US embassy cable - 03ABUJA984

UNCLAS SECTION 01 OF 02 ABUJA 000984 
 
SIPDIS 
 
 
E.O. 12958: N/A 
TAGS: EPET, PBTS, EFIN, PGOV, NI 
SUBJECT: NIGERIA: OIL REVENUE ALLOCATION ISSUE UNRESOLVED 
 
REF: A. 02 ABUJA 2768 
     B. 02 ABUJA 1194 
     C. 01 ABUJA 997 
 
 
1. Summary. This cable provides an update on the ongoing 
disagreement between the Presidency and National Assembly 
over the politically sensitive oil revenue allocation issue. 
This matter is important not just because of the money at 
stake and the potential impact on the financial well-being of 
the nine affected coastal states. The resolution of this 
issue will also provide insight to the workings of Nigerian 
federalism, separation of powers, and constitutional law. 
 
 
2. The President's bill to reverse the effects of a 2002 
Supreme Court decision, and thereby retain a special 
allocation of off-shore oil revenue for coastal states, is 
stalled. Legislators want their states to share in revenues 
from fields within 200 miles of the shore, while the 
President is looking at a more modest 27 mile limit. End 
Summary. 
 
 
3. Since 1999, the Obasanjo Administration has paid the nine 
coastal states of Abia, Akwa Ibom, Bayelsa, Cross River, 
Delta, Edo, Imo, Ondo, and Rivers a special allocation of 13 
percent of petroleum revenues derived from fields off-shore. 
The Administration paid the allocation based on the 
understanding that the oil was being extracted from within 
the jurisdiction of these states; thus, under Section 162 (2) 
of the 1999 Constitution the states were entitled to this 
special funding (Ref. B). However, the states have clamored 
for greater control of oil revenue, and in February 2001 the 
Supreme Court heard a case between the Federal Government and 
Abia State on whether oil from off-shore fields belonged to 
the states or the Federal Government. The Supreme Court ruled 
that the revenue and natural resources from the continental 
shelf belong exclusively to the Federal Government. In 
particular, the ruling said the low-water mark of a state is 
its seaward boundary (Ref. B). 
 
 
4. Akwa Ibom and Ondo States were worst hit by the judgment, 
as all oil production in those two states is located 
offshore. The judgment created significant ill-will among 
leaders in these and other coastal states. In a move most 
observers saw as an attempt to placate these states in the 
run-up to 2003 elections, the Federal Government established 
a Presidential Committee on Political Consensus on Ways and 
Means of Implementing Derivation Aspects of the Supreme 
Court's Judgment on the Onshore/Offshore Suit. Chief Tony 
Anenih--former Minister of Works and Housing, unabashed 
back-room political deal-maker, and native of Edo State--was 
appointed chairman of the committee. 
 
 
5. The committee consulted with the governors of the nine 
coastal states, recommending the President sponsor a bill to 
compensate coastal states for the impact of offshore 
production on the environment as well as their economic 
activities. The committee also recommended the Federal 
Government continue payments (officially regarded as loans) 
to Akwa Ibom and Ondo States, worst hit by the Supreme Court 
judgment because they have no onshore oil. Payments would 
continue until a final solution to the problem was achieved. 
The Federal Government has made such payments. 
 
 
6. In August 2002, President Obasanjo sponsored a bill 
proposing &the contiguous zone8 should be considered part 
of a state for revenue allocation purposes. The zone would 
include offshore wells not more than 24 nautical miles from 
the coast. The National Assembly passed a bill in October 
2002 extending its application to the continental shelf and 
the Exclusive Economic Zone (EEZ), effectively giving states 
control over resources 200 miles from their shore lines. 
President Obasanjo refused to sign the bill, claiming the 
National Assembly's proposal ran counter to accepted 
international law and practice by giving the states almost 
full control over the EEZ and warning that it could spark 
hostilities between Nigeria and neighboring countries. 
 
 
7. Pursuant to a campaign promise made at the January 2003 
Peoples Democratic Party Convention the President met 
South-South governors in February to discuss the bill. At the 
meeting, the President agreed to write the National Assembly 
requesting they reconsider the version he had submitted. 
During the President's campaign in the South-South, he also 
promised he would sign the bill if the National Assembly 
agreed to the more restrained version. That session of the 
National Assembly came to a close before it could respond to 
the President's overture. 
 
 
8. Comment: This resource allocation issue will be one of the 
first orders of business when the new National Assembly 
convenes in early June. The new Assembly will be dominated by 
members of the President's party and they will likely be 
accommodating to the Chief Executive. How this National 
Assembly treats the resource allocation issue will be a 
legitimate test of this Administration's relationship with 
the new legislation. Additionally, no matter what fix is 
finally legislated, some of the other 21 states will be 
disappointed. They will likely take this matter to the 
judiciary for a determination on whether the legislative fix 
violates the 2002 Supreme Court decision. End Comment. 
JETER