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Author Name: Clement Ikpatt
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Emerging political and economic undercurrents in Nigeria make it imperative that Niger Deltans stop... (0) Comment


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UNDERSTANDING THE DIFFERENCE BETWEEN PERCENTAGE (%) DERIVATION AND RESOURCE OWNERSHIP
Author: Clement Ikpatt | June 29, 2006



Emerging political and economic undercurrents in Nigeria make it imperative that Niger Deltans stop to re-evaluate strategic approaches to their clamor for just and equitable mineral rights according to the principles of federalism. In order for this to take place, the need for sweeping changes in South-South representation, both at the national and state levels, cannot be overemphasized. Most representatives of the Niger Delta in the National Assembly have publicly betrayed their constituents and dealt a regional embarrassment given their support for the Third Term agenda promoted by anti-democratic forces and corrupt power brokers in Nigeria. Niger Delta youth groups, professionals and activists must seize the moment to strategize knowledge based redemptive and long lasting agenda for the region, both to resolve protracting conflicts and to forge political and economic relevance. First item on such an agenda is that the South-South position should change from demanding 25-up-to-50 percent derivation in five years. Reason for the change is simply that derivation principle, as encoded and practiced today, does not guarantee any form of ownership; the federal government has exclusive rights to mineral resources and no percentage derivation can change that fact unless an enabling law is added to transfer rights. To establish resource ownership, individuals, communities (or states) must own land and mineral rights such that: All land and any portion of the contiguous waters up to the continental shelf with whatever is under, on and above it belonging to individuals, communities and states. Whoever is endowed with resources can determine how, what and when to mine, explore and manage resources in land or adjoining sea up to the end of the continental shelf. MODEL 1: 25-50% Derivation without Ownership 1.1 We can continue to demand for 25-up-to-50 percent-in-five-years derivation model without any constitutional clause for rights to own endowed natural resource. In this case, nothing fundamentally changes from the current principle; it simply becomes a version upgrade by virtue of marginal percentage increase. 1.2 In this model, the federal government continues to own every ounce of endowed resources while ¡°x%¡± derivation applies to the government take (royalties, tax and NNPC profit). In our view, the premise for this demand, which derives from the 1960 and 1963 Constitutions, is flawed, unfair and unacceptable. 1.3 In this model that is consistent with existing derivation principle and without an enabling law transferring ownership rights from the federal government, it means that a resource endowed state will receive a derivation package equal in amount to twenty-five up to fifty percent (25-50%) of the government take (royalties + rent, taxation and NNPC profit margin). Whatever is left after subtracting the equivalent of ¡°x%¡± derivation goes into the Distributable Pool Account and is shared according to the revenue allocation formula. 1.4 This model remains the taproot of conflicts because it forecloses individual or community rights to resource ownership and fuels existing unitary styled central government. It remains unfair and unacceptable. 100% 50% 45% 20% 25% 3% 13% 0% 13% 1953 1960 1970 1975 1982 1992 1999 2002 2005 Fig 1: Graphical illustration of the history of derivation percentages in Nigeria MODEL 2: Ownership Established By Payment of Royalty and Rents 2.1 We have to demand for a constitutional provision that guarantees full (100%) royalties and rents applied to gross value of mineral resource mined from any particular area belonging to an individual, community or state while paying due taxation to the federal government and sharing responsibility for the environmental upkeep according to strict federal regulations. 2.2 In this model, nothing is derived from royalties and rents that accrue directly to individuals, communities or states endowed with natural (including mineral) resources. 2.3 Since royalties vary according to various factors but range from 10% to 20% of gross resource value according to global standard practices, this model proposes an average royalty equal to or greater than fifteen percent (¡Ý15%) of gross resource value. 2.4 In this model, ownership rights are established constitutionally according to the principles of federalism. Taxes and NNPC profit margin (from shared management according to stockholding) then constitutes the Government Take and goes into the Distributable Pool Account from which the central government, all states and all local governments share according to a revised revenue allocation formula. 2.5 In this model, the continental shelf is defined according to section 134 (6) of the 1960 Constitution (note: Nigeria became a republic on October 01, 1963) and section 140 (6) of the 1963 Constitution of the Federal Republic. Natural resources (including mineral and gas reserves) beyond the continental shelf may be subject to shared ownership and management between the federal and state governments. 2.6 This model holds the key to a permanent resolution of the Niger Delta conflicts because it establishes individual or community rights to resource ownership according to the principles of federalism. It is fair, equitable and acceptable. Reasons why 50% Derivation is faulty and unacceptable A consideration of Section 134 of the 1960 Constitution and Section 140 of the 1963 Constitutions given below reveals as follows: The 1960 and 1963 models, at best, did not guarantee shared ownership between the resources endowed region and the federal government. The Federal government received royalties, hence, owned all mineral resource as is currently the case. However, regions only derived a maximum amount equal to 50% of royalties received by the federal government. Fifty percent (50%) Derivation formula was only applied to what was left after refunds or other payments were deducted from royalties received by the federal government according to Section 134(3) and Section 140(3) of both the 1960 and 1963 Constitutions respectively. Section 134 of 1960 and Section 140 of the 1963 Constitutions provide as follows: 1. There shall be paid by the federation to each region a sum equal to fifty percent of: a. The proceeds of any royalty received by the federation in respect of any minerals extracted in that region; and b. Any mining rents derived by the federation during that year from within that region. 2. The federation shall credit to the Distributable Pool Account a sum equal to thirty per cent of: a. the proceeds of any royalty received by the federation in respect of mineral extracted in any region; and b. Any mining rents derived by the federation from within any region. 3. For the purpose of this section the proceeds of a royalty shall be the amount remaining from the receipts of that royalty after any refunds or other repayments relating to those receipts have been deducted therefrom or allowed for. 4. Parliament may prescribe the periods in relation to which the proceeds of any royalty or mining rents shall be calculated for the purposes of this section. 5. In this section "minerals" includes mineral oil. 6. For the purposes of this section the continental shelf of a region shall be deemed to be part of that region. MODEL 2 is our proposal that guarantees full royalty equal to a percentage of the gross value of resources. It is different from the 1960 and 1963 models that gave regions a derived sum equal to fifty percent (50%) of a fraction of royalties (royalties less refunds and other payments) and rent from endowed natural resources. MODEL 2 rightly seeks to exclude any form of derivation applied in favor of the federal government but guarantees ownership rights to individuals, communities, states or even the federal government (where natural resource is located beyond the continental shelf) endowed with natural resources. MODEL 2 is the recommended model that should become the bedrock and mantra of Niger Delta clamor for fair and equitable resource ownership according to the principles of federalism. Mr. Clement Ikpatt is the Executive Secretary of the South-South Peoples' Assembly - North America

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