Thread by @FinPlanKaluAja1

Who own the crude oil in Nigeria?

Rather simple question won’t you say

To own a thing, implies you derive utility from it, so let’s answer by examining who derives utility from crude oil in Nigeria. Utility of course means taxes collected, who derives taxes from crude oil?

Yr 1958;

1. Oil Producing States retained 67.4% of Mining Rents & Royalties

2. Federal Government got 20% of Mining Rents & Royalties

3. Non-oil states got 12.6%

Crude oil and gas was owned by the oil producing states, that how the British left it.

In 1970, General Yakubu Gowan passed decree No 13,

1. Oil Producing States retained 45% of Mining Rents and Royalties

2. Federal Government got 55% of Mining Rents and Royalties

3. Non-oil states got 0%

Oil was only for the oil producing states & FGN

Then 1975, General Murtala Muhammed introduced Decree 6,

1. Oil Producing States retained 20% of Mining Rents and Royalties

2. Federal Government got 80% of Mining Rents and Royalties

3. Non-oil states got 0%

Oil producing states got 20% of oil revenues.

In 1976, Gen Obasanjo created a technical commission called the Aboyade Technical Commission, this was the result

1. Oil Producing States got 0% of Mining Rents and Royalties

2. Federal Government got 100% of Mining Rents and Royalties

3. Non-oil states got 0%

Obasanjo, also introduced the Consolidated Revenue fund aka FAAC, thus, the oil taxes were centrally pooled, then shared to all states.

Crude oil was Federalized, taken from the States, managed by the Federal Government then shared back to the States. In essence, crude oil was no longer based on derivation but on metrics like equality, fiscal efficiency and absorptive capacity…

In 1979, President Shehu Shagari set up the Okigbo Commission, to review the sharing of oil revenues. The Commission agreed to retain the Obasanjo 0% allocation to oil producing state and continue with FAAC but they tweaked the sharing formula in FAAC…

Shehu Shagari

1979
Equality of States 50%
Population 40%,
Land mass 10%

So here we see population of States and land mass introduced

In just 9 years, the oil producing States saw their share of crude oil taxes go from 67.4% to 0%. It took until the year 2000 for the implementation of 13% back to the oil producing states.

So in summary, its 67% to 0% to 13%.

Oil revenues were in essence transferred from the States to the Federal Government by Decree. if ExxonMobil pays VAT on operations in an oil producing state, that VAT is shared by the Federal Government to all States of the Federation. Oil is a Federal baby….

What is the effect? Well massive inefficiencies the oil and gas sector.

It’s fair to say the FGN has mismanaged the oil industry, NNPC has no working refineries, struggles to manage its assets to return a profit.

Nigeria still flares gas, i.e. legally “burns” $ money, The FGN has taken the oil wells but struggled to pay Joint Venture cash calls...the FGN needs help in cleaning the oil spills, can’t even pass a PIB...

So why hold the oil? If they can’t manage it? Well because the FGN has built a massive bureaucracy funded by crude oil, the FGN pays for primary education and primary health care, then also funded religious pilgrimages and football.

These powers the FGN has given to itself outside the constitution. e.g. primary schools are the function of the Local Governments, the Constitution recognizes that & allocates money to them, but the revenues for the LGAs were paid to the States….via a "joint" account.

Right now, we have a problem, there is no more oil and salaries must be paid, salaries that had been paid by crude oil.

The Federal Government enjoyed a monopoly on telecoms in Nigeria, the result was that a phone became a luxury, only for the rich, in 2001, the FGN left the business of communication, became a regulator and tax recipient, and today everyone has a phone, I mean everyone…

What is the fascination in crude oil that the FGN still wants to own it? if the Federal Government can hand over Telecoms, regulate and tax the telecoms companies...why not do the same for crude oil? Before 2001, the FGN funded NITEL, today the GSM companies fund the FGN.

Thing have to change. Nigeria can’t say its practicing a federal system of governance without fiscal federalism, that will be like driving a car without wheels.

So what should we do? It’s a no brainier, give the oil back to the people, Tax the oil business....simple

1. The FGN has to get out of business, and set itself as a regulator of business and recipient of business taxes, the gains are obvious, its costs are reduced, and its revenues go up.

2. Give the oil and non-oil assets back to the states and local governments, let states retain the proceeds of exports from their states. In essence if cocoa is exported, the state or origin of that cocoa get a share of the Company income tax by derivation

This is not just a call for resource control, it’s a call for responsibility allocation, as long as the FGN is responsible for collecting 95% of taxes and Local Government are paid their allocation via states, we can’t really expect and demand much.

To him who little is given…little is expected...

It’s our problem, we can fix it