G.B. Leton: How the Federal Government Cheated the Niger Delta

By Eric Teniola

On November 23, 1979, President Shehu Usman Shagari inaugurated the Presidential Commission on Revenue Allocation. The committee was headed by Dr. Pius Charles Nwabufo Okigbo (1924-2000), a former economic adviser to the federal government in the First Republic. Other members of the Commission were Usman Bello, Balarabe Ismaila, Garrick B. Leton, Adedotun O. Phillips, Ahmed Talib, W. Okefie Uzoagba, while Ambrose A. Feese served as secretary. Mr Feese was from the New Nigeria Development Company Limited in Kaduna. He was assisted by Messers C.C. Chukwura, I.O. Dada, F.D.O. Enweafah, A.O. Garba, Tunji Olutola from the Federal Public Service and Mrs. M. N. David Osuagwu from the public service of Anambra State.

Mr. Isaac Olushola Dada, a member of the secretariat of the Commission died of heart attack last week in Lagos, shortly on arrival from the United States of America. He will be buried in Lagos next week. He was a competent civil servant.

Two members of the committee wrote minority reports. They were Dr. Leton and Professor Adedotun Phillips. Dr. Leton, who was minister of Education between 1978 and 1979, was an Ogboni activist. His minority report was titled “Minority Recommendations”. And those views of his in the document are still relevant in today’s Nigeria, as they relate to revenue allocation. Dr. Leton died in March 2013 in Port Harcourt. Till his death, he was the president of the Movement For the Survival of the Ogoni People (MOSOP). I was close to him during the Okigbo Panel sitting, which I covered extensively for The PUNCH.

Here are his views: Sharing of the Federation Account (1) An amount from the Federation Account equal to 30 percent of mining rents and royalties each year should be set aside for distribution among the mineral producing States on the basis of their contribution to the mining sector revenues. (2) In doing so, there should be no distribution between on-shore and off-shore mining. (3) The balance in the Federal Account (ca. 95 percent) should then be shared among the three tiers of government as recommended by the Commission. 2. Mineral rent is already conceded by the Commission as an attribute of the States of origin, in accordance with the Land Use Decree. It must be pointed out that this is a very small piece of the rent-royalty cake. Royalty, as it is usually defined with respect to mining, is a “payment made to a landowner for the extraction of minerals from beneath his land”. Therefore, it too is an attribute of the State of origin. The mineral producing States thus have an intrinsic right to mining rents and royalties. They, however, should realise that they are part of a Federation in which they must necessarily share what is due to them with their brother States. It is on this basis that I recommend only 30 percent of mining rents and royalties. This amounts to 6.3 percent of the mining sector contribution to the Federation Account by the 1980 Federal Government Revenue Estimates.

3. The 1.5 percent (of the Federation Account) Revenue Equalisation Fund recommended for Bendel and Rivers States by the Commission, apart from being too little to offset the usual benefits the two states derive from rents and royalties, would if accepted, permanently destroy their claim o even a modest percentage of revenues from this source. It is therefore doubly unacceptable. 4. Enough has been said about off-mining and the adjoining States elsewhere in this Report. It is, however, worth nothing areas of the world (certainly of Britain) today. As the saying goes: you cannot (or rather, should not) bite the finger that feeds you. Our general lack of concern for the oil producing areas is simply alarming. 5. As I have already expressed above, I do not believe that 1.5 percent of this special provision should be used as proxy for what the oil producing States should have been receiving from mining rent and royalties. Accordingly, I recommend that the 7 percent provision should be shared as follows – Federal Capital Territory – 2.5%, Fund for Mineral Producing Areas – 3.0%, Other Ecological Problems (e.g. erosion, desert encroachment, etc) – 1.5%.

6. Successive Commissions have recommended a special fund for the oil producing areas to take care of the continuing damage being done to life and property and the ecology of these areas in the process of our winning the oil. Ideally the cost should be charged on the production of oil; but since our laws did not foresee this, our next best approach is to take it from the Federation Account, which anyhow consists essentially of oil revenues. I do not think that the 2 percent recommend by the Commission is sufficient for the decades of damage and neglect that these areas have experienced. That is why I am recommending 3 per cent, which is indeed only 3.4 percent of the mining sector contribution to the total revenue of the Federation. 7. In sum, I am recommending 5 percent of the Federation Account as proxy for 30 percent of rent and royalties and 3 percent for the Special Fund for the mineral producing areas. Together they amount to only 9.7 percent of the mineral producing areas’ total contribution to the revenue of the Federation. The case for the Mineral Producing areas is articulated fully in the following pages.

A case for the Mineral Producing Areas – 1. Although coal and especially tin/columbite have been produced and exported by Nigeria for several decades, when we talk of mineral these days, in particular with respect to revenue generation and sharing, we think of mineral of oil (petroleum) and associated or natural gas. Petroleum producing States at the moment are Bendel, Rivers, Cross River,Imo and Ondo. An oil mineral survey map of Nigeria, however, shows that Bauchi, Benue, Borno, Gongola, Kwara, Lagos, Niger, Plateau and Sokoto States are potentially oil producing.

2. It does not, therefore, require a soothsayer to predict that, before long, mining of this precious commodity will no longer be the preserve of a few States. Besides, there are no serious indications of uranium (another priceless) mineral these days in Bauchi, Cross River and Sokoto States. With this type of spread of mineral producing areas, the general antipathy towards mineral producing states is likely to change and with that (hopefully) a change of the mineral laws of the country.

3. The Minerals Ordinance of 1946 (now variably referred to as the Minerals Act.) vested in the Crown the control of and property in minerals, mineral oils and in water by providing under Section 3(1) that “The entire property in and control of all minerals, and mineral oils, in, under or upon any lands in Nigeria, and of all rivers, streams and water courses throughout Nigeria, is and shall be vested in the Crown, save in so far as such rights may in any case have been limited by any express grant made before the commencement of this Ordinance”. Several amendments have been made since then, notably “State” replacing “Crown” with our attainment of independence. It is, however, surprising that the spirit and letter of this colonial legislation was carried into the Republican Constitution of 1963. The ownership of minerals was still vested in the State not the Regions!

4. The next major amendment was the Petroleum Decree (No 51,1969), which vested “The entire ownership and control of all petroleum in, under and upon any lands to which this section applies” in the State. It went on under Section 1(2) to provide that, “This section applies to all land (including land covered by water) which – (a) is in Nigeria, or (b) is under the territorial waters of Nigeria, or (c) forms part of the continental shelf. This is obviously an extension of the Minerals Act in respect of petroleum, to cover our territorial waters and the continental shelf.

5. Section 40(3) of the 1979 Constitution, tightening both the Minerals Act and the Petroleum Decree, then provides that “the entire property in and control of all minerals, mineral oils and natural gas in, under or upon any lands in Nigeria or in, under or upon the territorial waters and the Exclusive Economic Zone of Nigeria shall vest in the Government of the Federation and shall be managed in such manner as may be prescribed by the National Assembly”. Thus, apart from bringing in natural gas and the Exclusive Economic Zone, the Constitution rather significantly replaces “State” with the “Government of the Federation” and the National Assembly. Minerals then, be they solid, mineral oil or gas, are the property of the Government of the Federation.

6. The Land Use Decree (1979), on the other hand, vests the ownership and control of all lands in a State in the Governor, who holds them in trust for the people of the State. The Governor (and thus the Government) of the State has therefore a perpetual interest on the land it allows a Company or any agency of the Government of the Federation to use for the purpose of mineral exploitation.

7. It is this dualism of ownership and control that makes the Nigerian situation so intriguing. In other Federations, ownership of minerals is vested either in the State (Australian situation) or in the individual land owner (as in the USA). In both cases the Central Government has powers to tax the mineral proceeds as is deems necessary and adequate. In that way it loses nothing and yet, apart from providing necessary legislation, does not actually get itself involved in the complex and costly operation of winning and marketing the minerals. Nigeria may have something to learn here, because if we take the Nigerian situation to its logical conclusion, a landowner may not farm on his land without a Federal Government permission. The soil consists essentially of minerals (nitrates, sulphates, etc.) which are needed for plant growth. By farming therefore the landowner is indirectly using up (stealing!) Federal Government property. This type of situation ought to be resolved.

8. The principle of derivation has dominated revenue sharing in this country since 1946 when we began moving from a unitary to a federal system of Government. Thus the Phillipson Commission of 1946 applied, effectively, only the principle of derivation. Hicks-Phillipson (1951) proposed derivation as one of three principles while Chick (1953) adopted derivation only; but, for the first time, extended it to cover 100 percent of mining rents and royalties to the Region of origin. Mining rents and royalties has remained with us since in varying degrees as derivation principle of revenue allocation.

9. The principle, be it in the glorious days of cocoa in the West and groundnut pyramids in the North or the oil boom seventies in the Rivers and Bendel States, has always aroused envy not because it is illogical or unjust to give more to him that contributes more: but simply and solely because it gives more money to these States. The situation has been aggravated by the sudden dominance of the economy by the oil sector, resulting in much larger sums of money accruing from rents and royalties, being shared essentially between two minority States. After reducing the factors from 100 percent to a mere 20 percent (Decree No. 6 of 1975) and the residue was still sizeable, we had to look for reasons why it should not exist at all. Thus in the arrogant language of Aboyade, “the principle of derivation has little or no place in a cohesive fiscal system for national political and social development”. This was indeed regarded by many as a “mercy killing of a terminal patient” as we expressed in one of the memoranda we received.

10. What then are the arguments against derivation? Perhaps the most often and readily advanced is that oil is a gift of Mother Nature (what on earth isn’t). It was not put there by anybody and therefore nobody should have any claim to it. It belongs to everybody. If we want to carry this type of argument to its logical conclusion, then the oil should belong to the United Nations! It however, should be borne in mind that the oil (any oil field) belongs to Nigeria not just because of any law made thereto for but more so by virtue of the fact that the people who own that part of the country, the people who live there are Nigerians. If, as in the case of the Southern Cameroon, they could decide not to be Nigerians, then they would carry the land and the minerals with them. We could not say that, because the oil belongs to Nigeria, they should leave it behind. This exposes the illogicality of this law.

11. Another argument that has been advanced against the oil producing areas getting any special consideration is that the state or the people concerned have not contributed a kobo towards winning the minerals; unlike agriculture where the farmer puts a lot of labour and money to produce his crops. First of all, it is extremely pertinent to note that the Federal Government has not invested any money into the oil industry that has not emanated from the industry itself. Indeed, if anybody has invested any money, it has been the foreign companies that came here to exploit the oil. It is from the taxes on their profits, the royalties and the various mining licenses that Nigeria has derived the revenue it has invested in the industry. In effect, no indigenous body has made any independent investment in the industry.

12. The second point is that a lot of valuable agricultural land is involved in the oil industry and in mining operation generally. The Rivers State Government estimates that some 25,000 hectares (62,500 acres) of the State’s land is directly consumed by the industry. It is again important to bear in mind that, in both mining and agriculture, we are talking about land. Both require tremendous efforts to bring out the fruits of the soil. Whether this is done by individuals or multinationals seems irrelevant. The important thing is that the landowner expects to benefit from his land. What the argument is saying is that we have deprived the oil landowner of his valuable agricultural land and so he cannot farm like his non-oil counterpart; but while we concede that the latter should reap the fruits of the land, the oil landowner has no right to anything from his because the fruit of his land belongs to all! That surely is not equity.

13. A third point to this argument is that people and Government of the oil producing areas have always contributed and will continue to contribute towards the winning of oil in this country. The people, as shown above, have sacrificed their land for the industry. And the Government? Some of the heaviest trucks that ply the roads in this country can be found in the oil producing areas. This imposes on the Governments of these areas the construction and maintenance of roads and bridges that can withstand the demands of this type of vehicles. It is these Governments that have to provide schools and hospitals for the generality of the staff of the oil companies. It is the Governments that have to provide alternative sources of water when the local streams are polluted. They have to provide alternative means of livelihood for people displaced from their farm lands and fishing grounds.

14. The oil companies position on providing social services in their operating areas is clearly and succinctly enunciated by the Shell Petroleum Development Company of Nigeria Limited. In their pamphlet titled ‘Statement of General Business Principles’ they state that “Shell endeavours always to act commercially, operating within the existing national laws in a socially responsible manner…..The most important contribution that Shell can make to the social and material progress of Nigeria is in performing efficiently its direct line of business. Furthermore, it is neither feasible nor proper for Shell to pre-empt the responsibilities of the Federal or State Government in providing and maintaining social facilities and services”. Albeit, Shell awards a number of scholarships of national character, establishes a few demonstrative farms and builds a number of roads that link their location with State roads (as they should). As for oil industry providing employment opportunities for the oil producing areas, a cursory glance at the staff list, especially in the grades that matter-the management-will reveal that recruitment by no means takes into consideration areas of production.

15. Prospecting and subsequent mining of mineral oil off-shore began in earnest during the civil war when most of the operating oilfields were in the disturbed areas. And there was never any distinction between on-shore and off-shore mining until, by Decree No. 9 of 1971, the Federal Military Government accorded itself the sole rights to rents and royalties on off-shore mining. This immediately raised what has now become a nagging political question: whether Nigeria can lay claim to any territorial waters without first, or at least equally, laying claim to the adjoining state (or territory). The argument then is that Nigeria owns the seas by virtue of the adjoining state being part of Nigeria. Anti-derivationists then point out that the second Columns of Part I of the First Schedule to the 1979 Constitution, which defines the area of each State, nowhere mentions the Continental Shelf or Territorial Waters as being part of any State. And the oil States quickly react by invoking Section 2(2) of the same Constitution which simply provides that “Nigeria shall be a Federation Constitution and, therefore, if our Territorial Waters are part of Nigeria they must be so by virtue of being parts of some States. And so the argument continues.

The points to bear in mind, however, are: (i) that most of the establishments for off-shore mining (e.g. tankfarms) are on land; (ii) that the adjoining States are as exposed to the hazards of off mining as they are to on-shore, as has been amply borne out by recent events in the Rivers State; (iii) the people of the adjoining States lose their farm lands to on-shore operations.

It is worthy of note at this juncture that the North Sea oil-fields in Britain are off-shore and yet Scotland, the adjoining State, has been transformed, within the few years of the North Sea oil operation, from a poverty-striken, almost deserted region to one of the most prosperous in the United Kingdom today.

Equity and fair play dictate that you cannot take out without putting something back, otherwise you create a vacuum which Nature abhors. Looking at the issue purely from the point of view of equity, therefore, there is no defensible justification for the distinction between on—and off-shore mining in the application of the derivation principle. The distinction looks at best like an excuse for depriving a people of their inalienable rights. I therefore recommend that, in respect of mining rents and royalties, there should be no distinction between on-shore and off-shore.

Eric Teniola, a former Director in the Presidency, Writes from Lagos.