February 2, 2021
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Chairman, Revenue Mobilisation Allocation and Fiscal Commission (RMAFC), Chief Elias Mba, has proposed the redistribution of revenue accruing into the 13 percent Derivation Fund Account by ceding 40% of the fund to Host Community Development Trust Fund in the proposed Petroleum Industry Bill (PIB) being considered by the Senate and House of Representatives.

In his paper presented to the Ad-hoc Committee on Petroleum Industry Bill (PIB), Chief Mba who frowned at the flagrant breach of the extant financial regulations observed that out of the total sum of N2.999 trillion accrued from mineral resources into the federation account, the sum of N389.418 billion was set aside as 13 percent Derivation disbursement to the oil and gas producing states for 2020 fiscal year.

While expressing concern over the proposal for the 2.5% of actual operating expenditure on all petroleum operations into the Host Community Development Trust fund, the RMAFC Chairman warned that such move may deplete monthly revenue accruing to the Federation Account.

“The Revenue Mobilisation Allocation and Fiscal Commission is fully in support of the establishment of the Host Community Development Trust Fund. However, the commission is opposed to the source of funding of the Trust Fund. This is because the Constitution of the Federal Republic of Nigeria has already made adequate provision for the Fund.

“Section 162(2) of the 1999 Constitution of the Federal Republic of Nigeria (as amended) states that: The President, upon receipt of advice from the Revenue Mobilisation Allocation and Fiscal Commission, shall table before the National Assembly shall take into account, the allocation principles especially those of population, equality of states, internal revenue generation, landmass, terrain as well as population density; provided that the principle of derivation shall be constantly reflected in any approved formula as being not less than thirteen percent of the revenue accruing to the Federation Account directly from any natural resources.’

“This becomes more evident from section 257(1) of the proposed bill which states that (Deduction of payment for petroleum host community development), any payment made by the settlor pursuant to section 240(2) of this Act, shall be deductible for the purposes of hydrocarbon tax and companies income tax as applicable.”

He argued that: “The problem with this source of funding for the Host Community Development Fund is that it short-changes the cash inflow into the Federation Account pursuant to Section 162(2) of the Constitution of the Federal Republic of Nigeria (as amended). Hydrocarbon tax and company income tax are all Federation Account revenue sources and any implication creates a constitutional crisis as to which authorities reside power to receive hydrocarbon tax and company income tax; the Federation or Host Communities. It may be more honourable to reflect on the proviso to Section 162(2) of the Constitution of the Federal Republic of Nigeria 1999 (as amended) for credible and sustainable source of funding to the Host Community Development Trust Fund pursuant to S.240 of the Petroleum Industry Bill.

“The proviso to Section 162(2) of the Constitution of the Federal Republic of Nigeria 1999 (as amended) did not specify which tier of government (State or Local Government) to which the Derivation Funds should be paid into.

“Accordingly, the Commission is proposing that 40% of the 13% Derivation Revenue accruing to each beneficiary state should be used in funding the Host Community Development Trust Fund.

“It is in the opinion of the Commission that oil companies should be allowed to engage in their primary business of exploring and producing oil and gas and should not be directly involved in the administration of Host Communities. Historical evidence of the relationship between oil companies with their host communities shows that there can hardly be any consensus between the oil companies and communities. This will result in an unprecedented crisis in the Niger Delta.

“Furthermore, it should be noted that the Federal Government also created the NDDC and the Ministry of Niger Delta to see to the welfare and development of the host communities.

“According to the NDDC Act, one of the sources of funding NDDC is 3 percent of the total annual budget of any oil-producing company operating onshore and offshore in the Niger Delta area; including gas processing companies.”

To this end, he warned that the proposed 2.5% if adopted, will “make the country’s fiscal terms to be unattractive. Besides, both the 3% deduction for NDDC and the proposed 2.5% deduction for the host community trust fund are all tax-deductible, thereby depleting the Federation Account.”

In the bid to address the problem holistically, he urged National Assembly to: “enact an additional legislation (Act) pursuant to the provisions made in Section 162(2) of the Constitution of the Federal Republic of Nigeria 1999 (as amended) on the 13% derivation, defining the beneficiaries as follows: 40% directly to Host Communities Development Fund and 60% directly to oil and gas producing States.”

He also recommended that Host Community Development Trust Fund should be on Local Government basis and must include an appointed ‘Trustee’ of State Government in addition to representatives of the various communities, as part of efforts geared toward solving the complexities that will arise in the management of numerous communities.

According to him, the proposed bill should ensure that “within 3-months of the establishment and promulgation of this bill, the Governor should set up the Community Development Trust Fund in every Local Government.

“Pursuant to the establishment of this Fund, the office for the administration of the Funds should be domiciled in the respective Local Government Councils,” he urged.

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