The 13% Derivation Fund


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October 3, 2007 - December 2, 2007



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Senator David Dafinone

IN colonial times, the authorities acknowledged the
need to recognise the derivation principle in revenue
allocations. Between 1949 and 1964, the following
revenue allocation recommendations were made and

(a) Phillipson Commission (1946) Recommended 50 per
cent to be retained by the region of origin, 35 per
cent to be shared among the regions including the
region of origin while the central government was left
with 15 per cent.
(b) Hicks-Phillipson (1951) Recommended Derivation
Area of Origin 50 per cent, Regions 35 per cent and
Central Government 15 per cent.
(c) Hicks (1953) - 100 per cent Rents/Royalties.
(d) Ralsman (1958) Derivation 50 per cent, Regions 30
per cent and Central Government 20 per cent.
(e) Binn (1964) - 50 per cent to the Region (area of

By 1964, the Regions started arguing about factors
like population and land mass but Binn observed that
the overall environmental devastation and health
hazard caused be petroleum exploration and
exploitation activities demanded that the region of
origin should have nothing less than 50 per cent.
Furthermore, Binn queried the 20 per cent Federal
share by Ralsman and returned to the 15 per cent
Federal share suggested in 1951 by Hicks-Phillipson.
This formula remained in force till 1970 and was
practised as a workable formula by the regions and
later 12 states (from 1967).

Decree 13 of 1970 (the Yakubu Gown Military
Administration) distorted the existing formula by
appropriating the entire offshore revenue and further
removed 20 per cent from the then 50 per cent of the
allocation to states. Thereafter, it became safe and
regular to distort or totally derange revenue sharing
exercises without principle or rationale. General
Gowon's excuse then was that the funds were required
to prosecute the civil war and keep Nigeria one.
Obasanjo/Yar'adua (1977) - Reduced the states share on
derivation to 25 per cent (through the instrumentality
of the Technical Committee on Revenue Allocation
headed by Late Prof. Aboyade).

Shagari (1981) - Reduced it to 5 per cent.
Buhari (1984) - Further reduced it to 1.5 per cent.
Shagari attempted to administer this Fund from the
Presidency but in a court action, instituted by the
Bendel State government under Governor Ambrose Ali,
the Federal Government lost the case. We think this
should have been the last attempt (from 1952 -
1981/82) to nurture the now 20 years or so old
Niger-Delta development process from the presidential

In fairness to General Babangida, though for different
reason, he raised the derivation content from 1.5 per
cent where the Buhari administration had placed it, to
3 per cent, and instituted an independent Oil Mineral
Producing Areas Development Commission (OMPADEC) which
was not housed in the Presidency.
It must therefore be brought home to all concerned
that Nigeria as a federation must adhere to the
principle of true federalism where the resources
accruing to the Federal Government must be derived
from contributions or levies from the component

It is also necessary to draw a distinction between the
funds arising from the derivation principle and those
other funds which will eventually arise from the
recently approved Niger Delta Development Commission
Act. The latter is intended to correct the neglect and
degradation on the environment and the psyche of the
people of the Niger Delta region in the past.
It is also necessary to take this opportunity to
appeal to the oil producing states to reinforce their
arguments on the on-shore/offshore dichotomy as
applied to the revenues accruing to their states. The
oil and gas revenues earned offshore by the country
arises because of international law which defines the
area offshore as part of the territory of the Federal
Republic of Nigeria. Let it be averred that the rights
accruing to the Federal Government are deemed to arise
from the sovereignty of the Federal Government but
this should not in any way override the rights of the
indigenes of the seashore areas which are governed by
an earlier legislation which hitherto was in force.
Specifically the Law of Property Act 1925 and the
Interpretation Act 1964 were unmistakably not repealed
when the offshore/onshore decree was passed and now
brought in as Section 44 (3) of the Constitution. The
Federal Government then failed to realise that when
equities are at par the first in time prevails.
They should be charged with the responsibility of
evaluating and monitoring of all projects to be
embarked upon.

It goes therefore without saying: The funds are not
intended for the give us and chop philosophy that has
overshadowed similar development schemes in the past


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This page was last updated on 10/27/07.