In the past few years, savings into and withdrawals from the Excess Crude Account (ECA) have been contentious. The Federation Account Allocation Committee (FAAC) is considering fresh guidelines for revenue inflows and withdrawals from the account.
The Excess Crude Account was established in 2004 during the regime of former President Olusegun Obasanjo, with the underlining concept to save oil revenues above the benchmarked price.
From US$5.1 billion in 2005, the account grew to US$20 billion in 2008 with the rise in global oil prices, and provided the much-needed buffer for the economy against the 2008/2009 global financial meltdown, which scorched several economies across the globe.
Analysts believe the ECA insulated the Nigerian economy from external shocks during that global financial crisis, considered as the worst after the Great Depression of the 1930s.
The Controversies
However, the ECA has been buffeted by sundry controversies, ranging from its legality or otherwise, insistence by state governors to have all accruals into the account shared, and unauthorised withdrawals among others.
At some point, the Senate was to pass a motion for the abolition of the ECA, describing it as an illegality and a drain pipe .
But even with the creation of the Nigerian Sovereign Investment Authority (NSIA), managers of the Sovereign Wealth Fund (SWF), the ECA has existed side by side. Intermittently, FAAC resorts to dipping into the account to augment monthly allocations to the various tiers of government.
The National Economic Council (NEC) had also last year approved the withdrawal of $1 billion from the account to acquire military hardware for the prosecution of the war against insurgency in the North-east and other security challenges across the country.
The ECA funds should not be subject of federal and state assemblies’ appropriations.
The oil producing states have been vehement in their criticism with the way their share of the 13 per cent derivation funds have always been handled by the FAAC.
Their disapproval to the practice where they are being forced to save significantly more from their statutory allocation every month than other states, was never hidden.
According to the oil-producing states, a situation where revenue transfers to the excess revenue account were made without first paying their share of the 13 per cent derivation revenue due to them did not take cognizance of the equity and equality of states as enshrined in the constitution.
New Guidelines
Faced with sundry controversies trailing the ECA, FAAC is considering fresh guidelines for revenue inflows and withdrawals from it.
The guidelines were recommended by an ad-hoc committee constituted in July 2018 by the immediate-past Minister of Finance and then chairman of FAAC, Kemi Adeosun.
The five-member committee headed by the Delta State Commissioner for Finance, David Edevbie, was mandated to help develop clear guidelines for transfers into and withdrawals from the ECA.
It was also asked to review the current modalities adopted by FAAC in making transfers into the various accounts before recommending new guidelines to follow in future.
After its deliberations, the committee pegged the minimum monthly statutory revenue to be shared from the Federation Account by the three tiers of government at about N680 billion.
The committee was constituted to consider series of complaints by some finance commissioners, particularly those from the nine oil-producing states of the federation, concerning the manner of transfers into and withdrawals from the Excess Crude Oil, Petroleum Profit Tax (PPT) and Royalty Accounts.
The committee’s recommendations were submitted to the FAAC last November on guidelines on transfers into and withdrawals from the accounts.
According to the report, the committee recommended that any month where the net distributable revenue available for sharing by the federal, state and local governments from the Federation Account falls below N680 billion, funds should be withdrawn from the ECA to augment the shortfall to at least N680 billion.
On the contrary, the committeerecommendation said that if the net distributable revenue is between N680 billion and N730 billion, up to about N50 billion should be transferred into the ECA as saving.
It also recommended that if the net distributable revenue for the month is between N730 billion and N830 billion, up to about N100 billion should be transferred to the ECA, or a minimum of N150 billion, if the figure is above N830 billion.
New criteria for monthly revenue transfers into and withdrawals from the ECA were also spelt out.
Going forward, further transfers into the ECA should be made net of the 13 per cent derivation, which component should be paid to the oil-producing states.
The committee said withdrawals from the ECA in respect of the 13 per cent derivation fund, accruing to the oil-producing states, should be calculated and credited to their accounts accordingly, while future withdrawals from the ECA should be net of the 13 per cent derivation fund paid to the oil producing states.
It equally picked holes in the practice where transfers into the ECA was determined monthly as individual item based on surpluses above each revenue items against monthly budgets of the revenue generating agencies.
The committee observed the practice adopted when the revenue generating agencies were continually declaring surpluses and not considered periods of low revenues, revenue inflows from previous months, nor the excesses or deficits in collective revenues of the agencies.
To correct the observed deficiencies in the previous practice, the committee resolved that transfers into the ECA would henceforth be made, based on the cumulative revenues reported by each revenue generating agency from the beginning of the budgetary year to the month of distribution, rather than monthly individual revenue items.
What Benefits?
With the new guidelines in place, the question is whether they will make the federal and states fiscally responsible? How will the guidelines curtail the excesses of the states and the Nigerian National Petroleum Corporation (NNPC)?
Will these guidelines take care of the local governments which have been shortchanged for many years?
THISDAY sought the views of Nigeria’s first Professor of Capital Market Market and Head, Banking and Finance, Nasarawa State University, Prof. Uche Uwaleke on these probing questions.
According to Uwaleke, the guidelines will no doubt assist the state governments to plan relying on more predictable cash flows.
He said, “It has also laid out a clear criterion for building fiscal buffers since specified amounts will be transferred to the ECA if oil revenue earned exceeds certain thresholds. Be that as it may, these recommendations once again underscore the need for transparency in the financial transactions of the NNPC.” As long as the accounts of the nation’s oil company remain opaque, Uwaleke argued that allegations bordering on under-remittance of revenue into the federation account will continue to plague FAAC.
“This speaks to the need to quickly conclude the process regarding the Petroleum Industry Bill. Ordinarily, these guidelines should promote fiscal discipline among sub national governments considering that they will be in a better position to optimally ration scarce resources by prioritising spending.
“Unfortunately, this may not be the case as many states in Nigeria have done little to address the challenges of bloated workforce, redundant political appointees, avoidable overhead costs, low IGR as well as huge debts owed to financial institutions.
“ Quite regrettably, except the vexatious issue of joint account is put to a stop, local governments will continue to get ‘zero allocation’ since they are at the mercy of state governors. I do not think the guidelines have specifically addressed the burning issue of how local governments accounts can be credited directly by the Accountant General of the Federation.
“The earlier the financial autonomy of the third tier of government is recognized and respected, the better for the nation’s economy,” the university don said.
