In the first half of 2023, the nine oil-producing states in Nigeria shared a total of N544.9 billion from the federation account through the 13 percent derivation formula, according to data from the National Bureau of Statistics. The states benefiting from this allocation include Abia, Akwa Ibom, Anambra, Bayelsa, Delta, Edo, Imo, Ondo, and Rivers.
Analysis of the report indicates that Delta state received the highest allocation, totaling N180.1 billion, constituting 33 percent of the total revenue from the derivation account. Akwa Ibom closely follows with N130.8 billion, representing 24 percent of the total disbursement. Other states that received allocations include Bayelsa (N92.9 billion), Rivers (N92.7 billion), Edo (N17.5 billion), Ondo (N16.9 billion), Imo (N6.2 billion), Abia (N2.4 billion), and Anambra (N5.4 billion).
It is noteworthy that the 13 percent derivation fund is distinct from the three percent allocated for host communities in the Petroleum Industry Act (PIA), which is sourced from the oil companies’ operating expenses (OPEX).
Despite the substantial funds derived from the federation account, oil-producing states continue to grapple with significant challenges, including high levels of debt and infrastructural decay. As of Q2 2023, Delta state carries a domestic debt burden of N465.4 billion, Rivers has a debt of N225.5 billion, Imo is in debt for N220.8 billion, and Akwa Ibom faces a debt of N199.6 billion.
This financial situation has sparked controversies and calls for accountability. Notably, in 2022, Nyesom Wike, the former governor of Rivers, claimed that President Muhammadu Buhari had approved payments owed to Niger Delta states since 1999, particularly from the 13 percent derivation. However, concerns about the mismanagement of these funds have been raised by leaders like Edwin Clark, who urged a more transparent use of the funds, specifically directing them toward oil-producing communities’ schools and projects.
Economists and industry experts suggest that the slow pace of development in oil-producing states can be attributed to institutional problems and inefficiencies in the tax system. Chimere Iheonu, a senior associate and economist, emphasizes that Nigeria faces institutional challenges affecting both oil and non-oil-producing states. Additionally, Joe Nwakwue, former chairman of the Society of Petroleum Engineers, points out that the funds allocated through the derivation formula are often viewed as additional state revenue, leading to concerns about the appropriate use and impact of these resources. The implementation of the Petroleum Industry Act is seen as a potential framework to ensure better utilization of these funds, particularly for the benefit of the producing communities.
