When Supreme Court rules more money for littoral states - 9IJA TALKS

Breaking News

When Supreme Court rules more money for littoral states


Since the advent of the Fourth Republic in 1999, the sharing of oil revenue has remained a very contentious issue between oil-producing states and the Federal Government.
In fact, the agitation for equitable distribution of proceeds from oil and gas has led to clamour for resource control and fiscal federalism, which sometimes threatens national cohesion.
In 2001, the politics of revenue allocation between the different tiers of government came to the fore, when the Federal Government, through the Office of then Attorney-General of the Federation and Justice Minister, filed a writ of summons at the Supreme Court against the 36 states solely to determine whether natural resources located within the continental shell of the country are not derived from any of these states, as their boundaries end at the low water mark of the land surface of each of such littoral states.
In the suit, which the oil-producing states and other littoral states namely: Akwa Ibom, Bayelsa, Cross River, Delta, Edo, Ogun, Ondo and Rivers, had specifically felt they were the major target, the Federal Government prayed the apex court to interpret Section 162 (2) of the 1999 Constitution with the primary intent of calculating the amount of revenue accruing to the Federation Account directly from any natural resource derived from each of the 36 federating units. The government hinged its suit on the claim that all natural resources located within the country’s territorial waters, irrespective of the state, were deemed to be derived from the federation and not from any state.
The Federal Government, which under the existing revenue sharing formula takes a whooping 52.68 per cent, leaving the states with 26.72 per cent and the local councils with 20.60 per cent, as well as, 13 per cent derivation revenue going to the oil producing states, had argued that Section 162 (1) of the Constitution provides that the federation shall maintain a special account to be called “the Federation Account” into which shall be paid all revenues due to the country.
It went on to explain that by a proviso to Section 162 (2) of the constitution, which prescribes the principle of derivation meaning that revenue accruing to the Federation Account from any natural resources shall be deemed to have been derived from the state or territory where such resources are located.









Having stressed that the natural resources located within the country’s territorial waters and the Federal Capital Territory were deemed to be derived from the federation and not from any state, the Federal Government revealed that the purpose and intent of this contentious suit was for the apex court to determine the seaward boundary of a littoral state within the county for the purpose of calculating the amount of revenue accruing to the Federation Account directly from any natural resources derived from that state, pursuant to the proviso to Section 162 (2) of the 1999 Constitution.
But the Akwa-Ibom, Bayelsa, Cross River, Delta, Edo, Ogun, Ondo and Rivers state governments had maintained that natural resources located offshore ought to be treated or regarded as located within their respective states.
According to the littoral states, their territories extend to the territorial waters and also unto the continental shelf and the exclusive economic zone. These states, particularly the oil-producing ones had contended that oil and gas from both offshore and onshore were derivable from their territories and to that end, they were entitled to “not less than 13%” allocation of all revenues derived from the oil and gas resources.
The oil-producing states contended that the policy where the Federal Government was charging the funding of the joint venture contracts and the Nigerian National Petroleum Corporation (NNPC) priority projects to the federation account was at variance with the provisions of the 1999 Constitution, thus, unconstitutional.
The Supreme Court in its judgment declared that the southern boundaries of all the eight littoral states must be the southern boundaries of the old Western and Eastern regions as defined in the Laws of Nigeria of 1954, i.e. the sea.
The court explained that this is also defined in Section 11 of the Nigeria Protectorate Order in Council 1922, and of Lagos State as defined in the Colony of Nigeria (boundaries) Order in Council 1013.
The apex court further asserted that if the boundary is with the sea, then, by logical reasoning, the sea cannot be part of the territory of any of the old regions. To this extent, the court said the states cannot claim that their boundaries extended to the exclusive economic zone, or the continental shelf of the country.
Based on the Supreme Court verdict delivered in 2002, the Federal Government, Akwa Ibom, Bayelsa, Delta and Rivers state governments agreed on a political solution to the dispute amid anger in the region over the patent disingenuousness and immorality of the suit.
Aggrieved groups like the Ijaw National Congress, United States (INCUSA) had warned that there will be heavy price to pay for such pyrrhic victory owing to the widespread perception that the Federal Government was merely flexing its muscles because the suit it filed at the apex court, though, involved all the federating states in disguise, but was directly targeted at the Niger Delta minorities.
INCUSA lashed out at state governors for acting beggarly in their demand for what was rightfully due the people of their region, and further argued that states have not shown that they were bargaining from a position of strength.
Worst still, the governors were perceived to not have devised a comprehensive strategy to redress the overwhelming injustice the region has suffered over the years.
The INC said this action by the Federal Government ought to have served as a necessary shock therapy to jolt the leadership in the region, which must come to terms with the reality that the core issue was beyond onshore/offshore dichotomy in the sharing of oil wealth, but that of ownership of the lands from which crude oil is exploited, and how that land is to be managed by its owners.
Desirous of expanding social services and tackling infrastructural deficits, the Niger Delta states where the bulk of the country’s oil and gas resources are produced has been clamouring for an effective strategy, and an appropriate formula for revenue sharing acceptable to them and the rest of the federating states. Hence, the onshore/offshore dichotomy was just a tip of the iceberg of more contentious issues concerning revenue sharing between the states and the Federal Government.
Eager to shore up their fiscal capacities as the country plunged into recession, Akwa-Ibom, Bayelsa and Rivers states filed a suit at the apex court against the Federal Government seeking the following consequential reliefs where, by virtue of Section 162(1), (2) and (10)(a-c) of the Constitution as amended, the states are entitled to a share of the monies accruing to the Federation Account, an implicit or a quasi trust obligation is created that mandatory statutory provisions from which such funds are derived shall be diligently observed and enforced by the Federal Government, or its nominee cognate minister, organs and or parastatals, ensuring thereby that beneficiary states qua plaintiffs et al are not underpaid/shortchanged in real terms, what is due them under the constitution and contract or enabling status.
The oil-producing states sought the court to determine whether there is a statutory obligation imposed on the Federal Government, pursuant to Section 16(1) of the Deep Offshore and Inland Basin Production Sharing Contracts Act Cap D3 of the Laws of the Federation 2004, to adjust the share of the Federal Government in the additional revenue accruing under the various production sharing contracts approved by the Federal Government if the price of crude oil at any time exceeds $20.00 per barrel, in real terms, to such extent that the production sharing contracts shall be economically beneficial to the government of the federation.
Also for determination, was whether the failure of the Federal Government to accordingly adjust government’s share in the additional revenue accruing under the production sharing contracts approved by the Federal Government following the increase in the price of crude oil in excess of $20.00 per barrel in real terms, constitutes a breach of the said Section 16 (1) of the Deep Offshore and Inland Basin Production Sharing Contracts Act, and has thereby affected the total revenue accruing to the Federation and consequently the total statutory allocation accruing to the plaintiffs by virtue of the provisions of Section 162 of the Constitution as amended.
The states argued that there is a statutory obligation imposed on the Federal Government pursuant to Section 16 (1) of the Deep Offshore and Inland Basin Production Sharing Contracts Act, Cap D3 Laws of the Federation 2004, to adjust government’s share in the additional revenue accruing under the production sharing contracts, if the price of crude oil at any time exceeds $20.00 per barrel in real terms to such extent that the production sharing contracts shall be economically beneficial to the government of the federation; and the component federating states, especially the 1st, 2nd and 3rd plaintiffs.
To that end, they prayed the apex court to issue a consequential order compelling the Federal Government to adjust government’s share in the additional revenue under all the production sharing contracts in the oil industry within the inland basin and deep offshore areas as approved by the Federal Government from the respective times the price of crude oil exceed $20.00 per barrel in real terms, and to calculate in arrears with effect from August 2003 and recover and pay immediately, all outstanding statutory allocations due and payable to the them arising from the said adjustments.
In cognisance of the sheer breach in the PSC law, the Federal Government, through the Attorney General of the Federation, Abubakar Malami SAN, indicated government’s preparedness to explore an amicable settlement of the issues raised in the proceedings by the states.
It was on this basis that parties agreed to undertake and immediately set up a body and the necessary mechanisms for the recovery of all lost revenue accruing to the Federation Account arising from adjustments to PSC at the respective times that the price of crude oil exceed $20.00 per barrel beginning from August 2003.
The Supreme Court declared that the 13 per cent derivation due to the states shall be paid to them upon recovery in accordance with Section 162 of the 1999 constitution as amended.
Reacting to the development, the former Group General Manager, Corporate Planning and Development Division, Nigeria National Petroleum Commission (NNPC), Dr. Joseph Ellah, said it would bring more revenue to the oil producing states.
Ellah explained that when the Deep Offshore and Inland Basin Production Sharing Contracts Act came into being, the country was just venturing into offshore drilling and it was a relatively new technology in Nigeria.
According to him, the government had to give international oil companies a lot of incentives because oil price was hovering between $9-10 per barrel.

No comments