The eight oil-producing states in Nigeria received a sum of N377.93 billion as 13% oil derivation fund in the first half of 2022. This is according to data compiled by Nairalytics, the research arm of Nairametrics from reports released by the National Bureau of Statistics (NBS).
The states are Abia, Akwa Ibom, Bayelsa, Delta, Edo, Imo, Ondo, and Rivers. The amount received in the review period is 46.9% higher than the N257.2 billion shared in the second half of 2021 and 97.4% increase when compared to the corresponding period of 2021 (N191.4 billion).
Notably, the 13% oil derivation is a financial incentive enshrined in section 162, sub-section 2 of the Nigerian constitution for oil-producing communities, based on their production input, in a bid to encourage them to create enabling environment for more exploration in their regions. Interestingly, 13% of oil derivation fund shared by the communities has increased significantly despite the non-remittance of funds by the Nigerian National Petroleum Corporation (NNPC) to the Federation Account (FAAC). The amount shared in the first six months of 2022 is already 84.2% of the total N448.67 billion shared in the whole of 2021.
A further breakdown of the data showed that Delta State received the largest share during the period, accounting for 30.4% of the total amount shared by the eight states. In terms of year-on-year increase, Edo State recorded the highest increase in their inflows, increasing by 160.5% year-on-year.
Highlights
- Delta State received the highest share, receiving a whooping N114.75 billion between January and June 2022, which accounts for 30.4% of the total amount shared to the eight states.
- Also, Delta State saw its share improve by 79.7% year-on-year compared to the N63.84 billion received in H1 2021. The state received N141.9 billion in the whole of 2021.
- Akwa Ibom State followed with an income of N80.02 billion, which represents 21.2% of the total amount shared.
- Bayelsa received a sum of N76.74 billion as part of the 13% oil derivation, accounting for 20.3% of the total shared amount. It also grew by 114.2% year-on-year compared to N35.83 billion received in the corresponding period of 2021.
- Other states who received part of the funds include Rivers (N70.44 billion), Edo (N14.51 billion), Ondo (N9.47 billion), Imo (N8.16 billion), and Abia (N3.84 billion).
Nigerian states have relied heavily on the disbursements from the Federation account to fund their respective operations, as internally generated revenue continues to remain below expectations. According to data from the NBS, most states in the country rely on over 50% of their revenue from FAAC, apart from Lagos, Abuja and Ogun State.
The amount shared to the states dropped in 2020 and 2021 following the covid-19 pandemic, which triggered a global crude oil crisis, causing the price of crude to plummet, hence affecting Nigeria’s crude oil revenue.
However, the price of crude has remained elevated in 2022 since the Russia-Ukraine war, resulting in an oil supply crisis, which saw the price of crude oil trade over $100 per barrel for most parts of the period under review.
Although, the payment of petrol subsidy has also hindered the remittance of proceeds by the NNPC to the federation account. The NNPC reported that the petrol subsidy had gulped a total of N2.04 trillion between January and July 2022.
Meanwhile, the introduction of the Electronic Money Transfer Levy (EMTL) and increase in VAT revenue have improved the amount shared by FAAC to the federal, state and local governments. The EMT Levy was introduced in the Finance Act 2020, which amended the Stamp Duty Act and taps into the growth in electronic funds transfer in Nigeria.
- The N50 levy is charged on the electronic transfer of money deposited in any bank or financial institution, on any account, on the sum of N10,000 or more.
- The revenue derived from the EMT levy is shared based on the derivation and distributed at 15% to the Federal Government and Federal Capital Territory, 50% to the state governments, and 35% to the 774 local governments.
Bottom line
The improvement in the funds allocated to the oil-producing states is a welcome development, as it will go a long way in meeting the expenditure obligations of these states. On the flip side, some of these states make up the list of most indebted states in terms of domestic debts in the country. The rise is also a disincentive to states to improve Internally Generated Revenue (IGR).
