A Review of the Nigerian Energy Industry

Derivation fund and development issues in oil communities


07 August 2012, Sweetcrude, Lagos –
The introduction of the 13 per cent Derivation Fund in 1999 for oil and gas producing states in Nigeria has continued to generate issues both for and against the policy. Indeed, differences on the issue a couple of days ago pitched the northern region coalition, the Arewa National Congress, ANC, against their South South peers, Ijaw Youth Congress, IYC, with both parties throwing mud at each other.

The furore continues to grow despite Federal Government’s declaration through the Revenue Mobilisation Allocation and Fiscal Commission, RMAFC, that every natural resource rich state in the federation is equally entitled to the same amount of derivation to douse tension in the polity.

Beginning with this edition, Sweetcrude in its series on the 13 percent derivation tries to x-ray, the issues surrounding the controversial derivation, and in particular, how the beneficiary state governments are utilising these addition funds to enhance the standard of living in the oil producing communities in their respective states.

Hydrocarbon derivation
Experts describe the use of derivation as “a criterion for revenue allocation is associated with changes in the social state of welfare that results from production activities and the compensation of losers by gainers in production activities. As production takes place in any society, value is created for some members of the society while some members suffer losses due to externalities.”

Accordingly, nine states in the federation, including Abia, Akwa Ibom, Bayelsa, Cross River, Delta, Edo, Imo, Ondo, and Rivers were originally legally recognised to benefit from the derivation fund.

However, it is uncertain under what circumstances Sokoto and Ona/Asaboro, were included in the 13% derivation, as revealed in the revenue allocation for the sharing of over N990.266million in February and March 2012, respectively.

Abia State experience
It was difficult to access current statistics on how much each of the states receive every monthly, as electronic search on the Federal Ministry of Finance, www.fmf.gov.ng; and its subsidiary, Office of the Accountant General of the Federation, www.oagf.gov.ng official websites could not offer much help, despite assurances given by their officials.

But past statistics from the Finance Ministry, Distribution of Revenue Allocation to FGN by Federation Account Allocation Committee, FAAC, showed that Abia State received the sum of about N444.56million in January 2011, and N343.61million in the same corresponding period of 2010.

The amount accruable had since dropped significantly, due to restiveness and insecurity in the host communities, which are compounded by crude oil theft and pipeline vandalism.

In spite of these menace, the Abia State Governor, Chief Theodore Orji (Ochendo), told Sweetcrude that if revenue allocations were done equitably and based on crude production, the state will have more funds at its disposal to execute development projects to boost community and state economies.

Oil Commission
Against this background, the Abia State Government through an Act of Parliament instituted the Abia State Oil Producing Areas Commission, ASOPDEC, to tackle these issues by deploying at least 30 percent of the 13 percent derivation fund accruable to it for development projects in the host communities.

The ASOPADEC Chairman, Mr Samuel Nwogu, explained that, “The primary objective of the commission is to alleviate the suffering of the oil producing communities and Abia State in general. Oil was found in Abia State in commercial quantity in 1958 in Owaza community in Onikwa LGA of the state.

He revealed that since the inception of oil exploration in the state, and the derivation fund in 1999, only the administration of Governor Theodor Orji, dimmed it fit to provide this umbrella to support and alleviate poverty in the oil communities.

“The Commission derives its funding from the 13 per cent derivation. If Abia State gets 13 per cent, the law permits the state government to give ASOPADEC 30 per cent of the derivation fund. So it is with this 30 per cent from the derivation fund that the Commission did all we have achieved since 2010. From inception, the governor directed the Ministry of Finance to release our funds as at when due because it is statutory,” he added.

Initial challenges
Nwogu revealed that the Commission was faced with a number of teething challenges, associated with start up in view of the crisis in the state at the time of its inauguration in 2010.

He said, “As at 2010 when we came on board, Abia was in crisis, associated with kidnapping, and it was predominantly in the oil producing areas and we were challenged on how to start. The Governor called us and asked us what we planned to do because no one could go near those areas. However, but we thank God for the intervention of the military.

“We made use of 11 Opara Avenue Government House Umuahia. After renting the office, we furnished it to taste as you can see today. We also faced the challenge of purchasing our official cars; we bought nine Toyota Camry cars, two Hilux and one bus. We also purchased a 100KVA generator, and then we were good to go.”

Wealth distribution
Just as the state allocates 30 percent of the fund to the Commission, the ASOPADEC boss disclosed that management also devised a formula for redistributing the wealth.

He said, “Note also that the law permits us to give 60 per cent from the 30 per cent that is given to us to the oil producing local government which in Abia is only Ukwa West. That is why if you go to that area you have more of what we are doing than what we are doing in other areas.

“We also have what we call 10 per cent pipeline. The communities that have pipelines running through their areas like fuel pipelines that go to the north, those pipeline communities are part of it.

“We also have what we call Equality share. Because it is a state law, for it to go through the House of Assembly, members insisted we must carry them along; so we have 20 per cent for Equality for all the local governments, and that is why you can see our projects in all the local governments in Abia State.

“There is also have another 10 per cent for “NICOIL Oil” and in this area we look at Ugwunagbo Ukwa West and Ugunagbo Ukwa East.

Development projects
To start off, Nwogu said, “We came up with an idea after we carried out a survey in the areas and found out that almost all the school buildings in the oil producing areas were highly dilapidated. We decided to embark on schools renovation.

But because we could not send any contractor to that area due to the kidnappings, as the money we will use to do the renovation will be used to bail the persons, we adopted a direct labour approach, under the Community Development Committees, which we constituted in those communities. So what we did was use those boys to start up the projects.”

We started by renovating 55 schools, and between that time and now, we have embarked of 72 school renovation projects in Abia State in general. About 41 of these have been completed, and the rest 31 are still ongoing and almost 70 per cent completed.

While we were doing this, the kidnapping issue was seriously on and there was a high level of poverty where people could not feed, and we came out with the ASOPADEC Youths Empowerment Artisanship Programme Scheme.

Our target was the down trodden indigenes, those who could not afford to feed themselves, because during that period, people were not going to their farms, all farms were abandoned for years; and there was no food anywhere. This Programme was taking from us almost N25million every month, and it lasted from September 2010 till last year October.

The people were paid this amount, and they were selected from various communities, but Ukuwa West was getting almost N15million.

The people were selected by commissioners because every commissioner knows his people and when they were selected; their names were submitted to the Welfare Department along with their passport photographs, before identity cards were made for them. These monies were paid into various bank accounts and at the end of the month, members of the communities will go with their IDs which will be verified by the banks, to withdraw various sums that were approved – N10,000, N20,000 to help them in feeding.

We had to stop it because we could no longer fund it anymore due to low funding from the Derivation Fund. What was coming to us was not coming anymore because our people were now vandalizing the pipelines and as a result, our crude oil was not received at the terminals. From December last year, we could hardly pay salaries due to oil bunkering. Kidnapping was stopped, and the people went into bunkering.

When we could not afford to pay the monthly N25million, we looked for another project to replace it with, and we went into construction of water boreholes. We received letters from oil producing communities that they don’t have water and their aquatic life were highly destroyed because of oil pollutions. And In Owaza, which is the biggest oil producing community we sunk some boreholes.

In Abia State, we have what is called Motorised Choke Solar system. Our aim is to put generator and also put solar panel. Since the people look at the generator as government property, nobody cares to look after them but with the solar panel, the power automatically pumps water for the people. We did four in Owaza communities, we are doing three in Ukwa West community, three in Ukwa East and each one is 100,000 gallons.

We did one at Ikem-Ubosi in Isiala Ngwa South; we also did one at Centercus Secondary School in Umuahia North. In the schools that we are renovating, we intend to provide water and toilets so that the students don’t go into the bush to ease them and get beaten by dangerous animals. But because of funds, we have not been able to provide these things but we will start doing it in schools like Central School in Olokoro, Umuahia South, we have one there now. In Umuowa Alaocha Central School in Umuahia North, we also have one there.

We have also been able to provide drainages. We have a problem, there is a place called Ukuwado in Aba Jos Road, the road has not been used for over 20 years now, but we have intervened. Because the road is a flooded area, we carried out a survey and discovered that we cannot channel the flood to anywhere, so we were advised to drill wells; we drilled 30 boreholes of 13 inches.

We bought a plot of land there and did the well, we have commenced work there, which is ongoing but the governor has commissioned it that is the only road that leads to the Ariaria Market. We also reconstructed Our Lady of Love East by Aba Road about 500 meters and it has been handed over to the governor for commissioning.

We rehabilitated the Amieke water project, they came here to inform us that they don’t have drinking water and they share water source with cattles, which led to an outbreak of cholera that took the lives of about 13 persons. We helped them to rehabilitate the only water pump they have in their village and it has touched a lot of lives and they cherished it a lot.

Traditional institutions
The traditional rulers in Unukuwa West requested His Excellence to buy them cars which is their entitlement, coming from that local government so that they can look like other traditional rulers in the oil producing local governments of other states. Because it falls on our budget to do that, the governor directed that we provide them with cars.

As at present we have provided them with about 20 sport utility vehicles, SUVs, that is traditional rulers in Unukuwa West, we are still buying another 28 vehicles, and we have been directed to buy for Unukuwa East that is oil producing community. And we provided four buses for the traditional rulers in Abia South, Abia North and Abia Central and one other bus for the traditional ruler that we call Unguwa Supreme Council of Traditional Rulers.

We also had a request from the Abia State University, to provide them with generating sets. We got approval for their request and we installed a 1000KVA Caterpillar generator. I spoke about East by Unguwa Road it is 500 meters, it is in Aba South local government area and it has been commissioned by the governor.

Roads Rehabilitation
We have also rehabilitated Umoge Road, church and Mosque in Michael Road and Oceanic Bank junction. All these are in Aba including Park Road by Saint Michael Road, old cored by Dan-Fodio to Unguwa Road Aba, Kent Road, from Cameroon junction through Eyin Road to School Road Aba. Old cored Road by Eyin Junction Aba, Unguwa road by Ohakuru Road Aba, Fox Road by Airline to the Express road is 1.2 km.

You know Abia State is made up of 17 local governments; we only have two towns here which are Aba and Umuahia. Others are in the rural areas and it is our duty to ensure that they have motorable roads by grading the road. So in 2010 November/December, we built about 100 roads in all the local governments of Abia State, and last year December we graded about 50 roads. But from November last year the allocations went down and we had no option than to manage ourselves.

Then we did one major intervention on Port Harcourt/Enugu Express Road, we paid a courtesy visit to NEMA office here in Abia State, and we informed them that the road is totally bad and we pleaded with them to help us fix the road but they said they don’t have money. At that point we sought the approval of His Excellence and we used between N15billion and N20billion to buy mixed materials to fill the road from Nntiga junction which is in Isiala Ngwa to Aba Road.

Electricity provision
The Commission ensured that the Owaza communities have electricity supply. They were not connected to the national grid but they had power supply from Shell generating set. They beckoned on the Commission to hook them to the national grid and we did that by providing them with high tension poles and as we speak, Owaza community is on the national grid.

Because they are the highest oil producing communities, we want to ensure that they don’t suffer much, we decided to be paying N200,000 monthly bill for their power consumption because they don’t have any meters, so the PHCN officials come with their bulk bills and we paid for them.

Ibere community is in Ukualo in Abia State. We also hooked them to the national grid, because of the nature of that place almost all the electricity poles were swept away by flood. We supplied them with 100 electricity poles with cables and insulators in order to connect them to the national grid, and as we speak they have power supply.

Umuiku-Isiasa in Ukwa West we did an extension of resuscitating job in the community. In Ugborogbe, which is in Unukuwa East we also embarked on a security job there that on three occasions after doing one, storms will come and destroy them then we will go back and fix it again.

Unukuwa also have internal problems they have areas where their poles were destroyed by storms and we have been able to fix them. By God’s grace when our funds increase we will go back there.

In Udide-Ibeku in Umahia North of Abia state we did an electricity project there and it has been completed, they now have electricity. We are also rewiring the Faculty of Law ABSU, we are also constructing solar power street lights at Emehin Housing Estate Umahia area, and it is ongoing. We donated one 33KVA transformer to Uzakoli in Mbede local government.

There is a community called Nndi-aku-Owuwa-Ayanwu they beckoned on us to give the electricity because they don’t have electricity due to a faulty transmitter, we donated one transmitter to them and they now have power.

We also donated a 200KVA generator to Principal F1 in Umahia. We donated the generator to them they are part of Abia state even dough it is a Federal government property. In this year we have donated four number of split units to Abia State Broadcasting Commission.

In the education sector, we registered and paid for the exam fees of 500 indigene students for WAEC and NECO for 2010/2011. We also distributed 100,000 exercise books with bags and pencils and other writing material to almost all the schools in Abia State, (350 schools).

We organised quiz competition for Science schools in Abia State, the fisrt prize winner was given a Hummer bus which was Government College Umuahia, the second prize winner was given N2million that is Aba Girls Seconday School, the third prize N1million went to All Secondary School, and they will use it to equip their labs. The N2million was given to them to equip their school libraries.

We were directed by the governor to build two six classroom blocks in Ezebubele Primary School to enable Asa High school to move to that place. We are also building two six classroom blocks at Igiruki autonomous community.

Waste management
Abia State like you all know generates a lot of waste in places like Aba, Umahia and Obe. We don’t leave the whole job to the Waste Management Commission; we too are also into environment clean up, we spend so much money to ensure that our state is clean, mostly in the oil producing areas.

To enable our oil flow, we have to put security in place and as we speak, we have military personnel in place to ensure that the state doesn’t suffer from oil bunkering, military personnel are securing our pipelines and we bought utility boats for them.

Security in any state is very expensive to maintain; security in the state is to help the governor to secure our pipelines, which is solely our business and to ensure that our oil producing communities are in peace. We went into partnership with the Kings, the youths and the women organisations to ensure that there is peace in the state that also takes a lot of money, security is indeed very expensive.

I want to say that Abia State is one of the safest states in the Federation because of what the governor and the President is doing on behalf of the state.

We built two six classrooms block at Asa High school. The school was to be used for Amnesty Camp for hoodlums who were involved in kidnapping but the hoodlums rejected the offer, then the school was turned into a full military base now.

We also partnered with Police Officer Wife Association (POWA). There is this school that POWA was handling TPS Umahia, and they beckoned on us to assist them and we donated a cash of N5.8million to enable them complete the building and they completed and the former IG wife came and commissioned it.

Project Office
Our law makes provision that provide what project offices where oil is produced, so we have project office at Unukuwa West, at Obehe and we furnished it to give them a sense of belonging. So every petition, every complaint goes to the office.

We also decided to have our own office, about seven plots of land were acquired where we built a two story building and it cost us about N75million. Our rents for our current office will expire in 2014, but we intend to move into our permanent site before that time.

In this article

Join the Conversation

  • The original intent of those behind creation of the 13% derivation was that complaints of communities dwellers would be assuaged, but this has not been the case, not by a long shot.