Another round of fiscal distress may be brewing between the Federation Account Allocation Committee (FAAC) and Nigerian National Petroleum Corporation (NNPC) as decreasing remittance reduces available funds to States to 13 months low of N32.4 billion.
NNPC’s falling remittance to the federation account in 2019 would harm state governments in two ways. An increase in the budget benchmark of crude oil to $60 per barrel means that if oil prices trend below this the States will get less in terms of revenue. The other implies difficulties in paying the minimum wage of N30, 000, due to lack of funds.
The frosty relationship between the 36 states of the federation, the Federal Capital Territory (FCT) and the management of NNPC since March 2018 has continued to deteriorate, with everyday Nigerians and civil servants taking a hit without understanding what has hit them.
Latest data from the NNPC shows that as of February 2019 the state corporation’s remittance to FAAC shrank with total payment standing at N32.4 billion which is an 83 percent decrease compared to N189 billion allocated in February 2018.
Further breakdown shows the NNPC is still unable to reach the N205 billion remitted to FAAC in March 2018, as monthly remittance declined to N175.7 billion in November which further decreased to N174.9 billion in December 2018 while January 2019 and February 2019 remittance stood at N51.6 billion and N32.4 billion respectively.
Dwindling revenue into the federation account would make it harder for state governments to effectively execute their budget especially the capital expenditure side, according to Paul Uzum, managing director of Nigerian Capital Management Ltd.
While NNPC’s remittance to FAAC seems to be declining the reverse is the case for subsidy another name for under-recovery.
Despite spending N730.9 billion on subsidy in 2018, Africa’s biggest oil-producing country has spent N206 billion in the first two months of 2019, an amount which would have increased the economic growth or standard of living of its over 180 million people.
“There are many fundamental issues that are wrong with how the subsidy is being managed in this country; there is every likelihood we might hit N1 trillion before the end of 2019” Ademola Henry, Team Lead at the Facility for Oil Sector Transformation (FOSTER) said. “FAAC will always make the normal noise and go home; they can only bark but they can’t bite.”
Last year, FAAC’s representatives, consisting mainly of Commissioners of Finance and Accountants General, refused to share the revenue made available by the NNPC as statutory allocation for the three tiers of government for June 2018.
Although no member of the committee explained why they refused to share the available revenue, then Minister of Finance, Kemi Adeosun, said the deadlock was as a result of the “unacceptably low” revenue remitted by the NNPC for sharing.
Over time States are contending that the NNPC, as the greatest revenue generator, has no justifiable reason to declare a shortfall in the amounts it pays into the federation account every month, especially when the international crude oil price had trended above the $60/barrel economic benchmark pegged by the government for 2018 fiscal year.
They have also called on the corporation to make full disclosures of its earnings, stressing that the usual disagreements were a direct product of transparency deficiency.
While trying to justify the reason for increasing subsidy expenses, Ibe Kachikwu the Minister of State, Petroleum Resources said Nigeria carries petrol inventories that can last for 30 days to 45 days and even up to 60 days reserve, as opposed to the previous practice of carrying less than 30 days’ worth of petroleum products.
“This increased the amount spent on subsidy. Now, can this be more efficiently done? Absolutely yes. We must find a way to track and determine consumption and also look at the delivery and performance indices,” Kachikwu told journalists at a media parley.
Since the start of the year, the revenue shared from the federation account has taken some hit, declining five percent from N649.19 billion in January to N616.19 billion in May 2019, according to data obtained from Abuja-based statistical agency the National Bureau of Statistics.
However, unlike in 2018 when in some of the months FAAC allocations were actually higher, for this year, revenue got from the Federation Account has continuously been falling, raising concerns about how state governments can sustainably carry on their fiscal operations.
The value is even expected to fall further to N600 billion in June, based on estimates done by the Bismarck Remane-led Financial Derivative firm, and it would be due to the fall in average oil price by 11.8 percent within the period.
As earlier stated, the State’s fiscal burden may worsen with the N30, 000 new minimum wages which are expected to be implemented in July after negotiations of consequential cost with the main association body for workers (the Nigerian Labour Congress).
A new minimum wage of N30, 000 would mean an additional N2 trillion fiscal burdens added to the over N4trillion recurrent expenditure in which Africa’s biggest oil producer plans to spend in the 2019 budget. This would, in turn, fuel inflation.
“The only way the country can survive this tsunami coming is either by adjusting Value Added Tax, the scrapping of petroleum subsidies which a taking a lot from government finances and possibly adjusting the exchange rate for FAAC disbursement else the country would be in for it,” Gbolahan Ologunro, an Equity research analyst at Lagos-based CSL Stockbrokers said.
