommended that the 13% derivation due to the oil producing states in the period under review should be reconciled based on earnings from domestic and exported crude oil sales as well as the amount directly deducted to pay for subsidy by the NNPC.
“It is in these matters that the Nine Oil Producing States need to jointly review and take note of the activities of the NNPC, and work to recover the amounts duly accrued to them in relation to the constitutionally recognized 13% Derivation on all oil-related earnings of the federation as outlined in this document,” the firm recommended in the report.
The Governors, the firm recommended, should demand, “That the Derivation Funds amounting to N716,306,000,197.22 (Seven Hundred and Sixteen Billion, Three Hundred and Six Million and One Hundred and Ninety Seven Naira, Twenty Two Kobo) used to make Subsidy payments to Independent Marketers for the period 2011 to 2017 be refunded to the Derivation (Oil Producing) States.
“That the Derivation element of the N6,430,890,322,306.37 amount retained by NNPC and amounting to N836,015,741,899.83 (Eight Hundred and Thirty Six Billion, Fifteen Million, Seven Hundred and Forty One Thousand, Eight Hundred and Ninety Nine Naira, Eighty Three Kobo) be refunded to the Oil Producing States.
“That the Derivation amount of N949,229,139,929.66 (Nine Hundred and Forty Nine Billion, Two Hundred and Twenty Nine Million, One Hundred and Thirty Nine Thousand, Nine Hundred and Twenty Nine Naira, Sixty Six Kobo) on the N 7,301,762,614,843.53 (Seven Trillion, Three Hundred and One Billion, Seven Hundred and Sixty Two Million, Six Hundred and Fourteen Thousand, Eight Hundred and Forty Three Naira , Fifty Three Kobo) Federation Crude Sales proceeds be refunded to the Derivation (Oil Producing) States.”
Recommendations on how the oil producing States can stop the NNPC from shortchanging them of revenues due to them as derivation funds were also made in the report.
One of the recommendations was to stop NNPC from making deductions from the domestic oil proceeds account. This, the report recommended, would entail the Central Bank of Nigeria opening a domiciliary account where domestic crude importers are mandated to deposit the sales proceeds. The account, it added, should be managed by the CBN and the Federal Ministry of Finance.
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It also added that the domestic crude oil allocation of 445,000 bpd of crude to NNPC of local refineries be reduced to the current production capacity of the refineries.
Efforts to get the reactions of NNPC to the report were not successful as at press time.
The Corporation’s spokesperson, Mr. Ndu Ughammadu, neither responded to text messages nor picked his calls.
Governor Seriake Dickson of Bayelsa State had last year complained about how the NNPC had been fiddling with funds accrued to the federation from the sale of crude oil.
The governor had also complained about failure of the corporation to ensure full implementation of the 13 per cent derivation in the funds earned from the sale of crude oil in a statement by his Special Adviser on Media Relations, Mr. Fidelis Soriwei.
The governor said, “Even within the existing constitutional framework that has made provisions for 13 per cent derivation, the implementation of it does not really come to 13 per cent. It is unfortunate.
“We have a situation where every state, including the oil-producing states, which suffer the adverse effects of oil production, (environment is going, livelihoods are gone and communities are in crisis) and the Federal Government are at the mercy of the NNPC.
“In other words, every month, our officials go to the Federal Accounts and Allocation Committee for the month and they simply wait for NNPC to declare what is available and they throw that at us.
“So, there has been a consistent violation of the constitutional provision regarding 13 per cent derivation to the effect that all funds that accrued to the Federal Government should be paid into the federation account so that it would be put in for disbursement according to the revenue sharing formula. “That has been consistently violated by successive governments, and we felt it should be addressed.”