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Oil Wars: Winning the Present to Lose the Future---the Constitutional and Strategic Imperatives of Gutting the Subsidy

--Cutting-Edge Analytics--

By: Franklin Otorofani
 Published January 17th, 2012

There is a sense in which the ongoing confrontations in the streets of Abuja, Lagos, and other state capital cities in Nigeria between security forces on the one hand and pro-subsidy forces on the other could appropriately be characterized as the battlefields of oil wars although they might not involve the exchange of bombs and bullets. After all, the cold war that lasted for decades between the east and the west did not involve such ballistic exchanges, yet it was dubbed ďwarĒ nevertheless.

So letís face it: Nigeria is currently in a state of war, what with Boko Haram bombs going off every other hour in parts of the North, this certainly is not cold but hot wars. Oil is an inflammable substance and it comes as no surprise that it has generated this highly inflammable and combustible atmospherics in Nigeria. And the press is agog with reports and viewpoints with everyone trying to win the propaganda wars. Superficially, though it would appear that all that needed to be said or written has been said or written on the raging issue of the day--fuel subsidy. Presently, the Nigerian and even foreign media are literarily floating on the raft of fuel subsidy. However, much of what one reads in the media are mere reactions with scant analytical stuff. And quite curiously, if not suspiciously, all the talk is about the temporary pains and not the permanent gains. It's all about the hardships the removal would allegedly inflict on the masses and never about the benefits, at least potentially, derivable from the measure. Raw emotions are ruling the waves leaving the substance unaddressed. Yet in those same pains and hardships of today lay buried the seeds of the blessings that cometh tomorrow.

As far as this writer is concerned, therefore, emotions don't belong to the issue at hand but somewhere else. Sure enough, emotions and sentiments have their places in human affairs, because after all, we are all emotional beings. It is even more so for those, who rightly or wrongly, perceive themselves of being unjustly robbed of their assumed social entitlements as indicated in the fuel subsidy from their government, never mind that the oil itself belongs only to certain parts of the country and not to all parts of it. However, it is the mark of the cultured individual to hold emotions at bay when dealing with certain fundamental issues such as the one at hand requiring rational, thoughtful, and sensible consideration. Therefore, maintaining a rigid position about subsidy retention no matter what, is to deny the harsh realities on the ground with regards to the nationís unenviable economic and social conditions. When purely economic decisions affecting the lives of nearly 200 million citizens and future generations are reduced to emotional fireworks on populist stage platforms in the streets of Abuja, Lagos, and other state capitals, the nation is unmistakably and inexorably headed downhill and our collective future thereby mortgaged.

Permit me, therefore, to start this piece with a simple question: Suppose Nigeria were to go back to the regional era where the four regional governments were in complete control of natural resources within their respective regions; with the northern region in control of cotton and groundnut; the mid-western region in control of rubber and timber; the eastern region in control of palm oil; and the western region in control of cocoa and, with the federal government at the center in control of nothing: (1) which regions or states would be in control of crude oil and gas in today's Nigeria; (2) what would the federal government at the center be controlling? The answer to the first question could be found simply by identifying the oil and gas producing regions or states in the federation and the identified regions/states would be the ones in control of oil and gas. These states are currently located in Ondo, Edo, Delta, Bayelsa, Rivers, Akwa-Ibom, Imo and Cross River. Collectively they are known as the oil and gas bearing states. These are the states that would have been in complete control of oil and gas in Nigeria today if the nation was still operating the First Republican constitution, which was in force till the first Major Nzeugo military coup of January 15, 1966, which brought General Aguiyi Ironsi to power. And the answer to the second question is equally simple, too. The federal government would be in control of no natural resources with the exception of offshore oil and gas in our present situation, as in fact, was the case in the First Republic before the exigencies of the Nigerian civil war caused the Gowon regime to radically alter the federal structure to federal/states/local governments.

This, in fact, happens to be the case in the equally federated United States, where the states are in control of the resources within their respective territorial jurisdictions with the federal government only having authority and control over offshore oil and gas, notably in the Gulf of Guinea. Regulatory authority over these offshore resources in the outer continental shelf are vested in the Mineral Management Services (MMS) established in January 19, 1982, and later renamed Bureau of Ocean Energy Management, Regulation, and Enforcement (BOEMRE) on June 21, 2010. This was further reorganized on October 1, 2011 into Bureau of Ocean Energy Management (BOEM) and the Bureau of Safety and Environmental Enforcement (BSEE). The United States is therefore an oil producing nation just like Nigeria with a combination of both onshore and offshore oil production. The only difference is that it consumes more oil that it produces and must, therefore import the shortfall from Nigeria and other OPEC nations. Yet it imposes fuel tax on its citizens not subsidy even though the United States is the wealthiest nation on earth.  Isnít there are lesson to be learned from the United States in that regard? I think there is.

Now, to be in control does not necessarily mean that the states "own" the resources but have the authority to legislate on them. Ownership is a different issue altogether.  So, if the states were in control of natural resources within their jurisdiction rather than the central government, in what way or manner would the states mentioned above grant fuel subsidy to all Nigerians at their own expense? Would the states mentioned above have granted fuel subsidy to their own indigenes much less to all Nigerians? The answer is capital no. More to the point: Would the NLC and their collaborators be in any position to compel the states mentioned above to subsidize fuel consumption throughout the nation or even internally within those states? Again the answer is capital no. So, what gives the NLC and their collaborators the right to compel the federal government to provide fuel subsidy to all Nigerians? Where is the moral or legal case on which such strange and unusual demand and advocacy could legitimately be founded?

 Some might answer that it is because the federal government is in control of oil and gas and indeed other minerals in the states. Thatís what gives the NLC the power to deal with the federal government in that manner. But where is the legal or moral basis for that, though? The federal government is in control of so many other things including universities, teaching hospitals, et al. Would the NLC compel the federal government to subsidize education and healthcare if it wasnít already doing so? I doubt very much because it has absolutely no standing for doing so. But if the federal government is in control of state resources are the states even now totally bereft of any entitlements to the resources in their domains? The answer is no, because the states are entitled to certain percentage of oil proceeds on the principle of derivation, by law. Only offshore oil and gas are wholly owned and controlled by the federal government  as indicated earlier, not onshore resources lying within state domains, which the federal government can only exploit on behalf of those states and distribute the proceeds thereof in accordance with the provisions of existing laws. Therefore, the oil and gas bearing states are proper and legitimate parties to any arrangement affecting oil proceeds, and by no stretch of the imagination is the federal government to be conceived of as a sole administrator of these resources unless we are prepared to do violence to the laws and the constitution as well as the federal principle, which dictate otherwise.  

Is it not the case then that when the federal government, which is only acting as agent on behalf of these oil and gas bearing states, is compelled by NLC and their collaborators to provide fuel subsidy for all, they are in effect indirectly asking these oil and gas bearing states to part with their legitimate entitlements from oil? Is it not the case that it is these states that are being asked to bear the brunt of the oil subsidy though it is only the face of the federal government that we see publicly? The answer is obviously in the affirmative. It is the case then that the NLC and its collaborators are compelling the federal government to literarily seize parts of the proceeds accruing to these states to fund oil subsidy for all Nigerians, not even their own indigenes alone! This must be the case because the states are part owners of the oil and gas in their domains and indeed all the states too. In our present constitutional arrangement oil and gas bearing states are entitled to at least 17% of the proceeds thereof. That amounts to 17% ownership rights in law.

The almighty question then is this: Has the NLC sought the input or position of these states in regard to its demands for subsidy? If not, why not? Is it that the inputs of the states do not count or matter, or that the states concerned have delegated general authority to the federal government to speak and act on their behalf with respect to the oil subsidy issue? The answer to this question is important because the last time I checked Nigeria is a federation operating a federal rather than a unitary constitution. Has the federal government the authority to speak and act on behalf of these states or for that matter make any concessions that have direct bearings on state entitlements from oil and gas proceeds? It is not clear to me that such authority exists under our constitution and the extant laws governing federal/state relations.

If, therefore, the federal government is compelled at gun point to grant fuel subsidy at any point in time during its negotiations with labor, it must do so within the strict limits of its own allocations from the federation accounts and no more, because it has no constitutional or legal rights to commit federal revenues accruing to the states in general to any federal program or projects by whatever name called behind their backs without their express or implied concurrence or approval. Only the state legislatures have the constitutional rights to part with any portions of their state revenues and not even state governors could do so unilaterally on behalf of their states. This is the constitutional requirement that must not be overlooked or flouted with impunity. Whatever agreement that is reached in Abuja between labor and the federal government would have no effects whatsoever on the federation account unless and until the states have endorsed it and their legislatures have approved of it because oil revenue is owned jointly between the states, federal ,and for that matter, local governments.

This is a position that has not yet been advanced in the media because the federal government is perceived in Nigeria as the Alpha and Omega with the states as mere appendages. But the constitution and the laws recognize state rights, including the rights to federal revenues, which the federal government only holds on behalf of itself and the states. So it is not just a matter for the Jonathan administration but for the states as well. If the states want to give away their entitlements as subsidy fine, but they should come out and say so expressly and legally too, otherwise there can be no deal with NLC by the federal government that is binding in law. Am I making this up or this assertion has any legal and constitutional backing at all? I will not answer this directly. Let the constitution itself speak out the answer as provided in section 162 thereof:

162. (1) The Federation shall maintain a special account to be called "the Federation Account" into which shall be paid all revenues collected by the Government of the Federation, except the proceeds from the personal income tax of the personnel of the armed forces of the Federation, the Nigeria Police Force, the Ministry or department of government charged with responsibility for Foreign Affairs and the residents of the Federal Capital Territory, Abuja.

Note: "the Federation Account" is not a federal government account, but an account for the entire federation consisting of the federal government, states and local government councils. In other words, it is a joint account belonging to all three tiers of government as indicated above. Proceeds from oil and gas are paid into this account for distribution to all tiers of government and this is specifically provided for in subsection 3 of section 162 thus:

(3) Any amount standing to the credit of the Federation Account shall be distributed among the Federal and State Governments and the Local Government Councils in each State on such terms and in such manner as may be prescribed by the National Assembly.

Provisions for the observance of derivation principle in the revenue sharing formula to be placed before the National Assembly are also included.

It is abundantly clear, therefore, that the federal government cannot unilaterally give away any funds in the federation account without the imprimatur of the states and local governments. If, however, by some construction the states and local government councils have delegated their authority to the federal government to speak and act for them, shouldn't we assume then that the federal government is speaking and acting for them in dismantling the subsidy? And shouldn't we take the fact that none of these states has spoken against the measure even as both Senate and House of Reps are playing politics on the matter, as their acquiescence in and approval of the federal government decision? Silence is certainly acquiescence more so as the president had consulted them before taking the action. That would be a reasonable assumption. Wouldn't it?

The fact of the matter though is that Nigerian Governors' Forum (NGF) had endorsed the measure as did the federal government. And the Nigerian Employers' Consultative Assembly, (NECA), has equally endorsed the measure. There is no reasonable individual evaluating the so-called fuel subsidy that would not ask for its disbandment. It is robbing not only the federal government but the states and local governments of much needed funds while achieving practically nothing of any significance or value. There is absolutely not tangible achievement attributable to fuel subsidy in its decades of existence. It should come as no surprise, therefore, that the federal government, the states and the local government councils, would band together to dismantle this wasteful infrastructure of corruption to be replaced with something more productive, meaningful, enduring and, above all sustainable. 

Thus while is the president alone is taking the heat it is a decision jointly made by them and can only be reversed in the same manner if at all. I cannot imagine any circumstance in which they would do so for the simple reason that they are the ones running the executive branch of government and therefore know precisely where the shoes pinch rather than lawmakers looking for sitting allowances and all kinds of perks. They have nothing to worry about because no one is holding them responsible for delivering the dividends of democracy. The chief executives know better. In fact many of them have been running to the capital market to raise funds with interests when they can easily get more from the federation account with the removal of subsidy. As a matter of fact, one of them, the Benue State governor, has publicly stated that his state stands to get N4bn more in federal allocation monthly, which amounts to N48bn annually. That is money that could be put to good use even if it is for just salaries of civil servants with no repayment and no interests. Were the state to go to the capital market to raise that amount in would wind up in debt with huge interests that would be borne by future generation. This is one reason why fuel subsidy is a big curse rather than a blessing. And this is why no state governor including opposition governors of ACN is trashing the president for removing the subsidy because they their states stand to benefit from the extra revenues that could be used for development rather than borrowing from the capital market or taxing the citizens directly.

Now let's take our binoculars and look a little farther into the future of oil in the global market in the light of the rapid development and deployment of renewable energy forms into the market, and pose this simple question: What is the future of Nigeria as a mono-cultural economy in the event that crude oil no longer commands its current prestige and pre-eminent position in the global basket of energy resources? A nation that cannot plan for the future is as good as dead in this acutely competitive world as every single technology based company knows too well. There is a reason all major economic powers are racing ahead to invest massively in renewable energies such as bio-fuels, photovoltaic cells, otherwise known as solar energy, wind farms and the rest of them. The prospects of crude oil being rendered redundant in the near future are starring us in the face.

Nigeria has been relying on oil for decades with very little to show for it by way of social infrastructures. The reasons for this pathetic picture are not at all farfetched. Apart from corruption that gets all the bad press a third of oil proceeds built in annual budgets is wasted on fuel subsidy and personal emoluments of public officials consumes the remainder leaving little left for real development. And that's why the federal government cannot build and maintain roads; it cannot build and maintain first class health and educational institutions; it cannot recruit and fully equip law enforcement agents; it cannot provide electricity and portable water for its citizens; it cannot modernize the nation's armed forces; and it cannot provide security either, which is supposed to be its first order of duty.

Everywhere one looks one looks the quantity and quality of Nigeria's social infrastructures are subpar with those in less endowed countries around her. Yet Nigeria is way richer than all of them combined but her riches are being frittered away on wasteful programs like fuel subsidy. This has got to stop and stop now! Temporary pain is no reason not to stop the subsidy. But the irony of it all is that those fighting for fuel subsidy today are the very people who mock the nation for its failure to develop, totally oblivious to the fact that fuel subsidy is taking away huge chunk of development funds from the nation. The bottom line is this: If Nigeria cannot wisely and judiciously utilize the proceeds from its crude exports to develop other sectors of the economy now while the sun is still shinning she will meet a certain death in the not-too-distant future when the glory of crude oil fades away due to new energy forms popping up in commercial quantity across the global market. This is the time, therefore, for the government to think outside the box and do what is needed to avert future catastrophe of historical proportions. I don't see how Nigeria can survive without oil if the other non-oil sectors remain undeveloped as they are today. This is the strategic choice for the Nigerian government. It's beyond subsidy. It's about the future of the nation.

Should the Jonathan administration bow to subsidy pressure it would not only show the president himself as a weak leader not worthy of followership for going against his own conviction and policy choice, but more importantly the nation would be winning the present only to lose the future. Granting labor's desire would, of course, earn him immediate applause and adulation and a dose of popularity too. But that would not in any way, shape, or form help him to deliver real development for the nation and leave behind a solid legacy worthy of mention. It would be a whole lot better for the president to lose the present and win the future. That means stiffening the spine of his administration and standing up to labor with the unpopularity and name-calling that goes with; in other words, losing the present. But he should be rest assured that doing so will enable him win the future; in fact, it is the only way short of imposing crushing taxes on Nigerians to raise development funds, which would meet with even greater resistance.

 It would be a sad thing indeed for the Jonathan administration to come this far only for it to capitulate to un-elected leadership of NLC that is pursuing a contrarian agenda that would leave the nation perpetually underdeveloped. President Jonathan has an historical duty to resist them with all the powers at his disposal as the states and employers are solidly behind him, and march forward with his wholesome agenda. After all, he is the one elected into power by Nigerians and the one that would be held responsible for the failure of his government to deliver development to Nigerians, not NLC. I don't know about you, or the federal government itself, for that matter, but that is not my wish for this administration. I want it to succeed where others failed. And that would require every resource and every kobo it can get, not giveaways. In times like these the presidency must stay strong and focused trusting in the wisdom of its judgment to ride out the tempest. I donít see Mr. President going back to the status quo ante because that would only mean that he was wrong to begin with and put us through this crisis without first thinking it through. But if he does this administration is as good as dead and no one would believe in it anymore.


Franklin Otorofani is an attorney and public affairs analyst


PS: This piece was written before the protests were called off on 01/16/2012

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