Urhobo Historical Society


LESSONS FROM THE CHADIAN MODEL
  FOR DISTRIBUTION OF OIL WEALTH IN
NIGERIA’S NIGER DELTA

 

By Emmanuel Ojameruaye, Ph.D.

International Foundation for Education and Self-Help (IFESH)

Phoenix, Arizona, USA

 

 

The economic performance of many oil-exporting countries has been very disappointing since the quadrupling of oil prices in 1973.  Despite substantial inflow of oil revenues, most of the oil-exporting countries have been suffering from the so-called Dutch Disease and Immiserising Growth syndrome. In particular, they have failed to use their “oil windfall” to reduce poverty in their countries. It is against this background that  the World Bank and other major stakeholders introduced an innovative approach to ensure that the recently found oil wealth in Chad is effectively used for sustainable development and poverty reduction in the country.  This paper examines how the principles of this new initiative can be applied in using Nigeria’s vast oil wealth to reduce poverty in the oil producing areas of the Niger Delta region.

 

The Chadian Model

 

In July 2003, Chad joined the club of crude oil producers when the country’s Doba oil field came onstream. In October 2003, the oil flowed through a 1,070km pipeline and reached the Kiribi terminal in the Atlantic Ocean off the coast of Cameroon.  On November 26, 2003, the government of Chad received $6.5m for its first crude oil shipment. The money was paid into an escrow account at Citibank in London. The money is the subject of strict mechanisms that have been imposed by the World Bank in an effort to prevent abuse or squandering of the country's new “oil windfall”. It is expected that most of the money from the crude oil sales will be used for social projects and the government will be allowed to spend only 5% in a manner it chooses.  In early December 2003, the 2004 Budget of government of Chad was approved. Out of the projected revenue of 419 billion CFA francs (639 million Euro), 91.5 million Euro  (or 14.3%) will come from oil.  In preparing the budget, President Idris Deby insisted on transparency, accountability and tangible results from the new oil revenue. With guidance from the World Bank, the country has put in place a set of institutional arrangements that provide for transparent accounting and accountable use of he oil revenues. They provide clear rules on the allocation of oil revenues. All revenues from oil will be put into an escrow account subject to disclosure and audit in a way that ensures that everyone will know what the country received in oil revenues during a given period of time. Part of the revenue will be used service external debts to the lenders of Chad’s investment in the oil project (World Bank and the European Investment Bank) while the remainder will then be moved into a special oil revenue account and used for the benefit of all Chadians. Under a new law, 10 percent of the special oil revenue account will to be placed annually in a savings account for future generations (future generations fund); 80 percent will be spent in priority sectors such as education, health, rural development, water resources and the environment; 5% for the oil-producing regions for special development projects;  and the remainder 5% for general government operating expenditures. An Oversight Committee has been established to monitor all the revenue flows and approve the spending from special oil revenue account. The Committee has members from the executive branch of the government, the legislative branch, the judiciary, human rights groups, women groups and faith-based organizations. Half of the members of the Committee have no ties to the Chadian government. So far, the Committee has rejected more than half the government contracts it has screened, and is insisting on open bidding.

  

The total cost of the project leading to Chad’s oil production was $3.7 billion ($1.5billion for the development of the oil fields at Doba and $2.2billion for the construction of the 1,070 km pipeline to offshore oil-loading facilities on Cameroon's Atlantic coast). The sponsors of the project are ExxonMobil of the U.S. (the operator, with 40% of the private equity), Petronas of Malaysia (35%), and ChevronTexaco of the U.S. (25%). It is estimated that the oil project will provide about US$2 billion in revenues for Chad (averaging US$80 million per year) and US$500 million for Cameroon (averaging US$20 million per year) over the 25-year production period. On the other hand, oil companies could reap up to $20 billion in profits. The project is expected to yield about 70% economic rate of return for Chad and 40% for Cameroon over the 25-year operating period, assuming reserves of 917 million barrels and the World Bank price projection for Brent crude of about US$15.25/barrel.

 

More than 100 non-governmental organizations took part in negotiations that established the  guidelines for the funding of the project. The guidelines covered oil revenue management and environmental standards. The World Bank Group supported the development of a sound revenue management program, the application of environmental and social policies and ensured broad public consultations. Chad was required to adopt a spending policy that invests revenues from oil in education, health, the environment, water and rural development. The project also entailed environmental management plans in Chad and Cameroon, a resettlement and compensation plan in Chad, and a compensation plan as well as an Indigenous Peoples Plan in Cameroon. There were also capacity-building projects to assist Chad and Cameroon in managing the environmental aspects of the project and to strengthen Chad’s capacity to manage project revenues and the petroleum sector in general.  In order to increase the capacity of local entrepreneurs and businesses to take advantage of contracting opportunities offered by the project, the World Bank initiated a project in 2001 to strengthen the capacity of small- and medium-scale enterprises (SMEs) to compete for business contracts. Besides training and technical assistance, the Bank is supporting a local micro-finance facility for SMEs. The Chad SME Initiative includes access to finance and various capacity-building components. In addition, a feasibility study on setting up leasing companies in Chad has been completed together with an examination of the fiscal and regulatory requirements. The next phase involves drafting of leasing regulations in collaboration with the Government. In the final phase, at least one local leasing company will be established. The International Finance Corporation (IFC) has also launched a Support and Training Entrepreneurial Program (STEP) in Chad to train young university graduates as consultants, trainers, and business developers for micro and small enterprises. STEP already has 14 field officers who are working with over 250 enterprises in N’Djamena and in the oil-producing region. IFC has also launched an Information Campaign Project to disseminate important SME-related information. Through information sessions, radio and TV, seminars, and workshops, SMEs are learning about business opportunities and how to prepare business plans and strategies, obtain access to finance, and create or develop their businesses. Other initiatives include HIV/AIDs prevention, trade fairs, and joint-venture workshops to find partners for local businesses. AFRICARE, a U.S.-based NGO, is helping IFC implement an agribusiness enterprise-creation project designed to provide food for workers in the oilfield development area in the short-term, and to the population at large over the long-term. Eight enterprises in fish, cattle, poultry, and vegetable production have been created and over 150 people are receiving technical assistance, management training, and financing. IFC is also  putting in place “L’Espace PME” in the oil-producing region, a center where SMEs can set up businesses and share resources, such as working equipment, generators, telephones, and computers, and also benefit from technical assistance.

It is hoped that the oil revenue will be used effectively for important investments in health, education, environment, infrastructure and rural development to reduce poverty. Other expected benefits include employment generation, local project procurement, staff training,  further oil exploration and development, and private investment.  The regional development program for the population in the Doba region in Chad and the Indigenous Peoples Plan for Cameroon’s Atlantic Littoral forest dwellers will help improve livelihoods, job skills, and levels of education and health through improvements in water supply, sanitation, and other socio-economic infrastructure and services. Local NGOs will be strengthened through their involvement in the projects, both via consultations/inputs during project design and implementation and as service delivery agents.

Although it is too early to assess the effectiveness of the projects and to confirm if Chad can avoid the Dutch Disease and Immiserising Growth syndrome,  economic analysts are hopeful that, ceteris paribus, Chad will avoid the unfortunate experiences of other oil producing countries and serve as a model of how to manage oil revenue to ensure effective poverty reduction.  Even as we await the results of the “Chadian experiment”, some lessons can be drawn  for a country like Nigeria.   

 

Replication of the Chadian  Model

 

Clearly, the situation is Chad is different from that of Nigeria. In the first place, and oil production started in Nigeria about 48 years ago (in 1956) after about 18 years of oil exploration activities. At that time, the phenomenon of “Dutch Disease” had not been “discovered” and the World Bank, still at infancy, did not provide guidance or support in the management of the Nigeria’s oil revenues.  In fact, oil did not attract much attention until after 1973.  Secondly, Nigeria’s population of about 126 million is about 15 times the population of Chad (8.35million), although Chad has larger area of 1,284,000 sq. km compared to Nigeria’s 923,768 sq. km. Thirdly, Nigeria’s current oil and gas reserve (about 30 billion barrels) is over 32 times Chad’s estimated reserve is about  917million (less than I billion). At the current rate of oil production (about 2million barrels a day), Nigeria’s current reserve would last for another 30 years but Chad’s reserve would dry up after 25 years at its projected rate of oil production. Fourthly, Nigeria currently reaps between $10 billion and $14 billion (assume average of $12billion) a year in oil revenue which about 150 times the average revenue ( $80million a year) Chad is expected to reap over next 25 years  (i.e. total of $2billion over the 25-year period). Despite these differences, Nigeria has much to learn from the Chadian model, especially in the following areas:

-          Application of the principles of institutional transparency and accountability in the management of oil revenue.

-          Use of a substantial portion of the oil revenue to improve the quality of life of the poor through investment in health, education, water and sanitation, rural development, local capacity-building, enterprise development, microfinance and environmental management.

-          Setting up a fund for the use future generations.

-          Giving special attention to the oil-producing region.    

 

Before describing how these can be achieved in Nigeria, I will first review how Nigeria has attempted to use (or misuse) its oil wealth with regards to improving living conditions in oil producing areas since oil was discovered in the Niger Delta in 1956.

 

Oil Wealth and Poverty in the Niger Delta Region

 

The Nigerian economy depends heavily on crude oil and gas, which account for over 70% of the revenue of the Federation and over 95% of export earnings. The bulk of country’s oil and gas is produced in the Niger Delta region and the adjoining offshore. After over 46 years of exporting crude oil, it is not an overstatement to say that Nigeria has failed woefully in carrying the oil wealth to the poor, including the poor in the oil producing areas of the Niger Delta region. In fact, Nigeria seems to have been experiencing immiserising growth –a situation where increase in the output of exported commodity leads to a deterioration of the country’s welfare- since the early 1970s.  The 1985-1996 Poverty Survey of Nigeria by the Federal Office of Statistics captured this fact when it noted that :

 

“The number of poor remains high. With a national population estimate of 116million in 1996 there are at least 64.7million (56%) poor people in Nigeria compared to 38.5million (43%) in 1985…We have about 61percent of all individuals in the rural (up from 47% in 1985) and about 47 percent of the urban dwellers (down from 48% in 1985) in poverty…Living standards of the Nigerian population  have been adversely affected since 1980 by two factors. Per capita income has fallen from a peak of about   $1,100 in 1982 to current levels of about $350. The distribution of income has also worsened adversely affecting the poorest, throwing them deeper into poverty…The incidence, depth and severity of poverty increased between 1985 and 1996“.

 

 Although the statement was made with reference to the whole country, it is also true for the oil producing areas of the Niger Delta. In fact, an examination of the poverty data by states shows that the incidence, depth and severity of poverty in the oil producing states are not significantly different from those of the other states of the country,  despite  the attempts by the three tiers of government and oil producing companies to improve quality of life in the Niger Delta region. What are these efforts and why have they failed to carry wealth to the  poor,  i.e. to reduce poverty?. What changes are required to ensure that the oil wealth reaches the poor and reduce the level of poverty in the area in a sustainable manner?

 

The Niger Delta region covers an area of about 70,000 sq. km.  In strict sense (as was in the past), the Niger Delta is limited to the geo-political area occupied by minorities of Southern Nigeria (South-South zone) currently comprising the six states of Akwa Ibom, Bayelsa, Cross River, Delta, Edo and Rivers. In recent years, however, especially since the establishment of the Niger Delta Development Commission (NDDC), the Niger Delta region seems to have been redefined and enlarged to include the contiguous oil producing states of Abia, Imo and Ondo. About 13 million people currently live in the “original” Niger Delta region in a few large cities and over 3,000 small and often remote communities/villages in the mangrove, swamp and lowland rain forests. However, not all the communities in the Niger Delta are oil producing or are sufficiently close to oil producing wells or facilities. Similarly, there are some oil producing communities that are geographically located outside the “original” Niger Delta region.  While the upland areas of the Niger Delta are densely populated, the swamps have scattered settlements that take advantage of higher ground. Farming and fishing are the main economic activities in the communities while commerce and oil-industry related activities dominate the urban areas. The terrain is extremely difficult and a substantial portion of the region falls under the “world’s fragile ecosystem”. Many communities live along creeks and are accessible only by boats. The riverine communities are particularly vulnerable to climatic changes and man-made disasters (floods, sea encroachment, oil pollution, piracy, hostage taking, communal conflicts, etc). The region is faced with a lot of developmental and environmental challenges including high level of poverty, decline in agricultural production, low level of industrial activities, environmental degradation and social conflicts. With an average family size of about six, one can assume that there are about 2.1million families or households living in the region. About 1.5 million of these families are poor, of which about 1million are classified as “very poor “ (core poor).

 

The unique characteristics of the “original” Niger Delta region as described above make development difficult and expensive. This is why the Sir Henry Willink’s Commission (1958) recommended that the Niger Delta region deserves special developmental attention by the Federal Government of Nigeria. This was even before crude oil became a critical factor in Nigeria’s development. Consequently, the Federal Government established the Niger Delta Development Board (NDDB) in 1960 to handle the developmental needs and challenges of the region. In its seven years of existence, the NDDB achieved little to nothing before it faded away following the military coup in 1966 and the outbreak of civil war in 1967. After the civil war, the Federal Government did not revive the NDDB and showed no interest in addressing the developmental needs of the region. Rather, the Federal Government decided to use the substantial revenue accruing from oil production in the region to fund its massive rehabilitation and reconstruction program in various parts of the country. Even with the quadrupling of oil prices in 1973 and the subsequent oil windfall, there was no deliberate attempt to use part of the oil wealth to address the issue of poverty and the developmental needs of the region. Following growing agitation for developmental attention from the area, the Shagari Administration set up a Presidential Task Force (popularly known as the 1.5% Committee) in 1980 and 1.5% of the Federation Account was allocated to the Committee to tackle the developmental problems of the region.  Although the Committee existed until early years of the Babangida regime, it was very ineffective and there were only a few projects to show for the revenues it received from the Federation Account.  It is doubtful if the federal government ever made the 1.5% allocations in full to the Committee. Critics also say that most of the revenue the Committee received  ended up in private accounts and did not reach the poor people of the oil producing communities.  By 1985, the Committee was virtually moribund. Following growing discontent and restiveness in the oil producing areas, the Babangida regime set up Oil Mineral Producing Areas Commission (OMPADEC) in 1992 and allocated 3% of federally collected oil revenue to it to address the developmental needs of the areas. Although OMPADEC initially raised the spirit and hopes of the people, it became inefficient and corrupt and ended up as another great disappointment.

 

Between 1992 and 1999 when it was scrapped, OMPADEC completed several projects but bequeathed very many abandoned/unfinished projects and huge debt, most of which were dubious. OMPADEC suffered from lack of focus, inadequate and irregular funding, official profligacy, corruption, excessive political interference, lack of transparency and accountability, high overhead spending, etc. Most of its projects had little to do with poverty reduction and the vast majority of the poor people were not impacted in any significant way. There is no reliable information on the total amount it received from the Federation Account but critics say that the Federal Government did not disburse the full 3% of the Federation Account to the Commission throughout the period. More importantly, much of the funds disbursed also ended up in private accounts and the number of projects completed cannot justify the amount received. Thus OMPADEC failed to abate discontent and restiveness in the region. If anything, the degree of restiveness increased, reaching an alarming level by 1998. Consequently, one of the first actions of President Obasanjo soon after his inauguration in May 1999 was to send a Bill to the National Assembly for the establishment of the Niger Delta Development Commission (NDDC) to replace OMPADEC. However, after some prevarication and procrastination, the NDDC was officially inaugurated on December 21, 2000  with a vision “to offer a lasting solution to the socio-economic difficulties of the Niger Delta Region” and a mission “to facilitate the rapid, even and sustainable development of the Niger Delta into a region that is economically prosperous, socially stable, ecologically regenerative and politically peaceful”. Again, lofty words and very high expectations. The NDDC Act provided for generous funding sources, including:

-          Federal Government contribution, which shall be equivalent to 15% of the monthly statutory allocation due to member States of the Commission from the Federation Account.

-          Oil and gas processing companies’ contribution of 3% of their total budget.

-          50% of the Ecological Fund Allocations due to the member States.

-          Proceeds from NDDC Assets and miscellaneous sources, including grants-in-aid, gifts, loans and donations.

 

The NDDC Act also provides for a Governing Board of twenty members. Ten of the members are to be appointed by the Federal Government (The Presidency) including the Chairman, the MD/CEO, the two Executive Directors, three Representatives of non-oil producing states, one representative each from the Federal Ministry of Finance and the Federal Ministry of Environment and two executive directors. Each of the nine oil producing states are to appoint one member each while the oil companies are to appoint one member to represent them. Like OMPADEC, the NDDC is essentially a department of the Presidency.

 

Today, the NDDC is a very large agency, some say too large, with offices in each of the nine oil producing states.  Some people say it is more or less a “supra state” government like the now defunct Petroleum Trust Fund (PTF). Like the OMPADEC, the NDDC seems to have started on a sound footing. Its initial task was to review and complete some of the abandoned/unfinished projects of the defunct OMPADEC and embark on some new ones whilst preparing a comprehensive Master Plan for the development of the Niger Delta region. After about 3 years, the Commission can now boast of many completed projects and recent reports indicate that the Master Plan is almost completed and may be launched in April, 2004. In an address delivered by the Chairman of NDDC at the annual general meeting of the Traditional Rulers of Oil Mineral Producing Communities of Nigeria (TROMPCON) on June 25, 2003, he reported that during the first two and half years of its existence (Jan. 2001 to June 2003), the NDDC:

-          Received N47 billion from all its funding sources.

-          Awarded about 700 contracts of which 358 had been completed as at June 2003.

-          Undertook the construction of  40 roads projects, 90 water projects, 129 electrification projects, 47 shore protection/jetty projects, 50 health centres,  205 new blocks of six classrooms each, etc.

 On the surface, this seems to be an impressive record, but it is not clear whether an independent audit has been carried out to determine whether the funds received had been used wisely and effectively. It is also not clear what impact these projects have had on reducing the incidence, depth and severity of poverty in the oil producing communities. What is clear however, is that poverty still remains pervasive. In the absence of relevant baseline and recent data on poverty in the area, one cannot say if the percentage of people living below the poverty line has dropped during the past 3 years or whether the area is on the path of achieving the millennium development goals (MDG). However, the fact that discontent and restiveness are still rampant in the region is an indication that the NDDC still has a very long way to go in achieving its mission.   But NDDC, like its predecessors, is beginning to experience some stress and cracks. Firstly, the funding has become uncertain and irregular. There are reports that the Federal Government  has consistently refused to meet its obligation to the Commission: rather than paying the 15%  provided for in the Act, it is contributing only 10%. It has also been reported that some oil companies are not contributing the full 3% of their budget as provided for in the Act. Recently, a member of the National Assembly alleged that the Federal Government and some oil companies are owing the NDDC about N100 billion in unpaid contributions – an amount that is more than double what it received during its first two and half years and more than the 13% oil derivation fund (N89.2billion) that was shared by all nine oil producing state governments in 2002. In fact, the Federal Government has submitted a Bill to the National Assembly to reduce its contribution from 15% to 10% and that of oil companies from 3% to 2%. The Federal Government also wants the oil producing states to contribute 10% of their monthly statutory allocations to the Commission, but the States are opposed to this just as they are to contributing 50% of their Ecological Fund Allocation to the Commission. The States see no reason why they should contribute to a Commission that is an appendage of the Presidency and outside their sphere of influence.  Thus the controversy over the funding of NDDC rages on three years after its establishment, creating an atmosphere of uncertainty. In addition, some critics have raised the issues of transparency, accountability, corruption, political interference, etc. They cite the replacement last year of the first MD/CEO as a case in point. Some critics also argue that the NDDC lacks focus, behaving as a “Jackie of all trades and master of none”. Although it may be too early to assess the performance of the NDDC, I think there is need for periodic review of its mission, strategies, programs, management  and performance in order to adopt corrective measures that will put on the right path of reducing poverty in the region, i.e. carrying oil wealth to the poor.             

 

In addition to federal agencies, State governments are also required to tackle the problem of poverty in the region using part of the oil revenue that accrues to them. All the oil producing states receive additional revenue on account of the oil produced in their state (derivation fund) and also from oil companies in the form of personal income (PAYE) taxes. It is reported that some state government get more than N1.5billion (over $10m) a year from PAYE taxes from oil companies operating in their state and over N10 billion a year as oil derivation fund from the Federation Account. How well have the state governments used part of these funds to improve the living conditions of the people in the oil producing communities in their state?  Many people would answer “not much”. Again, it appears that some of the State governments do not have deliberate or special plans and programs aimed at reducing poverty in the oil producing communities. For instance, it appears that the States do not dedicate a given percentage of their oil revenues to programs that will have direct impact on the quality of life of the people and reduce the incidence and severity of poverty. There are reports of stealing and wastage of the oil revenue by state officials.

 

Local Government Councils (LGCs), the unit of administration that is closest to the people/grassroots, are also expected to address the issue of poverty with the revenues they receive both from the Federation Account and the State Governments. Unfortunately, many of the LGCs in the oil producing areas (and elsewhere in the country) are lameducks when it comes to poverty reduction. They are grossly under-funded to do any meaningful development work and make any appreciable impact on poverty reduction. Besides, there are reports of massive abuse of the little funds they receive. Most of them do not have medium to long-term development plans to improve living conditions in their areas. The unstable and unpredictable tenure of the LGCs has also made development planning difficult and unattractive. It has also encouraged graft, lack of transparency and accountability. After meeting their recurrent expenditures, most LGCs have little or nothing left for capital expenditure and investment in poverty reduction programs.

 

Despite some criticisms, the oil companies operating in the region are responsible for many of the visible infrastructural projects and poverty reduction programs in many of the oil producing communities. Collectively, these companies spend over $120million (over N15.6 billion) annually on a wide range on community development projects covering agriculture, community health, education, youth skills training, water and sanitation, social and economic infrastructure, women development, small business development and micro-credit. For instance, the Shell Petroleum Development Company of Nigeria Limited (SPDC), the largest of all the companies, spent about $66.9million (about N8.7billion) in 2002 on its community development program, including:

-          $23.3 million on community roads and bridges  (about 116 km of community roads constructed).

-          $12.6 million on education and schools (scholarship for about 13,000 secondary school students and about 2,350 university students, sponsorship of 374 professional teachers deployed  42 schools and 213 NYSC teachers deployed to 37 schools to teach science subjects, provision of 120,000 textbooks to 70 schools, construction of 16 blocks of six classroom each and renovation of 6 blocks, training of 850 youths to acquire skills in auto-mechanic, bakery, sewing, hairdressing, computer application, soap-making, welding, etc for self-employment, etc).

-          $6.7million on electrification  (21 rural electrification projects completed).

-          $4.8 million on agriculture (support of thousands of farmers through improved farming techniques, post-harvest loss reduction,  seed multiplication, distribution of high-yielding and disease resistant crop varieties, tractor hire services, etc).

-          $4.0 million on small business development and micro-credit.

-          $3.9  million on community health care (support to 5 general hospitals, 15 cottage hospitals and 12 health centres treating  over 255,000 patients, support for National Immunization Day  helping to immunize about 1.8 million children against poliomyelitis).

-          $2.8 million on water and sanitation ( 32 water schemes rehabilitated).

 

The contribution of some oil companies is such that some of the remote communities jocularly claim that the  government” they see in their communities are the oil companies. Nevertheless, some critics argue that the number of projects on the ground and the persisting high level of poverty in the area raise questions regarding the effectiveness and efficiency of the community programs of the oil producing companies.      

 

Given the above scenario, it is clear that much needs to be done to ensure that the poor people of the oil producing areas benefit directly from the oil wealth coming from their backyards. In other words,  there is need for drastic changes in the way Nigeria manages its oil wealth so that it can be used more effectively to reduce the incidence, depth and severity of poverty and enable the oil producing areas to achieve the millennium development goals, hopefully faster than the rest of the country. To achieve this, we need to borrow from some of the principles of the Chadian Model discussed in section 1 above. Accordingly, I wish to make the following radical recommendations:

 

Recommendations:

 

1.     There is need to review the macro-management of Nigeria’s oil revenue to ensure transparency, accountability, prudence, realism and reasonable predictability. For instance, a special petroleum account can be opened to which all federally accruable oil revenues should be deposited. Five percent of this amount should be paid into a “Future Generations Savings Account” which shall not be spent. From the remainder 95%, the amount of funds required for federal government investment in the oil industry should be withdrawn. This should not exceed, say, 20%. From the remainder 75%, the Oil Derivation Fund (13%) will be deducted for sharing among the oil producing states and the remainder (62%) will be paid into the Federation Account for sharing among the three tiers of government according to the revenue allocation formula. The revenue allocation formula should be simple, unambiguous and devoid of fractions and too many factors. For instance, we can have Onshore Derivation 15% (or 10%?) and Offshore Derivation 5% (or 10%?). For vertical allocation, we can have Federal Government: 40%, State Governments: 35%, and Local Government 25%. For horizontal allocation among the states and local governments, we can have Equality Factor (Minimum Administration): 30%, Population: 50%, Poverty Incidence: 20%. In preparing the federal budget, a pessimistic price assumption should always be used, e.g. $18 per barrel, and any revenue accruing from prices higher than this price should be paid into the Future Generations Account. In case the price falls below the budget price, the revenue shortfall should be recouped (withdrawn from the Futures Account). Each tier of government should maintain a separate account for its oil revenue and some agreed rules should be applied in its spending, e.g. 30% for social services,  20% for administration, 30% for infrastructure, 15% for economic and income generating activities, 5% for others. Each tier of government should also have a Petroleum Revenue Oversight Committee, made up of representatives of the three tiers of government and civil society, to approve major projects, monitor spending and ensure transparency and accountability of the oil revenues at each level of government.

2.  The Federal Government should ensure that the oil producing areas get their fair share of federal projects (presence) in the allocation of projects by the various federal ministries and parastatals,  notwithstanding the existence of the NDDC or the community development efforts of oil companies. In other words, the existence of NDDC or oil companies should be no excuse to deny the oil producing areas of federal projects, e.g. roads, electricity, water, telecommunication. The region should therefore get the fair share of projects they would have been allocated if oil were not produced in the area. In fact, this is what President Obasanjo promised during the inauguration of the NDDC when he remarked that “its activities do not preclude other federal government development programs that are normally due to the states. Nor is the NDDC intended to inhibit local initiatives that are the normal responsibilities of state government, local governments and local communities…The Federal Ministries and Agencies will continue to carry out projects in the region, just as states, the local governments, the oil companies, etc”.  However, a spatial analysis of the distribution of federal projects clearly shows that the oil producing areas have been denied their fair share. The projects by NDDC and oil companies must be seen as add-ons (some form of “bonus”) to the normal projects the communities would have been allocated in the absence of oil production in the area.

3.     The NDDC should be reviewed. Firstly, the name needs to be re-examined. Some people believe that individuals and organizations tend to behave and perform according to their names. The word “Niger Delta” in the name of the Commission invariably charges it to spread its activities over the length and breadth of the Niger Delta region, rather than focusing on the oil producing areas/communities – its main mandate. The result is that the resources of the Commission are overstretched. In some cases, depending on political influences, non-oil producing communities benefit more at the expense of oil-producing communities. Furthermore the word “Niger Delta” has given the commission a “supra” state status and has tended to politicize it. I wonder what will happen if oil is eventually found in Bauchi or Borno states. Will they become member states of the NDDC like Abia, Imo and Ondo States?  I believe it is better to revert to the former name OMPADEC which gave better focus or some version of it, e.g. OPAC (Oil Producing Areas Commission) or HYPAC (Hydrocarbon producing areas commission). In doing this, the concept of an “oil producing area/community” must be clearly defined, e.g. communities/areas within 10km radius of an oil well or major oil producing facility (flowstation, oil terminal) or 3 km from a crude oil pipeline. Secondly, the Commission should be independent of the Federal Government /Presidency and should be insulated from political influences. It should be transformed into an autonomous body, with funding from the National Assembly (say 5% of oil revenue) and other independent sources. Thus, NDDC should be renamed OPAO (Oil Producing Areas  Organization) or HYPAO. Thirdly, the management structure should be transformed accordingly. For example, it should be governed by a Board of Trustees made up one Federal Government representative, one representative  from each of the oil producing States,  three representatives of oil companies and four representatives of civil society organizations (e.g. NLC, NCWS, NYC, NBA), all of whom must be indigenes of oil producing areas. All members of the Board shall be part-time. The Chairmanship of the Board shall be for one year only and shall be rotational. The Board shall appoint a MD (and other key officers-Directors) for the Organization who shall hold office for a term of four years, renewable for another 3 years, based on good performance. The appointments shall be competitive and based on competence. The Board shall also approve the plan and budgets of the Foundation and major contracts. The management team (The MD and his Directors) shall make other appointments and approve minor contracts. Not more than 20% of the budget of the Organization should allocated to personnel costs and overhead expenses including office expenses, performance management, travels, etc and not less than 80% should be spent directly on projects that benefit the oil producing areas. Apart from the funding (grant) the National Assembly, the Organization should be free to solicit for grants from other sources (companies, international organizations).  Fourthly, the Organization must prepare and implement a 10-year Rolling Plan which shall be made public (posted on their website). The accounts and projects of the organization must audited (independently) annually not later than three months into a new year and the reports published in newspapers and on their websites. In addition, the Organization should organize annual Stakeholders Conference to present its report, answer to criticisms and obtain feedback from stakeholders. Fifthly, the Organization should not dissipate its resources on all sectors and too many projects at the same time. Rather, it should focus on a few sectors and limited number of high-impact projects. Sixthly, the Organization should have a well-resourced Planning and Statistics section that will carry out regular surveys to determine the impact of the projects on the quality of life, changes in quality of life, progress towards achieving development objectives, e.g. millennium development goals, over time.

4.  The State Governments should also embark on certain changes to ensure that the oil wealth reaches the poor directly in oil producing areas. In this regard, they should identify and keep a record of all oil producing communities, allocate a given percentage of the state’s oil revenue (e.g. 20%) for development projects in the oil producing communities, have a 10-year rolling plan for the communities and allocate a given percent of the states oil revenue (e.g. 10%) to oil producing LGCs on the basis on oil production quota to assist the LGCs in implementing their programs in the oil producing communities. The State Governments must also publish the annual audited report of their oil revenue accounts and status of projects not alter than the end of the second quarter of a new year.

5.       The Local Governments should also be made to be more effective to live up to their responsibility of bringing development to the grassroots. They should also have a 10-year rolling plan for the development of their communities and allocate a given percentage of the oil revenue they receive (from the State Government and tenement rates paid by oil companies)  to implement programs that will impact directly on the poor in the oil producing communities. They should also publish the annual audited report of their account and projects executed not alter than the end of the second quarter of a new year.

6.    The oil companies should continue with their community development programs and seek ways of improving on them through greater participation/partnering with beneficiaries and local civil society organizations, partnering with attracting  international development agencies and donors to the Niger Delta region. A law should be passed mandating oil companies to spend a fixed percentage of their budget (say 3%) on community development. In view of this, the oil companies should not be required to make compulsory contribution to the NDDC, which is not only discriminatory but also tantamount to “double social contribution”. The oil companies should also be required to have a 10-year community development rolling plan, hold annual stakeholder’s workshops, carry out annual independent audit of accounts and projects and publish the reports for public scrutiny. They should also to focus on a few sectors and projects (e.g. agriculture, education, health, micro-enterprise development) and carry out periodic evaluations to assess the impact of their projects and programs on poverty reduction.

7.   Finally, there is need for coordination of all the above actors in order to reap the benefits of synergy and avoid duplication of projects, “double counting” of projects and omission/neglect of certain sectors or developmental priorities. In particular, the 10-year rolling plans of the various actors should be harmonized. The NDDC “Master Plan” can provide the platform for the harmonization of the plans. All the actors should meet during the Annual Stakeholders Workshop of the NDDC to review their plans and status of project execution and then harmonize/update their plans. The actors within each state could also hold quarterly meetings to review the status of their projects, explore opportunities for jointly-funded projects, e.g. a major coastal highway or major electricity grid or major water supply project to provide water to a cluster of many communities through a network of pipelines.  During Stakeholders Workshop and the quarterly meetings, the actors can agree on areas of focus by each actor, e.g. the Federal Government, State Government and NDDC can focus on providing basic infrastructure and social services (roads, electricity, water, bridges, jetties, sand-filling/land reclamation, shore protection, health, school construction, housing) while LGCs and oil companies can focus on agriculture, sanitation, environmental management, scholarships, skills training,  micro-enterprise development and other income generating projects.

 

Undoubtedly, some of the above recommendations are quite radical. Some may even seem unrealistic at first glance or may be difficult to implement in the short-term. However, I believe that they can be introduced in a stepwise fashion, to avoid dislocation and ensure gradual adjustment. It is possible to use Nigeria’s vast oil wealth to reduce the incidence, depth and severity of poverty in the oil producing areas in the medium term. In particular, it is possible to achieve the millennium development goals in the Niger Delta region by 2010 (i.e. five years before the target date of 2015) and in the whole country by 2015. To do this, we need radical changes in the way we manage our oil revenues. Above all, the Presidency, the National Assembly, the State Governors and Assemblies, the LGCs and the oil companies must muster the political will to embark upon the required changes and be willing to carry the wealth to the poor. Where there is the will, there is always the way. We owe it to the present and future generation to eradicate poverty in this country with this gift of nature – crude oil and gas. History will be unkind to this generation if we fail and squander this wealth.    

 

 


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