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 How state governments cheat oil-producing communities in use of 13% derivation fund

How state governments cheat oil-producing communities in use of 13% derivation fund


Since Nigeria’s Fourth Republic began in 1999, the eight oil and gas producing states have received over N9 trillion under the derivation principle sanctioned by the nation’s constitution. The constitution stipulates payment of 13 per cent of oil revenue from the Federation Account to the states as a derivation fund.

In the last three years (2018-2020), in total, the oil-producing states have received N1.5 trillion from the Federation Account under the derivation principle, A PREMIUM TIMES analysis of data from the National Bureau of Statistics (NBS) has revealed.

The analysis, however, reveals that intervention activities and physical developments in the oil-producing communities do not reflect the derivation fund received by their states.

Constitutional Provision

The derivation fund is paid to the states monthly to assist their oil-producing communities in tackling environmental pollution and degradation, provision of basic amenities like healthcare, potable water and paved roads, and economic empowerment of the community people.

Section 162, Sub-section 2 of the Nigerian Constitution stipulates that the fund is for the exclusive use of oil/gas producing communities as compensation for loss of fishing rights and productive farmlands as a result of oil and gas exploration and production activities.

The Nigerian Extractive Industries Transparency Initiative (NEITI) also defines the fund as a financial incentive enshrined in the Constitution for oil-producing communities, based on their production input, to serve as benefits and encourage the community to create an enabling environment for more production of crude oil and gas.

Poorly Funded Commissions

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.

The states have all created oil-producing area development commissions to execute development projects in their oil-producing and impacted areas. But many of the communities have not been feeling the impact of the commissions for a number of reasons.

One of the reasons is that the state governments commit only small parts of the fund to the intended interventions in the oil-producing communities.

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