Nigerian states in more trouble as NNPC deducts N215bn from September FAAC remittance

The ability of Nigerian states and other tiers of government to meet their various obligations is under more risk as the Nigerian National Petroleum Corporation (NNPC) says it will deduct a total sum of N215.32 billion from its remittance to the Federation Account and Allocation Committee (FAAC) in September 2021.

This means various state governments already impacted by low internally revenue may find it difficult to pay government workers or meet electorate promises without enough remittance from NNPC which form a large chunk of revenues shared at the FAAC meetings in Abuja.

In a document presented by NNPC at a two-day FAAC meeting, the state corporation explained that the FAAC remittance deductions is a combination of a N175.32 billion value shortfall and N40 billion joint venture (JV) cost recovery.

In recent months the national oil company has made deductions from its contributions to the federation.

The corporation deducted N170.4 billion in August, N114.3 billion in July; and about N126 billion in June from its FAAC remittance.

“Out of the value shortfall of N143,286,281,752.62, the sum of N103,286,281,752.62 was applied on the Gross Domestic receipts before arriving at the net receipt of N67.28bn in order to make funds available for JV cost recovery to sustain the existing production level,” the document reads.

“The July, 2021 value shortfall of N175,317,701,294.80 & outstanding balance of N40,000,000,000.00 will be deductible from the August, 2021 proceeds due for sharing at the September, 2021 FAAC meeting.”

The data showed that NNPC paid N67.280 billion to the joint account in July, in contrast to the N47.162 billion in June. The July payment was about N20 billion higher than that of June.

Read also: How NNPC recorded first profit after tax in 40 years

Between January and August, NNPC made a contribution of N349.25 billion to the federal, state and local governments with a deficit of N1.12 trillion.

A breakdown of the FAAC remittances includes N90.86 billion in January; N64.16 billion in February; N41.18 billion in March; N38.61 billion in May; N47.16 billion in June and N67.28 billion in July.

However, zero contributions were made in April which the NNPC noted that it was necessary to ensure the continuous supply of petroleum products to the nation and guarantee energy security.

Furthermore, the corporation said: “The overall NNPC Crude Oil lifting of 8.66 million barrels (Mbbls) (Export & Domestic Crude) in June 2021 recorded a 19.84% decrease relative to the 11.58Mbbls lifted in May 2021.”

Last month, the corporation continued its regime of deductions from the federation account withholding N117.4 billion from the three tiers of government.

At the time, the total subsidy retention on petrol since this year had hit a total of N608.808 billion since the full return of what the government terms under-recovery in February this year.

In June, the NNPC told the nation that Nigeria was losing about 42 million litres of petrol to the activities of smugglers across the country’s borders, increasing Nigeria’s estimated daily consumption of 60 million litres to 103 million litres, thereby worsening the subsidy payment regime.

Most experts say NNPC’s decision to reduce remittance to FAAC means that state finances from the Federal Government bailout will be limited and could consequently affect states’ ability to finance their operations.

“Nigerian states are facing severe financial hardship right now. Civil servants have been going without pay and projects have been suspended,” Kelvin Atafiri who runs Cavazanni Human Capital Limited, an investment firm exposed to the oil and gas sector, said.