Business, Economy, Investigations, Nigeria

How N1.67Tn 13% Derivation Cut Oil States’ Debt By N611Bn — A Forensic Report

Investigation: 13% derivation delivered N1.67tn to oil states. Debt fell by N610.84bn. But who benefited and what was not fixed. Data, state profiles and policy fixes.

Atlantic Post

August 26, 2025

10–15 minutes

Oil states’ windfall or missed chance? How N1.67tn in 13% derivation eased debts by N610.84bn but left hard questions unanswered

The story is simple on paper. Between July 2023 and June 2025 oil producing states in Nigeria received an unprecedented N1.67tn in 13 per cent derivation allocations. The money arrived as a result of rising oil receipts and active FAAC disbursements.

The result on paper is measurable. Domestic debt among the nine beneficiary states fell by about N610.84bn between June 2023 and March 2025. That is a big headline figure.

It suggests the derivation principle did exactly what it was meant to do. It eased fiscal pressure on the communities that host production and helped clean balance sheets.

But the numbers contain contradictions. Rivers State bucked the national pattern and increased its domestic debt by more than 60 per cent in the same period. Several smaller producers registered sharp falls in debt but continue to record chronic infrastructure failure and fragile revenue bases.

Reports and interviews with opposition figures, civil society and finance officials show the windfall altered borrowing patterns but left open questions on accountability, project delivery and long term sustainability.

This investigation examines the data, the state-by-state outcomes, the political economy that shaped decisions, and the practical steps needed to turn a temporary fiscal reprieve into durable development for the Niger Delta.

The macro picture in plain numbers

The Debt Management Office publishes domestic debt at subnational level each quarter. Its reports show the combined domestic debt of the nine oil producing states stood at about N1.66tn in June 2023. By March 31, 2025 the combined total had fallen to roughly N1.05tn.

That is a reduction of N610.84bn or about 36.8 per cent of the group’s domestic borrowings in less than two years. The DMO figures are the accounting backbone for this analysis.

The National Bureau of Statistics based on FAAC records shows that between July 2023 and June 2025 those nine states received N1.67tn as 13 per cent derivation allocations. The distribution is highly skewed.

Delta, Bayelsa, Akwa Ibom and Rivers between them took roughly 90 per cent of the total. Delta alone received N520.27bn across the two years. Rivers collected N309.77bn. Smaller producers such as Anambra and Abia together received less than N40bn.

Meanwhile state IGR reports for the period show the nine oil states reported about N1.39tn in internally generated revenue between Q3 2023 and the first half of 2025.

When compared with the N610.84bn principal reduction in domestic debt over the same period, almost 44 per cent of reported IGR was effectively used to pay down loans.

That ratio is a stark illustration of how much of states’ own revenue was channelled into liabilities rather than new capital projects.

The figure may change when DMO releases the Q2 2025 data and when missing state IGR returns are filed. But it is already high enough to matter.

What the derivation is and why it matters

The 13 per cent derivation principle is simple. Thirteen per cent of revenue from natural resources produced in a state is set aside for that state.

It is constitutionally grounded and has been a lifeline for oil producing states for decades.

The allocation is supposed to compensate communities that bear environmental and social costs of production and to fund development in host states.

In practice the derivation feed has been both a source of fiscal relief and of intense political debate over control and use of resource revenue.

In the Tinubu administration’s opening two years FAAC disbursements surged. The first half of 2025 alone accounted for more than 40 per cent of the full two year sum.

Disbursements peaked in December 2024 and then in the early months of 2025 as global oil prices and production receipts improved.

The surge in receipts created a policy window. Governors could choose to invest, service liabilities, or expand recurrent spending. Many chose to prioritise debt reduction.

State by state profile: winners and the puzzling outlier

The aggregate numbers hide stark differences.

Delta State
Delta received the largest share, totalling N520.27bn over the two years. The state reduced domestic debt from N465.40bn in June 2023 to N204.72bn by March 2025. That is a fall of over 55 per cent.

Delta’s finance commissioner told reporters the inflows strengthened finances and that the administration did not take new loans after May 2023 and had reduced prior borrowings.

Critics say transparency is weak. Calls for published receipts and project lists have gone unanswered. The political reality is one of strong executive control over resource flows and contested public narratives about contractors, payments and service delivery.

Akwa Ibom
Akwa Ibom cut loans from N199.58bn to N118.21bn in the same period, a reduction of more than 40 per cent. The state also reported rising IGR.

The financial manoeuvre points to an administration using a combination of higher derivation inflows and improved revenue mobilisation to deleverage its balance sheet.

Bayelsa, Imo, Edo, Anambra, Abia, Ondo
Bayelsa and Imo reduced debt substantially. Ondo recorded the sharpest proportional decline, from N74.03bn to N11.76bn.

Yet the smaller producers face familiar problems. Their total derivation receipts are modest and their IGR bases remain limited.

For some, the debt reduction simply replaces one form of fiscal pressure with another. There is still little evidence in many localities of large capital projects or durable service improvements tied explicitly to derivation receipts.

Rivers State — the outlier
Rivers State is the one oil producing state that did not follow the deleveraging trend. Domestic debt rose from N225.51bn in June 2023 to N364.39bn by March 2025, an increase of more than 60 per cent.

This happened even as Rivers remained one of the top recipients of derivation. Rivers also recorded the highest IGR inflow among the nine states at N507.23bn across the period.

That combination of high receipts and rising debt raises urgent questions about borrowing choices, fiscal management and the terms of new liabilities.

Why borrow more while receiving record derivation inflows? The available public statements from the state government focus on capital projects and security spending.

But independent scrutiny is thin and filings such as the full IGR reports for the first half of 2025 were not published at the time of this analysis.

How much of state revenue was swallowed by debt service

The 44 per cent figure — that close to 44 per cent of reported IGR for the nine states went into debt reduction — needs emphasising.

It shows that nearly half of what these states raise through their own efforts was diverted from investment into liability management. That is a sign of fiscal stress.

For smaller producers, whose IGR is small, even modest loan repayments can crowd out spending on health, education and roads.

The true share could be lower if missing IGR returns are filed and alter the denominator.

But the core point persists. Debt service and principal repayments are a structural burden on state budgets.

The politics of visibility and the question of utilisation

There are at least three intersecting political problems that explain why massive inflows did not translate quickly into visible improvement.

Concentration of receipts
The lion’s share of payments accrued to a few states. That creates a concentration of power and resources that can reinforce patronage networks. Delta, Bayelsa, Akwa Ibom and Rivers together received most of the money.

Smaller producers had very little. Concentration alone can produce an appearance of wealth in state accounts even while communities remain poor.

Weak transparency and public accounting
Civil society and opposition voices repeatedly call for public disclosure of receipt lines, allocations and project-level spending.

In several states the absence of a comprehensive published tracker for derivation inflows and linked projects makes it impossible for citizens to verify the impact.

Calls to publish FAAC receipts, derivation bank statements and project disbursement schedules are frequent but unevenly answered.

Recurrent bias in budgets
Many state budgets are tilted toward recurrent spending. When inflows rise there is political temptation to increase salaries, allowances and contract awards.

Without strict ringfencing for capital projects, one off receipts can be absorbed without leaving durable assets.

Opposition and activist statements in Edo and Anambra show accusations that derivation receipts did not relieve households or support oil communities as expected.

Accountability anecdotes and voices from the ground

Critics from political parties and civic groups put the problem plainly. In Edo a PDP spokesperson said residents had not seen improved infrastructure despite higher IGR and derivation receipts.

In Anambra APC voices said oil communities remain abandoned and ordinary citizens continue to face higher taxation.

In Delta, a pro-accountability elder urged the state to publish monthly reconciliation of what it received and how it was spent.

These voices matter. They do not disprove the fiscal numbers. But they do suggest a gap between headlines and lived experience in local communities.

A South-South activist urged the federal government to consider direct payments of derivation to oil producing communities rather than routing funds exclusively through state governments.

The activist argued that direct transfers would limit diversion and ensure communities see tangible benefits.

That proposal is politically explosive and constitutionally tricky. But it speaks to the depth of mistrust in the Niger Delta over decades of perceived mismanagement.

Why Rivers borrowed more while others deleveraged

Rivers’ rising debt profile is the most important anomaly in the data. If you are trying to understand fiscal risk in Nigeria’s federating units, Rivers matters.

Possible explanations include:

1. The state took on new capital projects funded through borrowing rather than reallocating recurrent receipts. If the projects generate future economic returns the borrowing could be justified.

2. The state may have refinanced older, higher cost debts. Refinancing can raise the headline debt stock in the short term while reducing annual interest costs.

3. Political decisions may have prioritised immediate public works and security outlays over deleveraging.

None of these hypotheses can be confirmed without complete disclosure. At the time of writing Rivers had not published a full set of IGR returns for the first half of 2025. Public records are patchy.

The DMO figure for domestic debt is clear. It shows the increase. What it does not show are the contractual terms, lenders, maturities and interest rates attached to the additional borrowing. Those details determine whether the new debt is sustainable.

Historical context and comparative lessons

Nigeria’s history with resource revenue is long and fraught. Past windfalls have often failed to translate into sustained development in resource regions. International comparisons suggest three principles that matter.

Transparency and publication
Places that publish project level spending, contracts and procurement show better development outcomes.

Transparency reduces leakages and raises the political cost of diversion.

Ringfencing and fiscal rules
Countries and subnational governments that ringfence natural resource transfers for capital investment or sovereign wealth style saving deliver more durable outcomes.

Using a fixed share of resource revenue for long term projects reduces the temptation to expand recurrent spending.

Community direct benefits
Mechanisms that deposit a measurable share of resource transfers directly in community projects and local trust funds help align incentives.

Where local councils and communities have clear decision rights and transparent audit trails the social contract improves.

For Nigeria the lesson is simple. A windfall will always be politically seductive. It will also always end. How a state uses the money during the windfall determines whether benefits last.

How to fix the gap between receipts and results

The evidence points to clear policy responses that the federal government, state administrations and civic actors can pursue. They are practical and feasible.

1. Mandatory publication of derivation receipts and uses
Require each oil producing state to publish monthly reconciliation statements showing FAAC derivation receipts, IGR, expenditure by project, and contractors paid. Publish these in machine readable formats on state websites. Civil society can and should monitor compliance.

2. Project level tracking and independent audits
Create a standard project tracker for all capital projects funded by derivation allocations. Pair this tracker with periodic independent audits and public scorecards that report progress, cost variances and timelines.

3. Ringfence a portion for capital and community trusts
Amend state fiscal rules to earmark a minimum share of derivation for capital projects and community development trusts. This is not novel. The key is enforceability. A short sunset clause can be used at the outset to test the new rule.

4. Transparent debt contracting
Require states to publish full loan contracts within 30 days of signature including terms, amortisation schedules and lender identity. The DMO can host a centralised subnational debt registry to improve market discipline.

5. Capacity building for IGR mobilisation
Support states to broaden their tax bases and modernise revenue administration. Many states still rely on narrow taxes and inefficient collection. Technical assistance and conditional grants could help.

6. Community participatory budgeting
In the Niger Delta enable participatory budgeting processes that give host communities a defined say in how derivation resources are spent on local projects.

These are not cost free. They require political will. But they are cheap relative to misallocated billions that leave no visible legacy.

Risks to watch

If the surge in derivation is followed by renewed borrowing and a return to deficit financing, the temporary gains of the past two years could be reversed.

The DMO data show the federal picture too. Nigeria’s total public debt remained high in Q1 2025.

Subnational prudence matters for national stability. Where states accept short term recurrent relief but fail to invest in productive infrastructure the country pays later through lower growth and higher social cost.

Conclusion — a conditional success that needs proof

The N610.84bn reduction in domestic debt among oil producing states is a real and welcome result. The N1.67tn in derivation receipts made it possible. For many states the fiscal pressure eased and balance sheets improved. That is a story worth reporting.

But debt reduction alone is not development. The people of the Niger Delta and smaller oil producing states want jobs, clean water and schools.

They want roads and environmental remediation. They want to see derivation money converted into durable assets. At present the evidence for that conversion is mixed.

If governors publish receipts, if contract awards and project trackers are open to citizens, and if a portion of derivation is ringfenced for community development, then this period will be remembered as a turning point. If not, the record will read as another missed opportunity.

For you the citizen the stakes are simple. Demand disclosure. Insist on project evidence. Ask to see bank reconciliations. Public money belongs to the public. The data say the money arrived. Now Nigeria must insist the work follows.