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Cablegate: Distribution of Oil Revenues to Nigeria's

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

021636Z Aug 05

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.

---------------------------
Limitations of our analysis
---------------------------

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outdated, so we had to rely on the 1991 population census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.

----------------------
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.

--------------------------------------------- ------------
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.

--------------------------------------------- -----------
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).

----------
Population
----------

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.)

-------
Comment
-------

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

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