Obasanjo, Shagari, Shifted Focus To Crude Oil And Impoverished TheNiger Delta

The man who would be Chief of Oloibiri was 19 years old when the British and Dutch nationals from Shell D’archy came to the sleepy island fishing community of Oloibiri in 1953. They came in search of something:
But in the ground.
Sunday Inengite knew Oil. But it was from palm fruits, above the ground, not underneath.
Bemused, he wished his new found white friends goodluck before the leader told him it was Crude oil. The new white gold.
Chief Inengite’s forebears had traded with the white man ,and the medium of trade was palm oil, which was shipped to Britain. This new Oil that was later found in 1956 confused him the more and it was later to change the face of life and living things in the sleepy town, not for good, but for the worse in less than 30 years .He was by then, already a Chief .
Inengite was not to know about the earlier discovery of Crude oil in Texas .

An economist, Kalu Aja posed a very simple question:


Simple question.

To own a thing implies you derive utility from it. Who derives utility from crude oil in Nigeria. Utility of course means taxes.

Who derives taxes from crude oil?

Before the independence of Nigeria, as at 1958, this was how crude oil taxes were shared…

1. Oil Producing States retained 67.4% of Mining Rents and Royalties

2. Federal Government got 20% of Mining Rents and Royalties

3. Non-oil States got 12.6%

The crude oil and gas was owned by the oil producing States(Regions) . That was how the British left it”.

The Oloibiri people may have been ignorant of global oil events, but the British thought it fair to be fair to the owners of the land.

Continued Kalu Aja :

“In 1970, General Yakubu Gowon passed Decree No. 13. Under the decree, this was how crude oil taxes were now to be shared.

1. Oil Producing States retained 45% of Mining Rents and Royalties

2. Federal Government got 55% of Mining Rents and Royalties

3. Non-oil States got 0%

In the military’s wisdom, the non-oil states did not deserve to get any share of oil revenues. Oil was only for the oil producing States and the Federal Government”.

Altering the formula was to take from a part to fund the whole after a devastating three year long civil war. General Gowon from the then Benue /Plateau State that is not oil producing did not covet what was not for his people. To him, what rightfully belongs to the oil producing States should be theirs .

“Then in 1975, General Murtala Muhammed introduced Decree 6. Under it, this is how crude oil taxes were shared

1. Oil Producing States retained 20% of Mining Rents and Royalties

2. Federal Government got 80% of Mining Rents and Royalties

3. Non-oil States got 0%

Again, the military decided the oil producing States should “manage” 20% of oil revenues while non-oil States got zero…


“In 1976”, continued Kalu Aja, “Gen Obasanjo created a technical commission called the Aboyade Technical Commission. This was the result

1. Oil Producing States got 0% of Mining Rents and Royalties

2. Federal Government got 100% of Mining Rents and Royalties

3. Non-oil States got 0%”.

General Obasanjo just couldn’t care about the ecological disaster oil exploration was doing to the Niger Delta. He made sure that they got nothing.

“Obasanjo, also introduced the Consolidated Revenue fund aka FAAC. Thus, the oil taxes were centrally pooled, then shared to all States.

This was the important juncture in Nigeria’s fiscal federalism. This was when crude oil was federalized, taken from the States, managed by the federal government then shared back to the States. In essence, crude oil was no longer based on derivation but on metrics like equality, fiscal efficiency and absorptive capacity…”.

Obasanjo thus kick started the feeding bottle federalism of the Federal government feeding everyone with the spoils of the oil booty, and agriculture declined.


“In 1979, President Shehu Shagari set up the Okigbo Commission to review the sharing of oil revenues. The Commission agreed to retain the Obasanjo 0% allocation to oil producing States and continue with FAAC but they tweaked the sharing formula in FAAC…. They came up with

Equality of States 50%
Population 40%,
Land mass 10%

So here we see population of States and land mass introduced”.

Alhaji Shehu Shagari from Sokoto State with large land mass and high population decided to favour his region and State by using his instrument of office to enrich them while pulverizing the Niger Delta region.
The result was that the Unity Party of Nigeria (UPN) led government of Prof. Ambrose Alli found it difficult to implement his party’s 4 cardinal points, free education, free health care etc. Almost all his policies wobbled badly. His party was in the opposition. He became unpopular and was consequently voted out. Not many people understood that it was the game plan of Shagari that he fail because he had pulled out the financial muscle for the laudable programs.

“In just 9 years, the oil producing States saw their share of crude oil taxes go from 67.4% to zero. It took until the year 2000 for the implementation of 13% back to the oil producing States.

So in summary, its 67% to 0% to 13%”

The 13% derivation was a possible action of Chief Obasanjo, as atonement for his pulverization and emasculation of the revenue of the Niger Delta States when he was head of government while serving in the military .

“Oil revenues were in essence transferred from the States to the federal government by decree. Even today, if ExxonMobil pays VAT on operations in an oil producing State, that VAT is shared by the federal government to all States of the federation. Oil is a federal baby….


Massive inefficiency in the oil and gas sector was the result . It’s fair to say the FGN has mismanaged the oil industry, NNPC is essentially broke…can’t manage it’s assets to return a profit

We still flare gas, i.e. we legally “burn” money, The FGN has taken the oil wells but can’t pay Joint Venture cash calls…the FGN can’t clean the oil spills, they can’t even pass a PIB (Petroleum Industry Bill) …now passed, but in a watered down version,

The FGN has built a massive bureaucracy funded by crude oil, the FGN pays for primary education and primary health care, then also funds religious pilgrimages and football.

These powers the FGN has given to itself outside the Constitution have been made possible because the FGN has grabbed a hold of the oil wealth of the nation. For instance, primary schools are the function of the Local Governments and the Constitution recognizes that and allocates money to them. But the revenues for the local governments are paid to the States….via a “Joint” account.

Right now, we have a problem. There is no more oil and salaries must be paid, salaries that had been underwritten by crude oil.

Things have to change. Nigeria can’t say its practicing a federal system of governance without fiscal federalism. That will be like driving a car without wheels.

So what should we do? It’s a no brainer. Give the oil back to the people. Tax the oil business….simple

1. The FGN has to get out of business and set itself as a regulator of business and recipient of business taxes. The gains are obvious. Its costs are reduced and its revenues go up.

The government should give oil and non-oil assets back to the States and local governments. Let States retain the proceeds of exports from their States. In essence, if cocoa is exported, the State or origin of that cocoa gets a share of the Company income tax by derivation

This is not just a call for resource control. It’s a call for responsibility allocation. As long as the FGN is responsible for collecting 95% of taxes and Local Governments are paid their allocation via States, we can’t really expect and demand much.
“To him who little is given…little is expected”


Oil was first discovered in Texas early 20th century. The lives of the people and the environment changed radically. The owners of the land became stupendously wealthy. Many towns around Texas flourished. New ones emerged and new industries that are now global brands sprang up. Vast wealth came in torrents to both the local populace and those involved in the oil business. Nacogdoches county was the site of Texas first oil field and pipeline. The Oil companies provided the needed atmosphere for growth and development and by 1895, Joseph S. Culinan, the founder of Texas Company (now Texaco or Chevron Texaco) was already drilling several Oil Wells and propelling growth and development in the region. Oil from Texas continues to benefit education


Thousands of students continue to draw from Oil for their educational advancement. There is the Permanent School Fund and Permanent University Fund in Texas and many people enjoy philanthropy from companies that have made fortunes from Texas. This includes hospitals, research organizations,engineering, technology, arts ,culture etc from Oil related firms.
When there was an Oil spill in the gulf of Mexico Shell moved quickly to clean it up and pay compensation, but in the Niger Delta region, the reverse is the case.

“Why can’t a significant portion of the Oil wealth go to the Oil producing communities in the ND”?
Hon. Dakuku Peterside asks.
Does Oloibiri not deserve functional hospitals, good schools, potable drinking water etc like their counterparts in Texas?
Cocoa, coal, groundnut, palm oil, Rubber, timber were all regional economic mainstays before crude oil. Growth in Oloibiri became stunted and retrogressive.


Shell moved on after devastating Oloibiri . This is the paradox of a resource rich enclave remaining so pervasively poor. Marine life is extinct. Indigenous occupational industries are comatose. Erosion is widespread. Pollution of the very sources of life for the ordinary people manifests in everything from their fishing equipment to the water they drink. Their settlement is now nondescript.

Lawrence Idumesaro, Obim V of Otuabagi said his community was the cradle of Oil exploration in Nigeria and the wealth used to develop other parts of Nigeria while the community lacked the basic necessities of life. They have no electricity,no water, no good roads. Yet the people remain peaceful and hospitable.


The Oil industry has garnered over $1.6 in revenue over the last 50 years according to analysts from Standard Bank. People in the government get nearly all the revenue and give nothing to the communities, symbolizing the stark emptiness in Oloibiri. The mindless exploitation in the exploration of crude oil in contrast to the cosy world of the oil explorer,leaving the neglected towns in a state of gloom, doom and complete neglect.
It’s Nigeria’s open sore .

Written by Greg Abolo

Greg Abolo

Blogger at The Oasis Reporters.

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