#1ACIOE IMPACT OF THE 13% DERIVATION FUND ACIOE IN THE NIGER-DELTA ASSOCIATES PRESENTED BY: FUNMI ADESANYA JANUARY, 2021#2ABOUT US ACIOE ASSOCIATES#3ACIOE ASSOCIATES ADVISORY | GOVERNMENT RELATIONS | REGULATORY AFFAIRS | INVESTMENT FACILITATION ACIOE Associates is an advisory services firm providing solutions in Strategy, Government Relations, Regulatory Affairs, Economic Development, Advocacy, Investment Facilitation, and Policy Analysis. Our team provides advisory services on critical sectors, including Health, Agriculture, Social Impact, and Government relations. We have supported governments (Federal and Subnational), development partners, and organizations around sustainable solutions to the challenging economic, political, and development issues within the countries we operate. FOR MORE INFO VISIT www.acioe.com#4PRESENTATION ACIOE ASSOCIATES#5OBJECTIVES & OVERVIEW ACIOE ASSOCIATES ACIOE conducted a study to analyse the impact of the derivation funds guaranteed by Section 162 (2) of the 1999 Constitution (the "Constitution") and paid by the Federal Government of Nigeria ("FGN") to the oil producing states in Nigeria (the "Niger Delta States"), between 2009- 2019 (the "Review Period'), on the development of the Niger Delta States of Nigeria and proffer options that will ensure the efficient utilization of the derivation funds received by the Niger Delta States. Ondo Edo Delta Bayelsa Imo Akwa Ibom Rivers Cross River Niger Delta Region naijahomebased.com Nigeria adopts derivation, in the revenue sharing arrangements between its national and subnational governments. The Principle of derivation is entrenched in Section 162 (2) of the 1999 Constitution. For the purpose of the study, we have defined the Niger Delta in terms of oil producing states. as defined by the Niger Delta Development Commission (Establishment, etc.) Act ("NDDC Act"). We have, in light of the Court Case of Attorney-General of Cross River vs Attorney-General of the Federation & Anor, excluded Cross River State from the analysis undertaken in this Study.#6OBJECTIVES & OVERVIEW VACIOE As such the States reviewed in this Study are: Abia State; Akwa Ibom State; Bayelsa State; Cross River State; Delta State; Edo State, Imo State; Ondo State and Rivers State (the "Niger Delta States”). ASSOCIATES ● • The Niger Delta States are the main beneficiaries of the derivation sharing arrangement guaranteed by the Constitution. This is because, the crude oil and natural gas that are mainly sourced from these states, form up to 80 per cent of Nigeria's revenue. The FGN, has allocated over Six Trillion Naira to the Niger Delta States during the Review Period. The main issue for determination was whether the present under- development and prevalent impoverishment in the Niger Delta States is attributable to the quantum of the derivation funds paid to the Niger Delta region of Nigeria, requiring an increase in the current derivation percentage of 13%, or the failure to appropriately utilise the derivation funds received, necessitating the need to revamp the present derivation utilisation. structures in these states.#7RESEARCH & METHODOLOGY VACIOE ASSOCIATES In terms of methodology our research utilized a descriptive & analytical approach to review the impact of the derivation funds, received by the Niger Delta States during the Review Period on the development of the Niger Delta States. Data was gathered through secondary and primary sources. Secondary Data was amassed through desk research Methodology 01 Methodology 02 Primary data was generated from Key Informant Interviews ("KII"). The Klls were selected based on their understanding of the key issues researched etc. Focus on specific study locations: For the purpose of this study we focused on oil producing communities. Methodology 03 Mapped Stakeholders engagement: 60 stakeholders were engaged across the 24 LGAs selected Methodology 04 Focus on specific study locations: For the purpose of this study we focused on oil producing communities. Methodology 05 Examined the flow of derivation funds to the Niger Delta States and the revenue management structures deployed by the Niger Delta States Methodology 06 For an assessment of infrastructural projects in the selected LGAs, we deployed parameters that attempted to measure the functionality of facilities in the areas of health, electricity, water and education Methodology This was complemented by an assessment of the the communities' perception. 07 We analyzed the functionality of facilities using various parameters of assessment e.g. date of establishment, last date of renovation and upgrading, the condition of the facility etc.#8CHALLENGES ☑ VACIOE ASSOCIATES Some challenges encountered in the course of our data gathering exercise: COVID-19 STRIKE Industrial Action i Paucity of Financial Information The challenges highlighted impacted our ability to access and review the financial records covering the Review Period. In most cases, we were only able to obtain financial records covering not more than 3 years. In addition, our inability to access most of the executive stakeholders, prevented us from conducting interviews with the executive stakeholders in the Niger Delta States to review the financial records accessed on their respective websites.#9ANALYSIS ACIOE ASSOCIATES STATE 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 TOTAL BAYELSA 33,473,038,887 65,527,909,519 78,729,284,509| 102,679,373,783| 121,740,791,065| 117,317,270,261 67,277,852,388 40,970,822,145 DELTA 55,612,867,907 83,260,893,242 92,250,852,138 119,079,389,248 129,394,485,324 133,669,224,868 88,963,542,211 | 47,090,971,141 ABIA 3,751,132,191 5,441,355,772 4,736,592,967 4,227,403,550 6,727,011,368 6,507,179,236 3,889,034,763 1,938,023,011 3,899,154,937.67 7,917,565,713 6,839,514,467 55,873,967,974 AKWA-IBOM 69,576,500,855 107,125,388,643 99,088,822,764 150,938,116,230 180,787,030,794 183,060,832,816 116,691,397,950 63,307,425,363 93,268,713,316 149,055,368,692 119,702,919,950 1,332,602,517,373 72,287,039,958 116,071,974,324 95,776,656,376 1,388,476,485,346 81,055,600,747 168,122,762,155|165,227,534,009| 1,163,728,122,990 EDO 3,473,413,962 4,932,191,791 8,572,913,054 10,877,172,193 13,972,009,947 15,965,781,137 10,424,620,327 4,000,602,573 7,394,300,488 20,890,680,538 18,344,174,954 118,847,860,9645 IMO 4,065,595,152 5,327,268,552 4,928,049,666 5,890,149,714 6,485,673,411 6,264,787,766 3,726,575,580 2,101,193,712 3,695,229,401 5,999,624,552 9,545,326,099 1,282,575,983,954 ONDO 14,869,086,383 18,891,956,844 14,953,230,033 14,953,230,033 20,010,157,727 24,251,378,270 24,447,614,941 14,717,904,393 10,856,126,641 14,846,749,497 18,185,881,952 13,246,698,028 189,276,784,715 RIVERS 75,797,813,308 98,567,875,329 102,724,247,770 127,507,254,442 131,668,723,118| 121,750,740,136 69,633,832,299 44,730,385,388 70,175,029,256| 114,052,834,883 99,905,131,617 1,056,513,867,547 GRAND TOTAL 6,587,895,590,863 A total sum of № 6, 587,895, 590,862.78 was disbursed to the Niger Delta States by the FGN, as 13 per cent derivation funds. accruing to these States, from the revenues generated by Nigeria from oil and gas and resources during the Review Period.#10ANALYSIS :Individual State Analysis The use of distinct commissions to manage the 13 per cent derivation funds as practiced by: ACIOE ASSOCIATES The use of a pooled revenue structure for the management of the 13 per cent derivation funds as practiced by: GOVERNMENT OF ELTA STATE NIGERIA STATE EDO O GOVERNMENT THE BIG HEART SINCE 1991 Delta State NIGERIA Edo State GOVERNMENT OF IMO STATE COVERNMENT OF ABIA STATE NIGERIA Imo State GOO NIGERIA Abia State STA STATE ON NIGERIA Onde ISE LOOSUN ISE STATE GOVERNMENT OF AKWA IBOM STATE GOVERNMENT OF RIVERS STATE ISE LOOGUN ISE THE LAND OF PROMISE NIGERIA NIGERIA Ondo State Akwa-lbom State Bayelsa State Rivers State#11ANALYSIS :Imo State Analysis #2 IMO Population: 4,970,758 ALLOCATION N1.2 trillion REVENUE MANAGEMENT ISOPADEC 40% of the fund is to be allocated to ISOPADEC 1.5% spent on social capital development No legal framework to undertake high profile projects 5.4% was allocated to ISOPADEC in 2016 The 1.5% social capital expenditure was calculated based on available financial statements for the year 2017-2018 VACIOE ASSOCIATES#12ANALYSIS :Delta State Analysis #3 DELTA Population: 4,112,445 ALLOCATION N1.1 trillion REVENUE MANAGEMENT DESOPADEC 50% of the fund is to be allocated to DESOPADEC 2. The social sector is 2008 poor and unsatisfactory 6% spent on social capital development Less than 50% was allocated to DESOPADEC The 6% social capital expenditure was calculated based on available financial statements for the year 2015-2019 ACIOE ASSOCIATES#13ANALYSIS :Ondo State Analysis #5 ONDO Population: 5,811,623 ALLOCATION N189 billion REVENUE MANAGEMENT OSOPADEC 40% of the fund is to be allocated to OSOPADEC 30.2% spent on social capital development Significant impact of fund on education sector 75% was allocated to OSOPADEC The 30.2% social capital expenditure was calculated based on available financial statements for the year 2010-2019 VACIOE ASSOCIATES#14ANALYSIS :Edo State Analysis #6 EDO Population: 5,000,000 ALLOCATION 118 billion REVENUE MANAGEMENT EDSOGPADEC :( 40% of the fund is to be allocated to EDSOGPADEC Communities are unsatisfied with the commission D 17.8% spent on social capital development 50% was allocated to EDSOGPADEC in 2015 The 17.8% social capital expenditure was calculated based on available financial statements for the year 2012-2019 ACIOE ASSOCIATES#15ANALYSIS :Abia State Analysis #8 ABIA Population: 2,845,380 ALLOCATION 55.8 billion REVENUE MANAGEMENT ASOPADEC Average of 23% was allocated to ASOPADEC Oil producing communities are least impacted by the fund 33.4% spent on social capital development Laul Communities still face infrastructural challenges The 33.4% social capital expenditure was calculated based on available financial statements for the year 2015-2019 ACIOE ASSOCIATES#16ANALYSIS :Bayelsa State Analysis #1 BAYELSA Population: 2,277,961 ALLOCATION N1.3 trillion REVENUE MANAGEMENT Pooled Revenue Structure Funds received is 34% of total state revenue 16% spent on social capital development Social sector is poor and epileptic 22 Education sector needs attention The 16% social capital expenditure was calculated based on available financial statements for the year 2012-2014 VACIOE ASSOCIATES#17ANALYSIS :Rivers State Analysis #4 RIVERS Population: 7,303,900 ALLOCATION N1.05 trillion REVENUE MANAGEMENT Pooled Revenue Structure Funds received is 34% of total state revenue Oil producing communities are least impacted by the fund 7.5% spent on social capital development Social services are mostly funded by 10CS The 7.5% social capital expenditure was calculated based on available financial statements for the year 2013-2019 VACIOE ASSOCIATES#18:Individual State Analysis ACIOE ASSOCIATES It is useful to note that the Niger Delta States, practice two main revenue management strategies with respect to the 13 per cent derivation funds. These strategies include: ANALYSIS The use of distinct commissions to manage the 13 per cent derivation funds as practiced by: GOVERNMENT OF DELT STATE THE BIG HEART SINCE 1991* NIGERIA TATE EDO GOVERNME NIGERIA Edo State STATE OF NIGERIA ONDO ST Ond ISE LOOSUN ISE ISE LOOGUN ISE Ondo State The use of a pooled revenue structure for the management of the 13 per cent derivation funds as practiced by: GOVERNMENT OF AKWA IBOM STATE GOVERNMENT ** OF RIVERS NIGERIA STATE Bayelsa Rivers State State State THE LAND OF PROMISE NIGERIA Akwa-lbom Delta State GOVERNMENT **** OF FIMO NIGERIA STATE GOVERNMEN OF ABIA STATE Imo State NIGERIA Abia State#19ANALYSIS :Akwa-Ibom State Analysis #7 AKWA-IBOM Population: 5,451,000 ALLOCATION 1.3 trillion REVENUE MANAGEMENT Pooled Revenue Structure Funds received is 53% of total state revenue 2. The social sector is poor and unsatisfactory 11.5% spent on social capital development Oil producing communities aren't beneficiaries of fund projects The 11.5% social capital expenditure was calculated based on available financial statements for the year 2010-2012, 2015-2019 VACIOE ASSOCIATES#20SUMMARY OF FINDINGS ACIOE ASSOCIATES Our assessment of the quality of health, water, education, social development skills and electricity accessed by the selected oil communities within the Niger Delta and the perception of the members of the assessed communities, reveal the following: (a) Access to electricity is minimal (b) Absence of potable drinking water;(c) deplorable health care facilities; (d) poor educational infrastructure. Most of the basic amenities that exist in the selected oil communities are provided by either joint venture partnerships between the NDDC or Nigerian National Petroleum Corporation or IOCs as part of the IOCS' corporate social responsibility. This trend is more prevalent in States like Akwa Ibom, Bayelsa and Rivers States where the IOCS provide water, health, electricity supply and education facilities pursuant to GMOU agreements between the IOCS and the respective oil producing communities in the Lack of a structured framework for commissioning infrastructure projects across the communities, which has left a number of oil producing communities with little or no infrastructure . 01 aforementioned States. 02 03#21SUMMARY OF FINDINGS VACIOE ASSOCIATES States that manage the derivation funds through a revenue management commission like Abia, Delta, Edo, Ondo and Imo States, have a better focus on the development of the rural oil producing oil communities in their States. Unlike Akwa Ibom, Bayelsa and Rivers States who focus more on the development of urban areas, who are rarely oil producing. areas. 04 States that manage their derivation funds through commissions, are required to fund the commissions with a percentage of the derivation funds received. The funding percentage ranges from 40-50 per cent. These states except for Ondo State, who pays its Commission more than the percentage prescribed, rarely comply with the prescribed funding percentages. These States subsequently pool the balance of the derivation funds into a centralized pool where other expenditures of the States are made 05 90 States like Delta, Akwa Ibom and Bayelsa, spent an abysmally low average of 6, 11.5, 16.4 and 7.4 per cent respectively, on their social capital expenditures during the years reviewed, notwithstanding that the derivation funds received by these States during the reviewed years, represented an average of 40.6, 53, 41 and 34 per cent respectively, of the States' total revenues 06 90#22SUMMARY OF FINDINGS Indigenes of the oil producing communities across the Niger Delta States desire that the derivation funds should be given directly to oil producing communities for effective management as the facilities that exist, are not reflective of the resources taken from them or the damages done to their environment. Finally, our studies reveal that the aggregate sum of N 6, 587,895, 590,862.78 (Six Trillion, Five Hundred and Eighty-Seven Billion, Eight Hundred and Ninety- five Million, Five Hundred and Ninety Thousand, Eight Hundred and Sixty-two Naira and Seventy- Eight Kobo), paid to the Niger Delta States by the FAAC during the Review Period, in compliance with the provisions of Section 162 (2) of the Constitution, have had little or no impact on its citizens. VACIOE ASSOCIATES 07 08#23HIGHLIGHTED ISSUES VACIOE ASSOCIATES Our review of the utilisation of the 13 per cent derivation funds allocated to the Niger Delta States, in accordance with Section 162 (2) of the Constitution, revealed that the utilisation process of the utilisation funds in these states is plagued by a number of issues, which diminish the impact of the 13 per cent derivation funds in the Niger Delta. These issues include: Discretionary Transfers Lack of Consultation with Recipient Communities; Local Dutch Effect Poor Governance Structures: Corruption, Poor Project Quality, Lack of Project Maintenance, Lack of Transparency and Accountability.#24RECOMMENDATIONS Our recommendations are as follows: 01 The Legislation of Fiscal Rules: Legislation of fiscal rules to improve transparency and accountability of public expenditure as practiced in Ghana and Uganda. Such as rules on: uniform vertical transfers of derivation funds to curb the practice of discretionary transfers currently practiced by Niger delta States: The prescription of adequate budget preparation procedures that ensures a proper needs assessment of the intended beneficiaries are carried, ahead of prospective budget implementations; the development of resource allocation criteria that are 'downwardly accountable', particularly to the intended beneficiaries of the derivation funds; Consistent publishing of fiscal information and ensuring access to such information; and Earmarking a considerable proportion of the derivation funds for specific sectoral development such as health, education, facilitation of portable water etc. LL ACIOE ASSOCIATES#25RECOMMENDATIONS Our recommendations are as follows: Memorandum of Understanding between the 02 Niger Delta Niger Delta States and Oil Producing Communities LL ACIOE ASSOCIATES#26RECOMMENDATIONS Our recommendations are as follows: 03 Climate Change LL ACIOE ASSOCIATES#27RECOMMENDATIONS Our recommendations are as follows: 03 Usage of Data LL ACIOE ASSOCIATES#28THANK YOU FOR YOUR TIME Please contact us by sending an email to - [email protected] ACIOE ASSOCIATES