As Anambra, Kogi Join Oil-producing States

To the government and people of Anambra and Kogi states, the admission into the league of oil-producing states and the attendant eligibility for the 13 per cent oil derivation fund have raised the prospect of better days to come. However, economists warn that what seems to be ‘oil boom’ may become an ‘oil curse’ unless the two states learn their lessons from previous marginal oil-producing states with virtually nothing to show for the oil windfall over the years, writes Festus Akanbi

In an economy where crude oil sale forms the bedrock, it will not come as a surprise that states will go to war to fight for spheres of influence in the oil sector.

This is because the reality is that oil revenues contributed 2/3 of state revenues although oil only contributes about 9% to the GDP.

Given the current arrangement which sets aside 13 per cent of oil revenue for oil-bearing states, it is natural for states with oil potential to see crude oil in their domain as a golden goose that must be claimed by all means.

However, as more states continue to explore the possibility of joining the league of oil-producing states, emerging data on the payment of 13 per cent derivation fund to the affected states have shown that the crude oil fortune has failed to give the beneficiary states an economic leap to justify the humongous amount of money set aside for them over years.

For instance, it was gathered that eight oil-producing states received N6.589 trillion from the Federation Account under the 13 per cent derivation principle, between 2009 and 2019, with little or no impact on the lives of citizens of the states, according to a report published by ACIOE Associates.

The Business of Crude Production

At its peak, Nigeria produces 2.5 million barrels of crude daily, making it the largest producer of crude oil in Africa and the sixth-largest in the world although Nigeria’s daily production figure has fallen considerably over time as the nation grapples with the realities of collapsed infrastructure, sabotage, and outright oil theft.

Eight states with a combined population of about 47 million receive the 13 per cent derivation fund, based on their contributions to national oil and gas production. The states are Abia, Akwa Ibom, Bayelsa, Delta, Edo, Ondo, Imo, and Rivers. Lagos State is yet to get a derivation fund until it starts contributing to the daily production.

Akwa Ibom is the largest contributor, as it’s responsible for 31.4 per cent of the nation’s crude oil production, followed by Delta which produces 21.56 per cent of the total crude.

Rivers and Bayelsa followed with 21.43 per cent and 18.07 per cent of the total production, respectively. Others are fringe producers and the list includes Ondo, 3.7 per cent, Edo 2.06 per cent, Imo, 1.06 per cent, and Abia 0.68 per cent.

Anambra, Kogi Become Oil Producers

In Anambra and Kogi states, political office holders and members of the opposition parties are basking in the euphoria of the recent inclusion of the two states as the latest entrants into the group of Nigeria’s oil-producing states by the Revenue Mobilisation, Allocation and Fiscal Commission (RMAFC).

Understandably, political differences are suspended in the two states as the new status is believed to have raised the prospect of more revenue inflow for them.

The new status was confirmed by the recognition of their oil wells by the Revenue Mobilisation Allocation and Fiscal Commission (RMAFC). The recognition is an indication that the states would also benefit from the 13 per cent Derivation fund once the proceeds from the oil wells are contributed to the Federation Account

The development is the sequel to a letter from RMAFC to a request of Governor Willie Obiano for a due share of revenue accruing to the nation from oil and gas production activities in Anambra State.

Going by the calculations of the Anambra State’s government, with oil wells at Nzam -1, Alo-1, Ogbu-1, Ameshi 1, 2, 3 and 4, as well as Enyie 1, 2, 3, and 4, in addition to River 1, 2 and 3 oil wells, this is the time to reap bountifully from the oil-producing states’ 13 per cent oil derivation.

However, the state will share the proceeds from its oil wells equally (50: 50) with Kogi, a state with which it (Anambra) shares a boundary at Aguleri – Abaji area, despite the government’s claim that the boundary dispute between the two states has been resolved.

The state governor, Willie Obiano was quoted in newspapers reports as giving credit for the victory to all members of his cabinet saying, “This fight has not been a one-man show, but the collective effort of Anambra people, especially those in my administration who have defied all the odds to fight for their beloved state.”

Analysts: It’s Risky to Bank on Derivation Fund

However, as government and politicians in Anambra and Kogi states continue to clink glasses in celebration over their new status, analysts said such excitement is misplaced.

Managing Director, Financial Derivatives, Mr. Bismarck Rewane is of the view that unless a state belongs to the class of Akwa Ibom, Delta, and Rivers State with a substantial chunk of the total production, the anticipated 13 per cent Derivation Fund may be too insignificant to make any meaningful difference in the economic lives of Anambra and Kogi.

He also believed that non-oil-producing states in Nigeria appear to be more disciplined and purposeful than the oil-producing ones.

His view was corroborated by the Managing Director, Cowrie Assets Management Company, Mr. Johnson Chukwu, who advised governments of the two states not to lose focus over the euphoria of their new status as oil-producing states.

Rewane said nothing much will change in Anambra, which he said is not doing more than 10,000 barrels per day.

Anambra is a marginal producer and it is their right to demand the payment of 13 per cent derivation, based on the quantity they produce. “Even Cross River has some oil but look at the allocation of Cross River compared to others; Imo State also has oil but look at its allocation compared to Delta,” he explained.

One of the fears expressed by Rewane is the tendency of the government to lose its guards in anticipation of the derivation fund.

He said, “To be an oil-producing state is one thing, the proportion of oil coming out from that state is another thing entirely. One also needs to consider the mentality of oil-producing states. Anambra is known to be a very prudent state over the years and well managed.

“The status of an oil-producing state can bring about a false sense of financial security which can destroy the fiscal culture of the state government.”

Although he couldn’t say much about Kogi, he, however, pointed out that the status of the state as a marginal crude oil producer will means the state shouldn’t expect too much from the derivation fund.

He argued that residents of oil-producing states like Delta and Akwa Ibom haven’t fared better.

“If you look at Delta, the lots of people are not better. What you use proceeds of the oil sale for is what is important. Non-oil-producing states in Nigeria are far better in terms of economic management. I don’t think anybody should celebrate the status of being an oil-producing state. There is an oil boom and oil curse.

“With my experience as an indigene of an oil-producing state (Delta), I have not benefitted anything, neither any of my siblings nor children. We envy those from non-oil-producing states because they have better management. Lagos is not part of the Derivation Fund yet, but it’s a better place to live than Delta,” he said.

Speaking on expectations from the new status of the two states, Chukwu said it is not on record that being an oil-producing state had helped anyone in the past.

He said, “Abia is an oil-producing state and I’m not sure if its fortunes have changed much. Ondo is an oil-producing state, I doubt if this has changed its fortune. It depends on the volume you produce; if you are a marginal producer, it’s good you will have the psychological benefit of being an oil-producing state, but if you are not a major producer, I do not think it will make any difference. Imo and Edo are also marginal producers.”

Saying some non-oil-producing states are better managed, Chukwu explained that better management of the economy is key. He, therefore, enjoined state governments to focus on the economic environment that will support productive activities so that people can come into the state to invest instead of focusing on extractive activities.

Down the Memory Lane

Kogi State Governor, Yahya Bello said President Buharis’ decision has brought peaceful resolution of the dispute. The disputes between two communities of Odeke in Ibaji local government area of Kogi and Aguleri in Anambra State have come to an end.

“The Ibaji oil crisis has been on for a while and has led to large scale destruction of property with the loss of many lives.”

According to him, “The Odeke and Aguleri communities of Kogi and Anambra, laid exclusive claim to the ownership of the oil in the disputed area which has been finally resolved in favour of both states.

“By history, the exploration of crude oil in Ibaji Local Government Area which comes under the Anambra Basin in geological terms started in 1952.

“In the villages of Odeke, Echeno, Ihile, Anocha/Uchuchu, Omabo, Ikah, Iregwu, and Ujeh all in Ibaji community of the present-day Ibaji Local Government Area of Kogi.

“Between 1952 and 1986 three companies namely; Shell BP (now SPDC), ELF (now Total Fina Elf), and AGIP Energy have drilled 25 exploration wells, 2 appraisal wells, and eight-core drill wells in the entire Basin out of which majority of the wells fall into Kogi”.

In an obvious bid to avoid unnecessary pressures, and to stave off avoidable bickering, especially from politicians in both states, the commission did not fail to state it clearly that for the states to benefit from the 13% Derivation Fund, the proceeds from the operation of the oil wells should be contributed into the Federation Account.

As the two states await the flow of oil windfall from the Federation Account, it is hope adequate provisions will be made to ensure that other sources of revenues are not left unexplored.