A Review of the Nigerian Energy Industry

The Petroleum Act, revenue allocation & the descent into financial anarchy

John Owubokiri07 September 2015, Sweetcrude, Port Harcourt – It might have started as a misinterpretation of the forays of British Petroleum and Amoco in the Middle East or as the Gowon’s Supreme Military Council claimed, an expediency to prosecute the Nigerian civil war but several decades after the war, Nigeria has maintained an immoral regime of federal allocations, the subjects of which are “earnings from crude oil and gas sales” from products found in select locations of the Nigerian State. Economists, sympathisers and the people of the Niger Delta have protested forever, the incongruity and injustice of this arrangement but the managers of the Nigerian State have maintained it to the detriment of the development of the full potential of the federal government and the federating units to mobilise revenue for governance.

In the early days of Muhammadu Buhari’s presidency, the Nigerian public was shocked to learn from the newly elected officials that the federal government and almost all the states were stone broke as a result of budget deficits; a direct consequence of the fall in oil prices. Nigerian policy makers predicate their budgets mainly on expectations of earnings from crude oil and gas sales, not on tax as is done universally so that a country of about 178 million people, excluding the hundreds of thousands of corporate citizens are not able to raise an income base that can amount to half the tax base of South Africa that has a population of 53 million. This system of federal allocations has expanded Nigerian bureaucracies unduly, enthroned greed, indolence and the failure of taxation as a means of governance. In South Africa, the diamonds and minerals industry alone provide the country and states with prospecting license tax, operational tax or mining tax, mineral royalty, company tax and income tax! In one industry alone!!! Before Nigeria discovered crude oil, the Northern Region was run purely on tax realised from agricultural produce; ditto for the Western and Eastern regions. The difference was only in the products or produce.

By virtue of the Petroleum Act and certain provisions in the Nigerian Constitution, the federal government, the 36 states of the federation and all 774 local government authorities are statutorily entitled to a monthly largesse from oil and gas sales. These monies accrue to the governments, not because of monies or resources they invested but because the constitution names them as parts of the federation of Nigeria. The direct result of this system of distributing unearned income was the scramble for more and more states and LGAs, their viability and survivability not factored as those important considerations hadbeen underwritten statutorily by a constitutional document; an indirect but certain consequence is the failure and foreseeable demise of the taxation system. Imagine a Nigerian economy run by the federal government purely with tax earnings and in which the states run their economies independently with earnings realised within their borders. This system of federal allocations has blunted the creative spirit of the famous Nigerian technocrat. At the peak of his career, Allison Ayida, was adjudged to have the competence of German statesmen like Klemens Von Metternich and Otto Von Bismarck. What kind of technocrats does Nigeria produce these days? Pretentious auditors who snoop around investigating and tracking other peoples billions and donating other peoples’ money to their kin instead of developing strategies for expanding the income streams and bases of their governments.

As an immediate palliative, President Buhari approved the distribution of funds lodged in the excess crude account (of course, crude!!!) to assuage the financial difficulties faced by the states. How well and how far can this rape on the Niger Delta continue to sustain Nigeria’s economy? Already, oil has become replaceable with wind, solar energy, octane, steam, nuclear energy and many other renewable options and Iran which had been an international pariah would soon join an already glutted market where prices are downward bound. Intelligent people should start asking themselves how Nigeria can sustain her increasing needs with dwindling resources. In every way that it is possible to examine it, it is clear that the Petroleum Act and the system of federal allocations practised in Nigeria have been more of curses than blessings to the Nigerian people. The federal government was only designed to make enough money to underwrite her minimal operations and to act as a neutral arbiter and common representative for all the federating states. This novel role of income distribution it assumed ostensibly to serve as an agent of bridging inequities is Nigeria’s diving board to her certain descent into anarchy.

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