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FAAC: Why disbursement of revenue continues to stall

Even before the dust settled on the stalemated May Federal Allocation, the Federal Ministry of Finance on Friday night announced a N668.898billion revenue to be shared to the three tiers of government.

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The announcement was made by the Director of Information in the Federal Ministry of Finance, Hassan Dodo, without recourse to whether the stalemate has been resolved or not.

But, no doubt, the deadlock took a toll on the running of states as many were practically “stranded” as the friction lasted. Most states could not pay salaries and workers had to resort to other means for survival. Overheads were not forthcoming rendering the daily running costs of Ministries, Departments and Agencies (MDAs) comatose.

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Daily Trust on Sunday gathered that some workers have shifted the responsibilities of their family uptake to their wives who are into businesses while many had to use bank’s overdrafts facilities to make ends meet.

Also, the development has affecting provision of services as some workers have stopped coming to work out of frustration and even lack of transport fare. It was leant that in many states, pressure were mounted on high internally revenue generating agencies to intensify their drive to save government from embarrassment in running essential services.

Daily Trust on Sunday reports that for the fifth time in seven months, the Federation Accounts Allocation Committee (FAAC) meeting has been deadlocked. The meeting was reconvened on June 27 to approve revenue accrued to the federation in the month of May but the sharing could not take place as finance commissioners of the 36 states walked out in protest over low oil revenue remittances by the Nigerian National Petroleum Corporation (NNPC). Subsequent meetings have ended in a deadlock.

The consequence of this so far has been that workers’ salaries for June have been delayed in some states. Many states in the country rely on the monthly allocation to offset civil servants’ salaries and other financial obligations. As at the last count, up to 11 states were yet to pay workers June salary.

All the times since the FAAC meetings have ended in a stalemate, the alleged inability of particularly the NNPC to remit expected revenues has always been cited as reason.

Oil price has risen, NNPC’s remittance hasn’t  

Findings have showed that NNPC’s own remittances, which mostly constitute the largest chunk of remittances to the FAAC, did not show any improvement despite the increase in oil price and production. However, some reasons have been provided for this unusual scenario.

A June FAAC document showed that the actual remittance made by the Corporation in January was N104.34billion, N112.18billion in February, N74.06billion in February and N112.29billion in April. In May, NNPC remitted N112.18billion and N127.42billion in June. 

But the major disagreements have been that these remittances especially the controversial June remittance should have been higher because of the surge in oil price in 2018 compared to 2017.

“Don’t forget that as the oil price goes up the cost of production goes up. Although we budgeted 2.3million barrels a day, what we have been producing is 1.9 million,” said a senior official of the NNPC who didn’t want to be named.

“So, there’s already a gap of 400,000 barrels per day. Even when there was oil price increase we didn’t have the volume to take advantage of the price,” he said.

Cash call arrears, petrol subsidy hurt revenue available for sharing 

Top officials at the NNPC explained to Daily Trust on Sunday that remittances to the FAAC might not even significantly improve for now because of a number of reasons.

NNPC in meeting its obligation to the federal treasurer has two major responsibilities which are to sell crude oil on behalf of the federation and remit proceeds net of cost to the federation.

Hence, from the two sources of inflows, the Corporation nets off costs including the cost to produce and sell the crude, under recovery from petrol import and other associated costs. These costs/deductions take up to 70 per cent of the revenue accrued for the month with the remnant transferred to the FAAC for sharing.

For instance, the FAAC June figures sighted by this paper showed that out of the N395.295 billion gross revenue the Corporation generated for June, N267.873 billion representing 67.7% were recorded as costs (total deductions for cash call, under-recovery of PMS among others).

A breakdown of the deductions showed that the largest chunk of N145billion was deducted for what the Corporation called T1/T2 (cost recovery/cash call), while under-recovery on petrol gulped N88.921 billion.

N21 billion went to what the Corporation termed “Government Priority Projects” just as N12.70billion was spent on Pipeline Security and Maintenance Cost (PSMC). Therefore the net revenue available for the FAAC after the deductions was N124.423 billion.

Analysis including explanations provided by the Corporation suggested that most of the fund earned from its operations were unanimously agreed by all the state governors, including the National Economic Council (NEC), the Federal Executive Council (FEC) and other stakeholders to fund NNPC’ joint venture cash calls.

NNPC spokesman Mr. Ndu Ughamadu while reiterating an earlier statement by the Corporation to justify the June remittance to FAAC stated that the agreement reached with the 36 state governors was that the Corporation would make a monthly remittance of N112 billion to FAAC subject to sufficient funds from sales of domestic crude oil allocation for the corresponding month after meeting cash call obligations on JVs, deductions of Premium Motor Spirit (PMS)-cost under recovery and pipeline maintenance.

Ughamadu said NNPC was however able to surpass the terms of agreement with the governors on the monthly remittance for the month of June by N35billion, by taking from the sum meant for settling cash call obligations.

An official of the Corporation confided that the cost borne by the NNPC in the course of gasoline importation is another major contributor to NNPC’s dwindling remittance to FAAC. 

“The cost of importing petrol now is almost N200 per litre but the government insists that we must be selling at N145 per litre. No private company imports product except NNPC,” the source said.

What do states want?

The FAAC meeting for June suffered postponements because of disagreements by the states that returns by the NNPC has fallen lower than expected.

The state governors, according to the NNPC, in addition to its N147billion June remittance, are asking for additional N40billion.

Speaking on some of these issues on behalf of the states, the Forum of Finance Commissioners of the 36 states and Commissioner of Finance, Adamawa State, Mahmoud Yunusa said, “We thought we had concluded our reconciliation where whatever that we have put forward to government based on our projections, is supposed to have been solved…But due to some other issues, the government was not able to get the desired attention it supposed to have gotten in respect to the process we said it should be followed.

“NNPC is not the only revenue generating agency in the country but NNPC is having this much attention because it is the major driver of revenue, all the tiers of government rely to some extent, on the revenue that is driven from the centre and the major contributor of that revenue from the centre is NNPC and we can’t afford not to fix whatever problem we see or we presume is there on NNPC, we are risking the entire economy.”

On the claim by the NNPC that it had exited the Joint Venture Cash-Call, Mahmoud said, “Whatever it is, if you want to exit the JVC there is a model or a machinery that is put in place. Even if we are not understanding, come and tell us. What is JVC -it is a joint Cash Call – it is for me to bring X amount of money while the other partner also brings X amount of money to do a business. So I need to know what I am contributing and I equally need to know what the other party is contributing. If I am contributing a JV, I am investing and every investment there should be return on investment. If there is no return in investment why should you invest? 

The way forward

Industry experts have continued to advocate for the government to totally deregulate the downstream so that NNPC can hands off the role of being the sole importer of petrol and free up the funds recorded as under recovery on petrol import and remit the fund to FAAC for sharing to the subnational governments.

Sarah Muyonga, Nigeria Manager, Natural Resource Governance Institute (NRGI) said stakeholders need to understand better what it really costs NNPC to import, sell and transport fuel. It is necessary to go beyond rumors and competing claims to scrutinize the processes involved, to see if there are any leakages or chances for cost savings. (Additional reports from our correspondents)

 

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