Diri, Derivation Funds and the Rest of Us

The Derivation Fund stands out on one of the basic principles of revenue allocation in Nigeria. Section162 sub-section 2 of the Constitution provides that part of the funds derived from Oil producing communities should be re-distributed to the constituent units to address the inequalities and injustices inherent in the revenues allocation system. Therefore, the 13% derivation fund comes from the federation revenue to the Oil producing communities through the State Government. In law, the derivation fund is distributive justice designed to address the development gaps created by Oil production abdthe challenges host communities face.

Without any sinctilla of doubt, derivation is a financial incentive provided to encourage the Oil producing communities to create an enabling environment for the production of Oil and Gas. The intent of the constitutional provision is to improve the lives of people in the host communities and NOT the State. This explains why the role of the governor of the State in the expenditure of derivation money is being interrogated. The Constitutional provision was intended to tackle the environmental pollution and degradation in Oil producing communities. It is also designed to provide basic amenities like healthcare, potable water, roads and economic empowerment of the host communities.

Section 162 (2) further provided that the fund is for the exclusive use in the Oil and Gas producing communities as compensation for loss of fishing rights and productive farmlands as a result of Oil and Gas exploration and production. It is on this strength that some States have created their Oil producing Area Development Commissions to execute development projects in Oil producing communities.A good example is the establishment of the Ondo State Oil producing Area Development Commission (OSOPADEC) by virtue of CAP.106 in 2001, Laws of Ondo State Nigeria.

Eight States, Abia, Akwa-Ibom, Bayelsa, Delta, Edo, Ondo, Imo, and Rivers share 13% of derivation money accruing from Crude Oil production. Some people are of the view that the derivation fund should be paid directly to the host communities instead of paying the money to the State Governors. A survey conducted by the Nigerian Extractive Industries Transparency Initiative, (NEITI) showed that most State Governors appropriate the derivation fund and misappropriate it by not spending the derivation money for the purpose it was meant. People have raised alarm as to why the Constitution did not state how the fund should be deployed and what it should be used for. Random checks show that the host communities are not benefitting from the derivation fund. This constitutional gap has created confusion and this has given the State Governors the prerogative to misapply the monies as some Governors spend the money as surplus and lavish it on all purposes without regard for transparency.

In Bayelsa State, an estimated N400 Billion has accrued to the State since 2020 and Governor Douye Diri ploughs back the derivation fund into the annual budget without any consideration for the Oil producing communities. Amidst the pervasive poverty, the derivation fund has not lifted anyone from poverty. None of the Oil producing communities has a meaningful project sited in them. In Bayelsa State where the corruption index is very high, derivation has failed. Odioama in Brass LGA is being washed away into the ocean, Agge in Ekeremor LGA suffers the same fate. Agrisaba in Nembe LGA produces Oil but there is nothing to show that development will happen anytime soon. Bayelsans do not know how much money accrues from the Oil fields in Nembe-Creek, Atala Oil fields, Olugbobiri and Fish Town in Southern Ijaw LGA. In fact, for the past 15 years, Oil producing communities have not benefited from the derivation fund. What is worrisome is the fact that successive administrations have always regarded the derivation fund as excess money paid to them to be misappropriated.

On September 6, 2023, Oil producing communities in Bayelsa State under the aegis of Host Communities Producing Oil and Gas (HOSTCOM) in an open letter to Governor Diri alleged that the prosperity administration has deliberately neglected host communities, throwing them into abject poverty. The HOSTCOM leadership expressed regret that it had been rebuffed by Governor Diri’s aides Commissioners and the leadership of Bayelsa State House of Assembly. HOSTCOM has demanded for a detailed account of how the 13% derivation fund that had accrued to the State has been spent.

Hostcom alleged that the infrastructural development of the Oil and Gas producing communities are being arrested and the needs of host communities have been neglected. The solution according to the Hostcom leadership is the establishment of the Bayelsa State Oil producing Area Development Commission, BASOPADEC-which many people agree will check the misapplication of the derivation fund in the State

It is essential to note that the 3% set aside for host communities in the Petroleum Idustries Act, PIA, is different from the 13% derivation fund. The 3% will come from the major Oil Companies Operating Expenses (OPEX) to the Trust Fund created for host communities. The Trust Fund, it is hoped, would enhance peace and cordial relationship between licensees and lessees and the host communities.In Bayelsa State, the rate of poverty is unimaginable. In 2023, Bayelsa was designated the poverty capital of Southern Nigeria.

It is immoral and unjust for the prosperity administration to abandon Oil and Gas producing host communities while at same time spending the derivation fund accruing to the host communities without regard for accountability.

One of the proponents for the establishment of BASOPADEC, Dr. John Idumange said the prosperity government has no moral right to spend the 13% derivation fund if it is not investing the money in Oil and Gas producing host communities. He said, "We shall seek interpretation of Section 162 (2) of the Constitution. It is not right to neglect Oil producing communities in Bayelsa State and deploy resources to other areas while the host communities live in abject poverty" The leadership of the Human & Environmental Rights Dynamic Advocacy Development Initiative, Herdadi, has put a template for the development of the host communities in Bayelsa State.

Among others, Herdadi has proposed the following formula.5% of the derivation fund for road construction in all host communities.3% for youth and women empowerment and 2% for security of lives and property. The security component will include security of Oil installations and pipeline surveillance. Herdadi accused the present administration of recklessness and misuse of public fund through misappropriation and mismanagement of the derivation funds.

As at now, the Hostcom leadership has vowed to resort to litigation as the only avenue of resolving the injustice that is being perpetrated against the Oil and Gas producing host communities in Bayelsa State. However, stakeholders believe that the establishment of BASOPADEC and the adequate deployment of resources to develop the host communities will go a long way to assuage the pains of the host communities. This may be long in coming but government must act now.

It should be noted that since 2020, the State Government has received more than N400billion as derivation revenues but one can hardly point at any meaningful development project in any Oil and Gas producing Communities in the State.

Dr. John Idumange is the Director General of Herdadi.