The 36 state governors have raised the alarm that they won’t be able to pay salaries in the coming months as a result of dwindling revenue from the federations account.
The governors under the auspices of the Nigerian Governors Forum (NGF) raised the alarm in a presentation before the House of Representatives ad-hoc committee investigating the daily consumption of petrol in Nigeria.
Fatima Usman-Katsina, NGF head of legislative liaison, peace and security, accused the Nigerian National Petroleum Company (NNPC of arbitrary deduction from the revenue accruable to the Federation Account and dwindling fortune of remittances to the federal coffers.
Usman-Katsina said Federation Account Allocation Committee (FAAC) net oil and gas revenues have been declining since 2019 and are projected to decline significantly in 2022 by between N3 billion and N4.4 billion unless action is taken now.
She said: “Although the operating environment has significantly worsened since the report was released, with NNPC now consistently reporting zero remittance to the federation account as profit from joint venture (JV), production sharing contract (PSC) and miscellaneous operations, the position of the Forum remains generally the same.
“The report had noted that FAAC net oil & gas revenues have been declining since 2019 and are projected to decline significantly in 2022 by between N3 billion and up to N4.4 billion unless action is taken now.”
Usman-Katsina said the NGF finding revealed that remittances to the FAAC have continued to shrink as NNPC recovers shortfall ‘quite arbitrarily’, from crude oil sales revenue.
“An analysis of the average monthly petrol consumption by states showed that a third of the country accounts for over 65 percent consumption. The analysis showed that Lagos, Oyo, Ogun, Abuja, Delta, Kano, Kwara, Edo, Rivers, Kaduna, Kebbi and Adamawa account for 65 percent of petrol consumption in the country.
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“Most states with high petrol consumption either have borders with neighbouring countries or are in close proximity, this has been an avenue for smugglers to benefit from profitable arbitrage opportunities in petrol pricing.
“Households directly consume only about 25 percent of the petrol that is consumed nationally, with the remaining three-quarters being consumed by firms, MDAs, transport operators or smuggled to neighbouring countries where the price is nearly three times what it is in Nigeria. Of the petrol consumed by households, the richest 40 percent of households account for over three-quarters of the product purchased by households, while the poorest 40 percent of households purchased less than 3 percent of petrol sold in Nigeria.
“In the current fiscal regime, remittances to FAAC would continue to shrink as NNPC recovers this shortfall from the federation as a result of crude oil price recovery. The report recommended a petrol pricing structure that addresses regional arbitrage.
“There is a significant market opportunity for additional export revenue streams for Nigeria given the price parity with our neighbouring countries.
“Privatisation of the three government refineries as they are, or after their full rehabilitation if affordable and viable, and expediting the licensing procedure for modular refineries will reduce the recurring government expenditure on refinery maintenance and increase the country’s refining capacity.
There were also economic risks highlighted in the report. Fiscal pressures are threatening Nigeria’s recovery, as rising prices continue to push millions into poverty,” she said.
The Forum further said that accelerated inflation between 2020 and 2021 was expected to have pushed an additional 5.6 million Nigerians into poverty, while insecurity is increasing in both poor and non-poor households, with some adults skipping meals.
The forum said further that, “fiscal pressures are growing unsustainably with the petrol subsidy significantly reducing the flow of revenues into the federation account. About 35 out of 36 states are likely to see transfers from the federation fall (in nominal terms) between 2021 and 2022, with the average decline projected to be about 11 percent.
“Most states are already experiencing fiscal stress, with 30 out of 36 states recording fiscal deficits in 2020, including Lagos and every oil-producing state except Akwa Ibom.
“With the projected decline in gross distributable federation revenues in 2022, fiscal deficits and debt burdens will grow even larger and faster. This will mean that transfers from the federation will not be enough to cover even salaries, and certainly not recurrent costs, which are growing in nominal terms,” the NGF noted.
