Opinion
Of Royalties And Oil Bearing Communities
The demands and grievances of Nigeria’s oil-bear
ing areas can be identified under five broad themes. These are related to the disposition of mineral land rents, the application of the derivation principle, the allocation of federally collected mineral revenues, the appropriate institutional and fiscal responses to the ecological problems of the oil-producing areas and the responsibility of the oil-producing companies to the oil producing/bearing communities with the present federal structure.
Perhaps the most logically and legally compelling of the demands of the oil-bearing communities and states are their claims to mineral land rents. For instance, land right in Nigeria were vested in the respective local communities. But under the Land Use Decree of 1978, however, ownership of land is vested in the state. Thus both traditionally and legally, the federal government has no direct claims to land in the states.
The Federal Government has continued not only to prescribe how much rent is paid by the oil-prospecting companies for land used, but also to collect these rents. The justification for the Federal Government’s action is the defunct Petroleum Decree of 1969 and relevant provisions of the 1999 constitution which vest in the federation control of all minerals and gas in, under or upon the land and territorial waters of Nigeria. However, these provisions clearly refer to ownership of mineral wealth and not ownership of land which, under the practice of the constitution, remains vested in the states.
In essence, therefore, the federal government’s retention of mineral land rents would appear to be unconstitutional since the states are clearly entitled to such rents as a matter of right. Two unresolved problems, however, beset the position that mining rents are legally not the property of the Federal Government. The first is whether these rents should belong to the state government or to the specific oil-bearing communities involved. Although the Land Use Degree would appear to give the states the right to these rents, the oil producing communities have also asserted an exclusive and intrinsic right to what they regard as rents on communal lands.
A far more complicated issue relates to the attempt by elements from the oil-bearing communities to juxtapose mineral rents and royalties as resources legitimately belonging exclusively to the oil-producing communities. Consider, for example, the following statement by the Movement For The Survival of the Ogoni People (MOSOP): “MOSOP insists that oil royalties and rents are the property of landlords and that the Federal Government must return to the oil-bearing communities all royalties and rents paid to it by the oil-producing companies since 1958.
The constitutional position on the matter is, however, unambiguous while rents are a tribute to the owners of land. The state governments, royalties are levies on minerals, whose ownership remain vested in the Federal Government.
The demand of the oil-producing states and communities is that a significant proportion (usually put at not less than 10 percent) of the mineral revenues should be returned to the producing areas on the basis of the derivation principle. Derivation is, of course, a long-standing principle of distribution which stipulates that a significant proportion of the revenues collected in a locality should be returned to that locality or segment.
Derivation was, however, introduced as mineral exploitation replaced agricultural exports as the principle source of government revenues and foreign exchange earnings in Nigeria. This change in the rules for allocating revenues was denounced by the majority ethnic nationalities who were bent on ensuring that the minority groups that produce the oil were denied their economic rights.
Very sadly, the derivation, which is meant to benefit the host communities by way of building development projects there, never gets to them. Governors of oil producing states have decided to utilise the funds in other areas of the state.
These oil producing communities have been loud about the exploitation they have suffered from the Federal Government. They are denied access to the natural resources situated in their lands. They, therefore, ask the Federal Government to give them access to their God-given resources.
In line with the demands of the oil bearing communities, I urge the Federal Governmen to pay royalties directly to the communities or prevail on state governors to pay the 13 percent deviation to oil bearing communities.
Agbadam is a student of Eastern Polytechnic, Port Harcourt
From all indications, Nigeria possesses enough human and material resources to become a true economic powerhouse in Africa. According to the National Population Commission (NPC, 2023), the country’s population has grown steadily within the last decade, presently standing at about 220 million people—mostly young, vibrant, and innovative. Nigeria also remains the sixth-largest oil producer in the world, with enormous reserves of gas, fertile agricultural land, and human capital.
Yet, despite this enormous potential, the country continues to grapple with underdevelopment, poverty, unemployment, and insecurity. Recent data from the National Bureau of Statistics (NBS, 2023) show that about 129 million Nigerians currently live below the poverty line. Most families can no longer afford basic necessities, even as the government continues to project a rosy economic picture.
The Subsidy Question
The removal of fuel subsidy in 2023 by President Bola Ahmed Tinubu has been one of the most controversial policy decisions in Nigeria’s recent history. According to the president, subsidy removal was designed to reduce fiscal burden, unify the foreign exchange rate, attract investment, curb inflation, and discourage excessive government borrowing.
While these objectives are theoretically sound, the reality for ordinary Nigerians has been severe hardship. Fuel prices more than tripled, transportation costs surged, and food inflation—already high—rose above 30% (NBS, 2023). The World Bank (2023) estimates that an additional 7.1 million Nigerians were pushed into poverty after subsidy removal.
A Critical Economic View
As an economist, I argue that the problem was not subsidy removal itself—which was inevitable—but the timing, sequencing, and structural gaps in Nigeria’s implementation.
- Structural Miscalculation
Nigeria’s four state-owned refineries remain nonfunctional. By removing subsidies without local refining capacity, the government exposed the economy to import-price pass-through effects—where global oil price shocks translate directly into domestic inflation. This was not just a timing issue but a fundamental policy miscalculation.
- Neglect of Social Safety Nets
Countries like Indonesia (2005) and Ghana (2005) removed subsidies successfully only after introducing cash transfers, transport vouchers, and food subsidies for the poor (World Bank, 2005). Nigeria, however, implemented removal abruptly, shifting the fiscal burden directly onto households without protection.
- Failure to Secure Food and Energy Alternatives
Fuel subsidy removal amplified existing weaknesses in agriculture and energy. Instead of sequencing reforms, government left Nigerians without refinery capacity, renewable energy alternatives, or mechanized agricultural productivity—all of which could have cushioned the shock.
Political and Public Concerns
Prominent leaders have echoed these concerns. Mr. Peter Obi, the Labour Party’s 2023 presidential candidate, described the subsidy removal as “good but wrongly timed.” Atiku Abubakar of the People’s Democratic Party also faulted the government’s hasty approach. Human rights activists like Obodoekwe Stive stressed that refineries should have been made functional first, to reduce the suffering of citizens.
This is not just political rhetoric—it reflects a widespread economic reality. When inflation climbs above 30%, when purchasing power collapses, and when households cannot meet basic needs, the promise of reform becomes overshadowed by social pain.
Broader Implications
The consequences of this policy are multidimensional:
- Inflationary Pressures – Food inflation above 30% has made nutrition unaffordable for many households.
- Rising Poverty – 7.1 million Nigerians have been newly pushed into poverty (World Bank, 2023).
- Middle-Class Erosion – Rising transport, rent, and healthcare costs are squeezing household incomes.
- Debt Concerns – Despite promises, government borrowing has continued, raising sustainability questions.
- Public Distrust – When government promises savings but citizens feel only pain, trust in leadership erodes.
In effect, subsidy removal without structural readiness has widened inequality and eroded social stability.
Missed Opportunities
Nigeria’s leaders had the chance to approach subsidy removal differently:
- Refinery Rehabilitation – Ensuring local refining to reduce exposure to global oil price shocks.
- Renewable Energy Investment – Diversifying energy through solar, hydro, and wind to reduce reliance on imported petroleum.
- Agricultural Productivity – Mechanization, irrigation, and smallholder financing could have boosted food supply and stabilized prices.
- Social Safety Nets – Conditional cash transfers, food vouchers, and transport subsidies could have protected the most vulnerable.
Instead, reform came abruptly, leaving citizens to absorb all the pain while waiting for theoretical long-term benefits.
Conclusion: Reform With a Human Face
Fuel subsidy removal was inevitable, but Nigeria’s approach has worsened hardship for millions. True reform must go beyond fiscal savings to protect citizens.
Economic policy is not judged only by its efficiency but by its humanity. A well-sequenced reform could have balanced fiscal responsibility with equity, ensuring that ordinary Nigerians were not crushed under the weight of sudden change.
Nigeria has the resources, population, and resilience to lead Africa’s economy. But leadership requires foresight. It requires policies that are inclusive, humane, and strategically sequenced.
Reform without equity is displacement of poverty, not development. If Nigeria truly seeks progress, its policies must wear a human face.
References
- National Bureau of Statistics (NBS). (2023). Poverty and Inequality Report. Abuja.
- National Population Commission (NPC). (2023). Population Estimates. Abuja.
- World Bank. (2023). Nigeria Development Update. Washington, DC.
- World Bank. (2005). Fuel Subsidy Reforms: Lessons from Indonesia and Ghana. Washington, DC.
- OPEC. (2023). Annual Statistical Bulletin. Vienna.
By: Amarachi Amaugo