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Cablegate: Nigeria: Oil Revenue Allocation Issue Unresolved

This record is a partial extract of the original cable. The full text of the original cable is not available.

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

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