• Wednesday, December 06, 2023
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N4.4trn cash bonanza for FG, others as FAAC gets boost


A top-level committee representing the entire federation and chaired by Charles Soludo, Anambra State governor, has held two meetings since being set up last week to advance Nigeria’s quest to add a massive N4.4 trillion within the next six months to the cash available for sharing by the three tiers of government.

The additional cash, which works out to an average of N733 billion every month and implies a doubling in the monthly allocations, is possible following the government’s removal of costly petrol subsidies and foreign exchange reforms that paved the way for a 60 percent depreciation of the naira.

A senior government official close to the committee told BusinessDay that the team whose membership also includes the group CEO of the Nigerian National Petroleum Company Limited (NNPC), the acting governor of the Central Bank of Nigeria and finance ministry chiefs, including the accountant general of the federation, began its work last week after being appointed by the National Economic Council, chaired by Vice-President Kashim Shettima.

Read also: FAAC jumps 20% in May as FG, States, LG’s share N786bn

Apart from the N400 billion monthly savings from subsidy removal, the committee is also looking at savings of around N2 trillion in six months (N333 billion monthly) from the recent changes in the FX rate used by Customs to calculate import tariffs as well as gains from the big adjustment in the FX rate used to calculate receipts from crude oil exports.

For this month, the three tiers of government shared a total of N786 billion, with next month’s haul likely to almost double to about N1.4 trillion.

According to a finance ministry official, this will be a huge addition to the cash available to the various governments, especially the states, some of which get up to 90 per cent of their funds from the Federal Account Allocation Committee (FAAC). Such states can be expected to clear a huge backlog of unpaid salaries.

Many states are broke and unable to pay the salaries of civil servants. In Benue State, for instance, civil servants got their first pay in seven months last weekend.

A senior government official who spoke to BusinessDay said it was always clear that administrative controls like increasing security patrols along the country’s porous borders would never curb the smuggling of petrol from Nigeria and now that the subsidy has been removed, “it appears we have a significant reduction in volume said to be consumed in Nigeria.”

“The level of demand reduction will shock many and Nigerians will come to see sense in letting subsidy go,” the official said.

According to him, another dimension to the subsidy issue is the “FX component, that is the rate at which NNPC and the central bank under Godwin Emefiele computed the exchange rate for the 450,000 barrels of oil daily which NNPC claimed it was using or selling to bring in imported products. To give the impression of low subsidy, the exchange rate was pegged at a shocking N386/$ for a long time.

“So, what you are going to see is a bump in FAAC when the work is completed because there will be no more sub-market price for dollars and if consumption drops as we believe it is dropping, we will no longer be talking of 450,000 barrels a day allocated to NNPC,” the official said.

Understanding the maze called oil subsidy or under recovery is difficult.

Up until 2015, the federal government budgeted for fuel subsidy with the states bearing no part of this burden. Years down the road, the federal government forced through an understanding, which allowed NNPC to spend on subsidy on behalf of the federal government and the states, and it was this that coalesced the states behind efforts to end the opaque subsidy regime.

Part of the result of this was the emergence of an era when the NNPC did not pay anything into the federation account for more than a year and the state oil company withheld everything it made in the name of funding subsidy. And when oil production collapsed below Nigeria’s OPEC quota, even all NNPC made became insufficient to fund the subsidy. This is why the NNPC now says it is owed N2.8 trillion.

The World Bank estimates the government would save N3.9 trillion this year following the removal of petrol subsidy.

“It stops Nigeria from going over a fiscal cliff,” the World Bank said in its latest report on Nigeria. “[It] sets the stage for a new, upward investment, growth, and development trajectory.”