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FAAC: Governance sinking amid shrinking revenue

Payments to the three tiers of government from FAAC purse in first three months of year 2022 showed a steady decline in revenue inflow into federation purse on account of fuel subsidy funding by NNPCL, ABDULWAHAB ISA reports

For beneficiaries of Federation Account Allocation Committee (FAAC) comprising the Federal Government, states and local government councils, this isn’t the best of times. Easily, the rough time can be discerned from their monthly cash out from the national treasury. In a very long time, until the last FAAC (April), the total sum available for distribution to the three tiers had witnessed consistent drop month after month. FAAC’s sharing every month has been a far cry from what it used to be, a significant reduction in the amount each tier takes home. The sorry state of FAAC affairs is rooted in the quantum of revenue inflow into the federation accounts. Hitherto, crude oil proceeds accounted for substantial revenue inflow into the federation accounts. Oil proceeds accounted for 89 per cent of revenue inflow, while taxes from Federal Inland Revenue Service (FIRS) and excise taxes from Nigeria Customs Service plus insignificant revenue from mining sector make the rest. The tide significantly changed in the past three years. Taxes and non-oil sector revenue currently account for 90 per cent of revenue shared on a monthly basis to the three tiers of government. Reason for the shift isn’t farfetched – the continuous funding of fuel subsidy, a burden Nigerian National Petroleum Company Limited (NNPCL) is shouldering out of a no choice principle because none of the four dilapidating government’s owned refineries is functioning at the moment. The trend has been that NNPCL exports barrels of crude oil and imports refined products for local consumption. In tandem with business rule, it will first deduct the cost of importing refined products and pay whatever remains as balance into the federation account. Most of the time, the balance is negative, leaving nothing to remit into FAAC purse. Also, in tune with the new NNPCL paradigm shift as a business oriented going concern, the era of acting Father Christmas to FAAC is gone. NNPCL has been the sole importer of petrol into Nigeria, as other marketers stopped importing the commodity due to their inability to effectively access the United States dollar.

Dwindling FAAC sharing

Continuous payment of subsidy on imported petrol is shrinking the monthly revenue inflow into federation purses available for sharing to states and local governments as well as the Federal Government. A cursory but retrospective assessment of FAAC’s past sharing in the first four months of year 2022 gives one a fair sense of consistent dwindling revenue at every FAAC session. Save for March revenue allocation shared in April that gave stakeholders a reasonable amount, the remaining allocations shared in the past months were grossly unimpressive. For instance, three tires of governments shared N574.668 billion as revenue in January 2022, N590.546 billion in February; March revenue shared in April was N725.571 billion, the highest amount shared so far in 2022. NNPC has had a near zero revenue remittance into the federation account on account of fuel subsidy deductions. The development leaves states and local governments unable to shoulder their routine obligations. Feelers across most states have been unpalatable with civil servants’ salaries, pensioner’s obligations and monies owed contractors unattended to. As things are, with government’s resolve to continue sustaining fuel subsidies till Dangote refinery comes on steam, it then means that NNPCL will have to continue carrying the burden at the detriment of the nation’s purse.

Deductions as source of friction

For now, fuel subsidy deduction is the source of frequent friction between states and NNPCL. State governors, represented by their various commissioners of finance at FAAC session, repeatedly express dissatisfaction with NNPCL’s deductions and remittances at every FAAC session. NNPCL’s failing to remit into the federation account leaves states going home almost dry, with little funds, not enough to cater for mounting obligations. For instance, in early January this year, it was established that NNPCL could deduct as much as over N1 trillion from FAAC in six months. This was premised on Federal Government’s decision to continue subsidising premium motor spirit. The irony of deductions is, the higher the price of crude oil at the international market, the higher the amount deducted monthly from FAAC by NNPCL. After an initial push back and forth arguments regarding retention or otherwise of subsidy, it became obvious early in the year that government was going to make provision for subsidy finance via a supplementary budget. It presupposes that NNPCL will have to continue its deductions at source. The state government fumed against it. NNPCL’s subsidy provision figures showed that the oil firm spent N210.38 billion, N219.78 billion and N245.77 billion as subsidies on petrol in January, February and March 2022 respectively, translating to N675.93 billion during the three-month period. Chairman, Forum of Commissioners of Finance and Benue State Finance Commissioner, David Olofu, lamented that states of the federation would continue to have it tough with the decision to redirect huge amounts of money meant for states to subsidy payment. Olofu, who analysed the opaque nature of NNPCL, was quoted by a major media outlet as saying the country was in big trouble if Nigerians continue to allow the malpractices going on in the oil sector. He said the manner the oil industry was being run under the present administration showed that the institution (NNPCL) was above the country and more powerful than government. Olofu also slammed the National Assembly, which has constitutional oversight on NNPC, for remaining silent. “The president is a minister of petroleum and there is nothing happening in the oil industry that doesn’t require his approval. “So, we expect that he (president) should show some transparency in the operation of NNPCL, particularly, the subsidy, because he said during his campaign that subsidy in the country is a scam, so why will he be president now and condone it?” “There is nothing needed to be said that has not been said, either by government of the day or opposition, it is now a national matter,” he said. When asked if states were not going to have it tough with the planned deductions from FAAC, the commissioner said: “States have always been having it tough and they will continue to have it tough.” His counterparts in other states held the same views. They are of the view that NNPCL is shortchanging the federation accounts with unrestrained deductions under the guise of fuel subsidy.

States, LG’s cash strapped

States and local government councils are worst hit by the dwindling FAAC sharing. Majority of the states and local government councils are unable to pay civil servants complete salary. They pay percentages, while pensioners are left in the lurch. Only a few states pay civil servants’ salaries in a timely and complete package. Contractors also have piles of bills unpaid. Labour leaders across state chapters agonise daily, the suffering of civil servants occasioned by cash crunch being experienced at the state government and local government council levels. At the just concluded May Day, a day set aside to rejoice and glorify dignity of workers, it turned to a day lamentation. Stories about local government workers and primary school teachers owed several months of salaries in arrears were everywhere.

Way out

States must think outside of the box. Governors as CEOs of states must drop or moderate their extravagant lifestyles and cut out waste. There is excessive waste of funds by the majority of governors. It is high time governors lowered their gazes on FAAC allocation and focus attention on IGR. What is coming from FAAC should be seen as a complementary allocation, not what to be depended upon.

Last line

Unless states and, by extension, local government councils, adopt a penny wise approach and expand their sources of earnings outside of FAAC central purse, it’s a matter of time for most states to sink into bankruptcy.

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