Decades after defending the federal control of resources and limiting the allocation receivable by crude oil producing states in the country, former President Olusegun Obasanjo has has shifted his stance.
The former president has publicly backed calls for an increase in the 13% derivation allocation, conceding that oil-producing communities “have not got a fair deal so far” and that the 13% benchmark should be viewed merely as a “starting point” to be negotiated upwards.
Obasanjo spoke on Monday at the flag-off of the Crude Distillation Unit of the $1bn Azikel Refinery in Obunagha, Yenagoa Local Government Area of Bayelsa State, where he also challenged the project’s promoter to complete the facility within 12 months.
Addressing Bayelsa State Governor, Douye Diri, the former President said oil-producing states and communities had not received a fair deal from the exploitation of resources in their territories.
“You are right that the states and oil-producing communities have not got a fair deal so far. Thirteen per cent is the beginning. You can continue to talk,” he said.
The remarks came as Diri renewed his criticism of the derivation formula and the Land Use Act, arguing that communities in the Niger Delta remained excluded from decisions concerning the resources extracted from their land.
The refinery, owned by Azikel Petroleum under the Azikel Group, is designed to process 25,000 barrels of crude oil daily.
Its foundation was laid by Obasanjo about eight years ago, while the installation of the crude distillation unit marks a major stage in the project’s development.
Obasanjo commended the President of Azikel Group, Azibapu Eruani, for sustaining the project and urged him to ensure its completion within the next year.
“I have told Dr Eruani that I will be officially 90 years by next March. It means I will take the boarding pass soon. So, he has to make sure the project is completed before I exit,” he said.
He also acknowledged the role of the African Finance Corporation and the African Export-Import Bank in supporting the investment, calling for continued assistance to bring it to completion.
“My challenge to you, Dr Eruani, is to ensure that the refinery is completed within the next 12 months. With this done, you can even double the capacity,” Obasanjo said.
In his remarks, Diri said the refinery represented an opportunity for residents of Bayelsa and the Niger Delta to participate more directly in an industry built on resources extracted from their communities.
He argued that the region’s long-standing agitation over resource control stemmed from the perceived imbalance between where crude oil was produced and where the benefits of its exploitation accrued.
Obasanjo played a pivotal yet controversial role in the implementation and early battles over the 13% derivation formula for oil-producing states. While his administration oversaw the formal introduction of the payment, his interpretation of the law sparked intense legal and political warfare with leaders from the Niger Delta.
1. The Implementation and Delayed Start (1999–2000)
Although the 13% derivation principle was officially enshrined in Section 162(2) of the 1999 Constitution, the Obasanjo administration delayed its initial rollout.
• The Conflict: Obasanjo initially announced that payments would begin on January 1, 2000, rather than the May 29, 1999 date when the constitution took effect. This prompted Niger Delta stakeholders to sue his administration, demanding the backdating of payments to the day he took office.
• The Defense: Obasanjo later maintained that he granted the implementation of the statutory 13% derivation without being forced by legal action.
2. The Onshore/Offshore Dichotomy Battle
The most severe battle during Obasanjo’s tenure was his administration’s introduction of the onshore/offshore dichotomy.
• The Policy: The Obasanjo administration argued that the 13% derivation formula should only apply to onshore oil production (crude extracted from the mainland), which accounted for roughly 60% of total production. They asserted that offshore oil (crude drilled from the continental shelf/sea) belonged exclusively to the Federal Government.
• The Impact: This effectively slashed the revenue allocated to coastal oil states like Akwa Ibom and Ondo. By attempting to exclude offshore revenue and subtracting several “first-line charges” (such as NNPC joint venture fundings and external debt service) before calculating the percentage, his administration tried to limit actual payouts to roughly 8% of total revenue.
• The Resolution: The dispute went to the Supreme Court. On April 5, 2002, the court legally upheld the onshore/offshore distinction but declared the administration’s “first-line charges” deduction illegal. Due to massive political backlash, the National Assembly eventually passed an abrogation bill to abolish the dichotomy, which Obasanjo signed into law.
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