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Contents
By Dr. Gabriel Oyibode
More than two decades after the return to democratic rule and despite the constitutional allocation of 13 percent derivation revenue to oil-producing states, a fundamental question remains unanswered: Why do many oil-producing communities in Nigeria continue to live in conditions that bear little resemblance to the enormous wealth generated from their lands and waters?
This question goes to the heart of one of Nigeria’s longest-standing governance and development challenges. Across the Niger Delta and other oil-producing regions, communities that host oil and gas operations continue to grapple with environmental degradation, polluted rivers, destroyed farmlands, poor road networks, inadequate healthcare facilities, unemployment, limited access to potable water, and widespread poverty. Yet, over the years, trillions of naira have been disbursed under the constitutional 13 percent derivation principle.
The disconnect between resource generation and community development has become impossible to ignore.
The time has therefore come for Nigeria to undertake bold constitutional and legislative reforms that will guarantee that the benefits of resource extraction flow directly to the communities that bear its environmental, social and economic consequences.
One such reform is the establishment of a National Host Communities Development and Derivation Commission through amendments to the Constitution of the Federal Republic of Nigeria and the Petroleum Industry Act (PIA).
The Failure of the Existing Framework
The constitutional derivation principle was conceived as a mechanism of equity and compensation. It was designed to ensure that communities and regions from which natural resources are extracted receive additional developmental support.
However, under the current arrangement, derivation funds are paid directly to state governments.
While state governments have constitutional responsibilities for development, the reality is that the existing framework has not consistently delivered the intended outcomes for host communities.
This is not necessarily an indictment of every state government. Rather, it is an acknowledgment of a structural weakness within the current system.
The needs of oil-producing communities often compete with numerous other state-wide priorities. Consequently, funds intended to address the unique challenges associated with oil production are frequently absorbed into broader governmental expenditures. In some instances, projects are abandoned, delayed, duplicated or diverted from their original developmental objectives.
The result is a troubling paradox: communities that generate substantial national wealth remain among the least developed in the federation.
The persistence of this reality suggests that the problem is no longer merely one of funding; it is fundamentally a problem of institutional design.
Why the Petroleum Industry Act Is Not Enough
The enactment of the Petroleum Industry Act was widely welcomed because it introduced Host Community Development Trusts as a mechanism for improving relations between oil companies and host communities.
However, the PIA was never intended to replace the constitutional derivation principle.
The two frameworks serve different purposes.
The Host Community Development Trusts are funded by petroleum operators and are designed to support community development initiatives linked to industry operations.
The derivation principle, on the other hand, is a constitutional revenue-sharing mechanism intended to address broader issues of equity, compensation and development in resource-producing areas.
Treating the PIA as a substitute for derivation therefore misunderstands both frameworks.
Instead of operating separately, these mechanisms should be integrated into a single development architecture focused on the direct advancement of host communities.
The Case for a National Host Communities Development and Derivation Commission
Nigeria should amend both the Constitution and the Petroleum Industry Act to establish a National Host Communities Development and Derivation Commission.
The Commission would become the principal institution responsible for administering:
- The constitutional 13 per cent derivation allocation designated for host communities.
- Host Community Development Trust contributions under the PIA.
- Environmental remediation and ecological restoration funds.
- Other development grants and support programmes intended for oil-producing communities.
The objective would be simple and clear: to ensure that funds intended for host communities reach host communities directly.
A New Governance Model Rooted in Community Participation
One of the most innovative features of the proposed Commission is its governance structure.
Unlike existing arrangements that concentrate control at political and bureaucratic levels, the proposed Commission would be governed primarily by those whose lives are directly affected by oil and gas activities.
The Governing Board should include:
- Representatives of host communities.
- Traditional rulers and recognised traditional institutions.
- Women’s organisations.
- Youth representatives.
- Civil society organisations.
- Independent professionals with expertise in finance, engineering, environmental management and development planning.
- Relevant federal government Ministries/Agencies.
Importantly, at least sixty per cent of board membership should come directly from host communities and their recognised institutions.
This would ensure that the people most affected by resource extraction become the primary participants in decisions concerning the use of derivation and host community funds.
Eliminating Political Diversion and Strengthening Accountability
One of the strongest arguments in favour of the proposed Commission is the need to reduce opportunities for political diversion and administrative leakages.
The current system places significant discretion in the hands of intermediary governmental structures. While many state governments have implemented commendable projects, concerns about transparency, prioritisation and accountability persist across several oil-producing areas.
Under the proposed model, funds would no longer pass through multiple layers of political administration before reaching intended beneficiaries.
Instead, allocations would move directly into a constitutionally protected development framework dedicated exclusively to host communities.
To ensure accountability, the Commission should operate under strict transparency requirements, including:
- Annual independent audits.
- Quarterly public financial disclosures.
- Open procurement systems.
- Real-time publication of allocations and expenditures.
- Community-based project monitoring.
- Legislative oversight by the National Assembly.
- Independent performance evaluations.
Every project, every contract and every expenditure should be visible to the public.
Such transparency would significantly reduce corruption risks while enhancing public confidence in the management of community development resources.
Community Development Councils: Bringing Decision-Making Closer to the People
Development is most effective when communities participate in determining their own priorities.
For this reason, the Commission should establish Host Community Development Councils in every beneficiary community.
These councils would identify local needs, prioritise projects and monitor implementation.
Rather than imposing projects from distant state capitals, development would be driven from the grassroots.
Communities themselves would determine whether their most pressing needs are schools, hospitals, roads, water systems, environmental restoration projects, vocational training centres or economic empowerment programmes.
This approach would make development more responsive, inclusive and sustainable.
A Reform Whose Time Has Come
Nigeria has experimented with several interventionist mechanisms in the Niger Delta over the decades. While some achievements have been recorded, the persistence of underdevelopment in many host communities demonstrates that more fundamental reforms are necessary.
The establishment of a National Host Communities Development and Derivation Commission would represent a historic shift from government-centred administration to community-centred development.
It would align legal authority with developmental purpose.
It would align resource governance with social justice.
Most importantly, it would align public policy with the lived realities of the people whose lands and waters sustain a significant portion of Nigeria’s economy.
Conclusion
The debate over derivation should no longer focus solely on which tier of government receives the funds. The more important question is whether the funds are achieving the purpose for which they were created.
The evidence suggests that many oil-producing communities remain far from the developmental outcomes envisioned by the Constitution and demanded by principles of justice and equity.
A constitutional amendment and corresponding reforms to the Petroleum Industry Act establishing a National Host Communities Development and Derivation Commission would provide Nigeria with an opportunity to correct this longstanding structural imbalance.
The people of the oil-producing communities are not asking for special privileges. They are asking that the wealth generated from their lands be visibly reflected in their schools, hospitals, roads, water systems, environment and economic opportunities.
That is not a demand for charity.
It is a demand for justice.
And it is a reform whose time has come.
*Chief Dr. Gabriel Chukwuma Etaoghenevwegba Oyibode, JP, is a prominent chieftain of the All Progressives Congress (APC), former governorship aspirant, and a former senatorial flag bearer for Delta North of Delta State. A distinguished real estate consultant, academic researcher, and philanthropist, who holds the traditional title of Odogu 1 of Ezhionum Kingdom.
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