Oil producing States and allocation of revenue

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The Problem Statement

Nigeria, whose economy was historically an Agricultural economy, began to export Oil in the late 1950s and by 1985, oil exploration accounted for up to 97.1 percent of total export earnings.

However, with the military regimes and an apparent post-civil war government effort to promote national cohesion, a strong central government emerged with a centralized control of expending revenue.

The ruling military government enacted an obnoxious off-shore – on-shore oil dichotomy – the Decree “vests all off-shore oil revenues and ownership to the territorial waters and the continental shelf in the Federal Military Government”.

That meant that all of-shore oil exploration within the territorial waters of Nigeria belonged to the Federal Government.

This resulted in more revenue into the Federal Government account while the states, most especially the southern minority oil producing states had insufficient revenues.

What followed were many years of conflict between the Federal Government and the Oil producing states, getting to the Supreme Court.

The Supreme Court dismissed the suit and that led into the National Assembly passing legislation that would be a solution.

The ACT Solution

During the Olusegun Obasanjo administration, legislation was passed by the National Assembly to abolish any dichotomy between the resources derived on-shore and those derived off-shore in the application of the principle of derivation for the purposes of revenue allocation.

Accordingly, for the purposes of the application of the Principle of Derivation, it shall be immaterial whether the revenue accruing to the Federation Account from a State is derived from natural resources located onshore or offshore.

This Act therefore, was the abrogation of the Onshore and Offshore dichotomy.

NIGAC Constructive Position

While the Act gazetted on the 16th of February 2004 brings solution to decades of conflict between the Federal government and oil producing states, it is albeit a temporary one.

The strong – centre structure of Nigeria’s Federalism remains a cause of conflict and dissatisfaction about resource control most especially among oil producing states/regions.

The Federal Government must pay attention to the calls for fiscal restructuring, seeing it rather as a strategy for national cohesion and development through resolution of such critical factors of conflict.

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