Fiscal Federalism, Resource Control and Violence in the Niger Delta

Being text of paper presented by Dr. Ekeng A. Anam-Ndu, Director, Center for Minority and Development Studies, Uyo, at the National Association of Seadogs' Town Hall Meeting held at Eden Hotel, Eket on Saturday, May 5, 2007.

There is no revolution; there are only revolutionary moments.

These we have to perpetuate. That is what he said when they met the last time.
Horst Bienek. 1974

I am happy to be here at the instance of your Town Hall Meeting. My coming has greatly relieved me from the agony of not having a platform to share my frustrations and perhaps to ask where the country is heading. More profound almost than the question of where the country is now heading, is the question whether any possible experience is left that can serve as a warning or whether the country is simply immune to experience. By choosing the topic which I have, however, re-arranged, I know that you are concerned not only about the deteriorating situation in the Niger Delta, but also what has become of the Nigerian state. By my estimation, I pray I am wrong, the situation in the Niger Delta as in Nigeria is a source of anxiety to any discerning mind. I will not talk about Nigeria here, rather I will concentrate on the Niger Delta within the context of the topic.

In most federal countries, intergovernmental fiscal transfers are usually based on three major principles: derivation, need and national interest. In federal developing countries, the determination of federal revenue and how it should be distributed lie at the center of most national conflicts. Quite often, the principle used are determined largely by the subjective interests of the ruling elite. Although a political value in federal societies, the principle of even development is controverted by the fact that it is an unattainable goal given variation in resource endowment, executive capacity and level of social development among federating units. No theory exists and can possibly exist showing which is the most appropriate principle to emphasize, when and how. A combination of a wide variety of changing factors: socio – economic and political, all uniquely combined to produce equity and efficiency, are usually the guiding principle. This is why each federal system is, and must be a unique case of its own. Kenneth Wheare’s insight  as it relates to fiscal democracy is instructive:
There is and can be no final solution to the allocation of financial resources in a federal system. There can only be adjustments and reallocations in the light of changing conditions. What a federal government needs, therefore, is machinery adequate to make these adjustments and to make them also in such a way that the financial independence of the general and regional governments is preserved as far as possible.

To a greater or lesser extent, the principles identified above have always influenced fiscal Allocation in Nigeria. While their application generally led to fiscal equity and stimulated rapid economic development responsible governance in pre civil War Nigeria, the mode of their application in post civil War Nigeria has largely been destructive of such desirable outcomes. The reason for the differential impact is to be found not in the inadequacy of the principles used but in the lopsided application of the principle of need to the detriment of derivation. An examination of the stages in the development of fiscal federalism will not only validate this claim, but will also explain a critical aspect of underdevelopment of the Niger Delta.

The development of fiscal federalism in Nigeria can be seen in two broad historical phases:
1946 to 1964 and 1965 to the present. The first phase, 1946 – 1964 corresponds with the period when the founding fathers of Nigerian federalism grappled with the philosophy and practice of a federal form congruent with the country’s diversity, the challenge of development and the emergent political temper of the federating units. The trend during this period was in the direction of unity in separateness. Care was taken to ensure that the centre was neither too strong to negate directly or indirectly, the autonomy principle as the basis of the federal neither union, nor too weak and incapacitated as a federal government, hence the adjustments in the periods between 1952 and 1954; 1959 and 1964. These junctures marked the gradual shift and adjustments of fiscal powers from the centre to the regions based on derivation.

By 1964, all the intricacies of fiscal relations reminiscent of a full-fledged federal system had been fully developed. What was required was time and, consequently, experience to adjust and balance the principles used to ensure that the advantages of diverse economic base were fully developed without necessarily sacrificing any of the principles for the other.

The turning point was in 1964 when the Binns Commission set up to re-examine the sources of revenue into the Distributable pool Account (DPD), over-weighted the principle of need based on population that was largely unknown or at best, controversial, as against derivation. The lopsided emphasis on the principle of need caused the redistribution of the DPD as follows:
REGIONS          BEFORE 1964        AFTER 1964        REMARKS

Northern                  40%                        42%             Additional N1m was given to the Northern Region to Compensate for perceived unfairness in the application of the principle of derivation.

Western Region        24%                        28%             (20% to Western and 8% to newly created Mid–West Region).

Eastern Region         31%                        30%        

Cameroon                 5%                          -                 Southern Cameroon was lost to the Cameroon Republic.
Until 1967, the Binns’ formula formed the basis of inter governmental fiscal transfers in Nigeria. Although the regional governments rediscovered as it were, the principle of need as a possible means of attracting federal revenue, they loathed the idea of dividing their territories through the creation of new regions or states because of the fear that the support base of the regional parties would be weakened. Thus, the issue of creating new regions as a means of solving the twin crises of ethnic identity and resource distribution became shrouded in a zero sum game of exclusive loser and winners. It was within this zero sum matrix that Prime Minister Tafawa Balewa in his speech in parliament during the creation of the Midwest Region in 1962, noted rather unreflectively:

…the Western Region is the smallest of the Regions in the federation but since the people themselves asked for it to be cut, that is the whole trouble… if I am not asked to cut it I will not do it … If a particular region is foolish enough, the Action Group, if they continue in the work of confusion, if they continue to ask us to divide them into bits – we shall always see to it that they are broken up into bits.

The creation of States by Decree 15 of May 27, 1967 had implications for revenue sharing. The federal government relied largely on the principles of derivation and to a; lesser extent on need. The 45% of mining rents and royalties from on-shore production allocated to the states of production meant little or nothing compared to the value of oil from off-shore wells of which 100% of mining rents and royalties there from accrued to the federal government, 50% of on-shore revenue went to the DPD, and 5% to the federal government.

In 1975, the derivative principle was further de-emphasized as only 20% of mining rents and royalties on on-shore production was granted to the state of production. Four years latter (1979), the principle of derivation was completely abandoned. With 76% of on-shore and 100% of off-shore oil revenue at its disposal, the federal government was able to fund 24 new states created between 1975 and 1996 without reflecting on their extractive capability to perform as a tier of government.

A new formula introduced in 1982 allocation 55% to the federal government, 30.5% to states and 10% to local governments. As a gesture of concern for the problems of oil producing states, 1% was allocated for their ecological problems, 2% to the account of oil producing states and 1.5% for the development of oil producing areas.

As before, all offshore revenue was paid to the federal government. No serious adjustments in allocation were made until 1989 when shared revenue to local governments was increased from 10% to 15% and in 1991 to 20%. With the principle of derivation gradually destroyed, that of need overstretched with all sorts of indices including land mass, a new means of controlling the mounting tension in the Niger Delta following the deepening crisis of underdevelopment and the concept of resource control was devised. Hence OMPADEC was  formed and the region dosed with a large concentration of armed personnel.


One of the contemporary issues in the political economy of oil in Nigeria is the ownership question or what has come to be termed ‘resource control’. In recent times, this issue has assumed crisis proportion as the oil producing communities have fiercely asserted their claims to ownership following decades of uninterrupted process of economic marginalization and political repression. The issue of ownership of mineral is traceable to colonial times when the colonial administration, acting under the mandate of British imperial interest appropriated by law, territories, including natural resources that were not their own, as the property of the British crown. The privy was to rule in 1915 that the crown had full tile over the land, sea cost and sea bed of Nigeria’s territorial waters. Thus section 33 (1) of colonial minerals ordinance of 1946 vested the entire property and control of all mineral  oils and natural gas in any land in Nigeria in the British Crown.

It is of interest to note that when in 1946, the Mineral Ordinance was passed, it sparked off serious resentment by Nigerian nationalists. In 1958 when Shell B. P. started to export oil from Port Harcourt, the mineral Act in the same year was amended with the word ‘crown’ being replaced by ‘Government of the Federation’. Domination is a function of ownership, and in the colonial context, it was not by accident that the mineral wealth of the colonized was appropriated through the Colonial Minerals Ordinances. Haunted by mutual fear of domination, immediate heirs to the colonial administration, during the making of the 1960 Constitution, provided in Section 134 (6) that “for the purposes of this Section, the continental shelf of a region shall be deemed to be part of that Region.” This provision was repeated in Section 140 of the Republican Constitution, 1963.

It should be noted that the ownership provisions in the two Constitutions were made in order to balance not only the mutual suspicion among the three Regions, but also the perceived political forces that could disrupt national unity if not attended to particularly at that teething period of the nation’s political life. This calculus entitled the Regions to 50% of mining royalties and rent derived from their territories including the continental shelve while the remaining 50% was pooled for allocation at the federal level.

But when States were created and the whole stretch of the continental shelve with ascertained prospects of oil gas deposits fell within the territories of ethnic minorities in the Niger Delta, a new legislation: the Nigerian National Petroleum Corporation Decree, 1969, now Nigerian National Petroleum Corporation Act, Cap 320, Laws of the Federation of Nigeria, 1990 vested in Section 1(1), the ownership and control of all petroleum products whether in or under the ground in the federal government.

As if this Decree was not enough, the federal government soon after the Civil War in 1971, introduced a dichotomy in the management of on-shore, offshore oil revenue following the provision of Section 1(2) of the NNPC Decree which confers on the federal government the right to own petroleum products in or within the territorial waters of Nigeria or upon part of its continental shelf. These laws deprived the Niger Delta States of large portions of oil revenue that would otherwise have accrued to them. Ever since, the politics of oil in Nigeria has centred around the abolition or retention of the dichotomy and what percentage of oil proceeds should be allowed for oil producing states.

After the 1979 Constitution and the Allocation of Revenue Act (Cap 16) had failed to abolish the dichotomy, the Babangida administration decided to amend the Act by Decree 106 Section (6) of 1992. it stated:

An amount equivalent to one percent of the Federal Account Derived from mineral revenue shall be shared among the mineral Producing States based on the amount of mineral produced from each State and in the application of this provision, the Dichotomy of On-Shore Off-Shore oil producing and mineral oil and non mineral oil revenue is hereby abolished.

The abolition of the dichotomy was consented to in the debate and, consequently, inscribed in the original Draft of the 1995 Constitution which emanated from the National Constitutional  Conference, 1994 95. It stated:
The Dichotomy between On-Shore and Off-Shore exploration shall not be taken into account for purposes of revenue allocation to the Federation Account.
In 2001, the Niger Delta States demanded that the provision of Art, 162 (2) of the 1999 Constitution be implemented. That  Section states inter alia that:
… in determining the formula (for sharing revenue accruing to the Federation Account) the National Assembly shall take into account, the Allocation principles especially those of population, equality of states, Internal revenue generation, land mass, terrain as well as population density. Provided that the principle of derivation shall be constantly reflected in any  Approved formula being not less than thirteen percent of the revenue accruing To the Federal Account directly from any naturally resources.

In the heat of the demand, President Obasanjo was to assert publicly in a Press briefing in February 2001 that international litigation involving ownership of territory, for instance, the Cameroons Republic vs. Nigeria over ownership of Bakassi, is never filed against any particular state in Nigeria, but against Nigeria as a nation. This signaled the administration’s attitude towards the issue of On-Shore, Offshore dichotomy. In February 6, 2001, the Federal government instituted action in the Supreme Court against the littoral states co-opting the other states of the federation as defendants. Actually, the alleged dispute was between the oil producing states and the federal government; the rest of the states were joined merely to mobilize their resentment against the oil producing states believed to be overbearing in their approach to oil and the ownership question.

On April 5, 2002, the Supreme Court in its judgment reinstated the dichotomy by declaring the seaward zone after the low water level mark the exclusive territory of the federal government.

By referring the matter to the Supreme Court, the intention of the federal government was clear, namely: to re-introduce the dichotomy and place a seal of finality on the matter. Notwithstanding the differential impact of the decision on oil producing states, a position which some states/commentators saw as gains, the Supreme Court judgment essentially and expectedly was based on adversary proceedings to achieve a dichotomous decision in which the federal government was assigned the legal right to own the continental shelf and exclusive economic zone, while the littoral states were denied that right. That this was the intention of the judgment is evidenced by the Court’s reliance on Common Law generally taken as a model of dichotomous resolution seeking to assign legal right to one of the parties and legal wrong to the other. The reliance succeeded in converting an essentially indivisible dispute namely: the non-fulfillment of an obligation by the federal government, into a divisible dispute i.e. money accruing or not Anglo-American cases to justify its intention, and contrary to Anglo-American legal tradition, the court failed to reflect the importance of equity as a means of resolving conflict between tiers of government. Because the judgment had no equity content, it, consequently, produced a paradox: the imposition of costs on Akwa Ibom and Ondo States as they were to refund N33.4 billion and N8 billion, respectively to the Federal government, the amounts being the difference between what they collected as oil producing States and what they ought to have collected based on the new ruling, retroactive to May 29, 1999 when the Obasanjo regime took over the administration of the country.
Secondly, the failure of the Court to play a mediatory role in the matter betrayed it as more of a political actor than an independent judge. Yet mediation particularly in matters concerning issues of state building remains a major judicial culture that facilities comity between parties in dispute.

Doubtlessly, the Supreme Court judgment of April 5, 2002, is a classic example of how the court can be used to subvert nation building based on the imperatives of equality, justice and fairness. How else would one interpret a situation in which an incredibly unjust law seen as such and, consequently, abolished by a military government, was reintroduced by a democratic government, ten years later?


Respected gentlemen, the kidnappings, the violence in the Niger, Delta must be understood against the background of historical and legal framework sketch above. To see violence in the region as the work of irresponsible militants who do not want other Nigerians to have a share of the oil revenue is to say that the war of liberation must not be fought by the oppressed. That would be stupid argument unsupported by history. We must see the crisis in the Niger Delta for what it is namely: internal colonialism, and the people’s resolve to fight it. No amount of irresponsible manipulation and grand standing will coerce restive youths and the aged into silence. It is only truth and justice, honesty and fairness in the way the affairs of the region, indeed, Nigerian affairs are resolved that will.

I know clearly that at this is risky advocacy but not unthinkable once we shift the terms of our thinking. I would argue that it is possible to stake out new political ground; it is only such an effort that can serve to recreate Nigerians on an existential platform not bereft of hope. To vindicate ground for creative political action beyond the mess we find our selves, I would rely on our irrepressible disposition to express our selves beyond rhetoric and despair. I am considerably less worried about falling in such an enterprise than I am about the persistence of need-frustrating, death-dealing society that recurrently succeeds in subduing truths and furnishing us with fresh banalities. In view of the embarrassing success of this state of affairs in the past eight years, my main worry here is that my own failure to concluded may turn out to be excessively modest.

Thank you for all the attention.

Dr. Ekeng A. Anam-Ndu
Director, Center for Minority and Development Studies, Uyo
May 5, 2007

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