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Onshore/offshore dichotomy: Unresolved issues in the abrogation bill

By Steve Kola-Balogun

October 29, 2002

The bill titled " A bill for an act to abolish the dichotomy in the application of the principle of derivation for the purposes of allocation of revenue accruing to the Federation Account and for matters connected therewith," was sent to the National Assembly two months ago by President Olusegun Obasanjo as part of the political solution to the Revenue Allocation judgment of the Supreme Court delivered on April 5, this year.
That judgment it will be recalled adversely affected all the oil producing states with oil wells offshore in that they no longer stood to benefit from the derivation fund. The states that were worst hit were Akwa Ibom and Ondo whose oil deposits are mostly offshore.
Both states were confronted with the possibility of getting zero allocation from the Federation Account. Although it is expected that the proposed bill will ameliorate the hardship caused to the peoples of the Niger-Delta region by the Supreme Court's judgment, it is nevertheless my view that the proposed bill is procedurally flawed and nothing short of a constitutional amendment can abolish the onshore/offshore dichotomy.

Section l of the two-section bill provides that, "As from the commencement of this Act, the continental shelf and the exclusive economic zone of a state of the Federation shall be deemed to be part of that state for the purposes of computing the revenue to the Federation Account from that state pursuant to the provisions of the Constitution of the Federal Republic of Nigeria 1999 or any other enactment."
Section 162, subsection (2) of the 1999 Constitution states: "The President, upon the receipt of advice from the Revenue Mobilisation Allocation and Fiscal Commission, shall table before the National Assembly proposals for revenue allocation from the Federation Account, and in determining the formula, the National Assembly shall take into account, the allocation principles especially those of population, equality of states, internal revenue generation, land mass, 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 13 % of the revenue accruing to the Federation Account directly from any natural resources."

Subsection (2) of section (1) of the proposed derivation bill further states that, "accordingly, for the purposes of the application of the principle of derivation, it shall be immaterial whether the revenue accruing to the Federation Account from a state is derived from the natural resources located onshore or offshore".
The Act when signed into law will be cited as the Allocation of Revenue (Abolition of Dichotomy in the Application of the Principle of Derivation) Act 2002 and shall be deemed to have come into force in 1st April 2002, the day which according to the President the Supreme Court ruled on the onshore/offshore suit. It is a misconception of law to think that the National Assembly can possibly pass a law to nullify the Supreme Court's judgment.
The National Assembly unlike the British parliament cannot reverse a decision of the Supreme Court involving the interpretation of our Constitution. This is because in Nigeria the Constitution is supreme unlike in Britain where parliament is supreme and there is no written Constitution.

In 1965 the British parliament passed the War Damage Act and abolished the common law principle asserted by the House of Lords in Burmah Oil (Burma Trading). V. Lord Advocate (1964) 2 All ER 348, that the Crown must pay compensation for taking or destroying subjects' property in time of war through the exercise of its prerogative.
Our legislators in the first republic were quick to recognise that such a situation could not have possibly occurred in Nigeria without a constitutional amendment, as demonstrated in Akintola V. Adegbenro 1962 All NLR 431 when the Privy Council ruled that the dismissal of Chief Akintola as Premier of Western Region by the Region's Governor had been lawful.
A constitutional amendment was subsequently rushed through nullifying with retrospective effect the decision of the Privy Council by providing that the Governor could remove the Premier only in circumstances of a vote of no confidence. The subsequent 1963 republican Constitution abolished this power of removal all together.

With the benefit of this experience to fall back on it's a wonder that the legislature and the executive are making such a fundamental mistake with regard to the onshore/offshore dichotomy issue today. In Attorney General of the Federation V Attorney General of Abia State & Ors SC.28/2001 the Supreme Court delved into the history of derivation under our various Constitutions. They observed that under the 1960 Constitution section 134, which dealt with derivation, was apart from the percentage sum payable under that section, on all fours with the provisions of sub-section (2) of section 162 of the 1999 Constitution on derivation.
Similarly section 140 of the 1963 Constitution was verbissima verbis with section 134 of the 1960 Constitution. Both section 134 of the 1960 Constitution and section 140 of the 1963 Constitution contained a sub-section (6), which stated: "For the purposes of this section, the continental shelf of a Region shall be deemed to be part of the Region".

It must be noted that these two sub-sections did not make the continental shelf part of the Regions but deemed it to be part of the Regions solely for the purposes of derivation as contained in those Constitutions. In other words the Federal Government conceded the continental shelf to the Regions for the purposes of derivation as contained in those Constitutions. Unfortunately, there is no similar provision or sub-section under Section 162 of the 1999 Constitution.
The littoral States argued that the Allocation of Revenue (Federation Account etc.) (Amendment) Decree No 106 of 1992 that amended the Allocation of Revenue (Federation Account etc) Act Cap 16 LFN 1990 abolished the onshore/offshore dichotomy. The Supreme Court however ruled that Cap 16 as amended by Decree 106 of 1992 is an existing law under section 315 of the Constitution and is relevant for the purposes of determining the formula to be used for revenue allocation pending the time the National Assembly come out with a new formula as provided for under the 1999 Constitution.

Cap 16 the Supreme Court stated only applies in so far as it is not inconsistent with the provisions of the 1999 Constitution. It must be noted that Cap 16 was enacted for the purposes of the 1979 Constitution, which of course had no provisions on derivation unlike the 1960 and 1963 Constitutions.
What the Supreme Court appeared to be stating was that the provisions of Decree 106, which amended Cap 16 and abolished the onshore/offshore dichotomy, are either not relevant to the 1999 Constitution or inconsistent with it. In fairness it is difficult to fault the Supreme Court's reasoning in this regard.
The Supreme Court in effect appeared to be stating that you either concede the areaof the sea to the states for the purposes of derivation as was done in the 1960 and 1963 Constitutions or alternatively take derivation out of the Constitution altogether as was done in the 1979 Constitution. It is only if the latter is done, that the National Assembly in my view can then legislate on the issue and abolish the onshore/offshore dichotomy.

Although the Federal Government in the 1999 Constitution was deemed not to have conceded the area of the sea to the states, some concession is nevertheless desirable considering that this has always been done either within or outside the Constitution. This is what prompted the Federal Government to set up the Chief Tony Anenih led committee to find a political solution to the matter.
What then are the real political solutions to the issues at hand? In my view, short of having a constitutional conference to rewrite our Constitution there are only two other political options that the Federal Government can embark on to ameliorate the feelings of the peoples of the South-South and the oil producing areas and both these options are fraught with difficulties.
Each option requires a constitutional amendment under Section 9 of the 1999 Constitution. This is a long, tedious and cumbersome process requiring the approval of 2/3 of the members of each house of the National Assembly and 2/3 of the Houses of Assembly of the 36 states of the Federation.

The first option requires the Federal Government to attempt to amend the Constitution by adding a proviso similar to the 1960 and 1963 Constitutions to Section 162 of the 1999 Constitution deeming the continental shelf as part of the states for the purposes of derivation. Such an amendment may be met with stiff opposition from some of the non-littoral states and it is doubtful whether the Federal Government will be able to muster the necessary 2/3 backing of the Houses of Assembly of the 36 States of the Federation for this purpose.
The other option, likewise requires amending the Constitution by removing derivation from the 1999 Constitution, as was done in the 1979 Constitution. The advantage of this option is that the National Assembly can then legislate on the issue. This option in my view would perhaps be a lot easier to achieve in that the non-littoral States are unlikely to object to this although stiff resistance by the governments and indigenes of the littoral states can be expected.

The Federal Government's task would be to convince the leaders of the South-South of the merits of taking derivation out of the Constitution and at the same time give them an acceptable blue print of the legislation they propose to get through the National Assembly and then guarantee them their total commitment in passing the legislation. Arguably this is the best political solution if you are of the opinion that derivation should be a political issue for the government of the day.
Initially, I had thought that this was perhaps what the Federal Government was trying to achieve. With an election fast approaching it seemed politically expedient for them to pass the proposed National Assembly legislation first and douse the tensions in the South-South and the oil producing areas before embarking on the more difficult task of amending the Constitution by removing derivation entirely. This however, does not seem to be the Federal Government's strategy since they have insisted on back dating the legislation but it is an option worth considering.

There is no conceivable reason why the National Assembly cannot pass legislation abrogating the onshore/offshore dichotomy pending a constitutional amendment. The commencement date of such legislation would merely have to be left open pending the necessary constitutional amendment. This would also help to reassure the peoples of the oil producing areas.
Whatever the solutions are, there can be no short-term fix or fudge. The peoples of the South-South and the oil producing areas deserve better and should be adequately compensated for the environmental hazards, pollution and degradation their homeland suffers from oil exploration activities in their backyard.

 

Source: This Day/All Africa Global Media


 

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