Nigeria’s oil-producing states to receive N377.9 billion from the 13% oil diversion fund in the first half of 2022

Nigeria’s eight oil-producing states received a sum of N377.93 billion as a 13% oil diversion fund in the first half of 2022. This is according to data compiled by Nairalytics, the research arm of Nairametrics from reports published by the National Bureau of Statistics (NBS).

The states are Abia, Akwa Ibom, Bayelsa, Delta, Edo, Imo, Ondo and Rivers. The amount received in the reporting period is 46.9% higher than the 257.2 billion naira shared in the second half of 2021 and an increase of 97.4% compared to the corresponding period of 2021 (191.4 billion naira).

Notably, the 13% oil diversion is a financial incentive enshrined in Article 162, Subsection 2 of the Nigerian Constitution for oil producing communities, based on their production input, with the aim of encouraging them to create an environment conducive to further exploration in their regions. Interestingly, 13% of the oil diversion fund shared by the communities has increased significantly despite the Nigerian National Petroleum Corporation (NNPC) not disbursing the funds to the Federation Account (FAAC). The amount shared in the first six months of 2022 already represents 84.2% of the total N448.67 billion shared in the whole of 2021.

Another breakdown of the data showed that Delta State received the largest share during the period, accounting for 30.4% of the total amount shared by the eight states. In terms of year-on-year increase, Edo State recorded the largest increase in admissions, increasing by 160.5% year-on-year.

Strong points

  • Delta State received the highest share, receiving N114.75 billion between January and June 2022, representing 30.4% of the total amount shared among the eight states.
  • Additionally, Delta State saw its share improve by 79.7% year-on-year from the 63.84 billion naira received in the first half of 2021. The state received 141, 9 billion naira for the whole of 2021.
  • Akwa Ibom State followed with an income of N80.02 billion, representing 21.2% of the total amount shared.
  • Bayelsa received a sum of 76.74 billion naira under the 13% oil diversion, representing 20.3% of the total amount shared. It also increased by 114.2% year-on-year from the N35.83 billion received in the corresponding period of 2021.
  • Other states that received part of the funds are Rivers (70.44 billion naira), Edo (14.51 billion naira), Ondo (9.47 billion naira), Imo (8.16 billion naira) and Abia (3.84 billion naira).

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Nigerian states have relied heavily on disbursements from the Federation Account to fund their respective operations as internally generated revenue remains below expectations. According to NBS data, most of the states in the country derive more than 50% of their revenue from FAAC except for Lagos, Abuja and Ogun State.

The amount shared with states dropped in 2020 and 2021 as a result of the covid-19 pandemic, which triggered a global crude oil crisis, driving down the price of crude, thus affecting Nigeria’s crude oil revenue.

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However, the price of crude has remained high in 2022 since the Russian-Ukrainian war, leading to an oil supply crisis, which has seen the price of crude oil trade above $100 a barrel for most of of the period considered.

However, the payment of the gasoline subsidy also hindered the disbursement of revenue by NNPC to the federation’s account. The NNPC reported that the gasoline subsidy gobbled up a total of N2.04 trillion between January and July 2022.

Meanwhile, the introduction of the Electronic Money Transfer Levy (EMTL) and increased VAT revenue improved the amount shared by FAAC with federal, state and local governments. The EMT tax was introduced in the Finance Act 2020, which amended the Stamp Duty Act and harnesses the growth of electronic funds transfer in Nigeria.

  • The N50 levy is levied on the electronic transfer of money deposited in a bank or financial institution, in any account, in the sum of N10,000 or more.
  • Revenue from the EMT tax is split based on the derivation and distributed 15% to the federal government and the Federal Capital Territory, 50% to the state governments, and 35% to the 774 local governments.

At the end of the line

Improved funding for oil-producing states is a welcome development, as it will go a long way towards meeting the spending obligations of these states. On the other hand, some of these states make up the list of most indebted states in terms of domestic debts in the country. This increase also discourages states from improving internally generated revenue (IGR).

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