US embassy cable - 05ABUJA1408

UNCLAS SECTION 01 OF 02 ABUJA 001408 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EFIN, EPET, PGOV, NI, OIL 
SUBJECT:  DISTRIBUTION OF OIL REVENUES TO NIGERIA'S 
OIL-PRODUCING STATES:  OVERBURDENED AND UNDERFUNDED? 
 
 
1.  Summary and Introduction:  Talks in the just-concluded 
National Political Reforms Conference (the "confab") reached 
a deadlock when the issue of the share of oil revenues paid 
to the oil-producing states to take care of environmental 
problems and infrastructure came to the fore on June 13. 
The share of oil revenues for Nigeria's oil-producing states 
(locally known as "derivation") is currently 13 percent. 
The confab recommended an increase to 17 percent, which led 
delegates from the Niger Delta who had earlier agitated for 
a larger share of resources to stage a walkout from the 
confab.  The oil-producing states are insisting on a share 
of 25 percent in the short term, increasing by 5 percent per 
year over the next five years to 50 percent in year 2010. 
Whether or not this share is justified, our analysis shows 
that (1) the total portion of government revenues going to 
the oil-producing states is actually higher than 13 percent 
when one adjusts for the revenues paid to local governments, 
and (2) on a per-capita basis, the oil-producing states 
actually receive a smaller share of government revenues than 
the non-oil-producing states.  End Summary and Introduction. 
 
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Limitations of our analysis 
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2.  Data on revenue shared between the three tiers of 
Nigerian government, i.e., federal, state, and local, are 
incomplete.  Specifically, the revenue allocation figures 
for January to May 1999; August to November 2004; and March 
2005 to date were unavailable.  Population figures are 
outdated, so we had to rely on the 1991 population census 
figures, which did not reflect the Niger Delta states 
created after 1991. 
 
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The Niger Delta States 
---------------------- 
 
3.  Nigeria has thirty-six states.  Nine of the states are 
oil-producing states, popularly referred to as the "Niger 
Delta" states.  The states are Abia, Akwa Ibom, Bayelsa, 
Cross River, Delta, Edo, Imo, Ondo, and Rivers.  The Niger 
Delta states have 185 local government councils (known 
collectively as the "third tier" of government), which 
constitute about 24 percent of the 774 local government 
councils nationwide. 
 
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The Share of Oil in Nigerian Government's Total Revenue 
--------------------------------------------- ------------ 
 
4.  The Nigerian government's revenues come from various 
sources, including crude oil/gas exports, petroleum profit 
taxes and royalties, domestic crude oil sales, other oil 
revenues, corporate tax, privatization proceeds, proceeds 
from the sale of telecommunication licenses, value added 
tax, tax on petroleum products, and education taxes.  (Note: 
Education taxes are special taxes levied on corporate 
organizations as a contribution towards the development of 
the education sector.  End Note.) 
 
5.  Between 1999 and 2003, oil revenue on a gross basis 
accounted for an average 78 percent of total gross revenue. 
"Gross oil revenue" is revenue accruing to the Nigerian 
government before the deduction of its contribution to the 
joint venture with multinational oil companies, also known 
as "Joint Venture Cash Calls." 
 
6.  "Oil revenue" includes revenues from crude oil/gas 
exports, petroleum profit tax and royalties, domestic crude 
oil sales, and other oil and gas revenues. 
 
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Percentage of Oil Revenues in the Total Amount Shared By the 
Three Tiers of Government 
--------------------------------------------- ----------- 
 
7.  At an exchange rate of USD 1 to Naira 133, the total 
amount shared by Nigeria's three tiers of government between 
1999 and 2003 was as follows 
 
-- 1999 - USD  3.36 billion 
-- 2000 - USD  7.90 billion 
-- 2001 - USD  9.76 billion 
-- 2002 - USD 12.73 billion 
-- 2003 - USD 13.69 billion 
 
Oil revenues as a percentage of the revenues shared by the 
various tiers of government during the same years were as 
follows: 
 
-- 1999 - 75 percent 
-- 2000 - 82 percent 
-- 2001 - 70 percent 
-- 2002 - 65 percent 
-- 2003 - 83 percent 
 
--------------------------------------------- ----------- 
Share of the Niger Delta States in the Total Amount Shared 
By the Three Tiers of Government 
--------------------------------------------- ----------- 
 
8.  The amount received by the oil-producing states and 
their local government councils (including 13 percent 
derivation paid to the oil-producing states) as a percentage 
of revenues shared by the three tiers of government were: 
 
-- 15.44 percent in 2000 (USD 1.22 billion) 
-- 16.40 percent in 2001 (USD 1.6 billion) 
-- 13.60 percent in 2002 (USD 1.73 billion) 
-- 17.10 percent in 2003 (USD 2.34 billion) 
-- 19.60 percent January to July 2004 (USD 1.89 billion) 
-- 20.00 percent in December 2004 (USD 414.06 million) 
-- 20.00 percent in January 2005 (USD 402.18 million) 
-- 20.00 percent in February 2005 (USD 387.83 million). 
 
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Population 
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9.  Using the 1991 census figures, which had an estimated 
population of 88.5 million for the country, the total 
population of the nine oil-producing states was 19.25 
million, approximately 22 percent of the total population of 
the country.  Also there has been increased migration of 
workers to the Niger Delta to take up employment in the oil 
industry.  (Note:  We had to assume that the present-day 
Ondo State accounted for about 60 percent of the population 
of old Ondo State; present-day Abia State accounted for 
about 65 percent of old Abia State's population; and since 
Bayelsa State was created from the old Rivers State, we 
split the 1991 figure in half to get the population figure 
of both states.  End Note.) 
 
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Comment 
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10.  In sum, the Niger Delta currently accounts for about 80 
percent of the Government of Nigeria's revenues, and it has 
between 20 and 25 percent of Nigeria's population, yet it 
receives less than 20 percent of the revenue shared by the 
various tiers of government.  If one goes strictly on the 
basis of equity, i.e., that all Nigerian citizens should 
share equally in the revenue on a per capita basis as Alaska 
residents do through the Alaska Permanent Fund, then 25 
percent derivation is not unreasonable.  End Comment. 
 
FUREY