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The Battle Over Excess Crude Accounts

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Written by yashuaib

Nigeria

This is indeed a period of legal battles to resolve issues bordering on Fiscal Federalism. Nothing has been more contentious amongst the tiers of government than the controversial Excess Crude Accounts. Recently fourteen states of the Federation sued the Federal Government over illegal deductions from the Federation Account and on the illegality of the Excess Crude Account.

The states are not only in the Apex Court on the Excess Crude Account but also accusing the Federal Government for refusing to pay into the Federation Account monies realized from signature bonus, dividends from the Nigeria Liquefied Natural Gas, sales of government properties, privatization proceeds, Cost of Collection from Revenue Agencies, education tax proceeds, revenues from NLNG Dividends, waivers and concessions and others between 2004 and 2007.

There is also new twist to the unfolding development as the Governors’ Forum under the leadership of Governor Bukola Saraki issued a statement after their meeting to declare that other 22 states would soon join the suit to compel the central government to abolish the Excess Crude Account and address all the issues raised by their compatriots.

The Governors, in their new thinking, said that the current global economic crisis is taking a toll on each state of the federation, which may affect implementations of their respective 2009 budgets as proposed if their full entitlements from the Federation Account are not released to them as when due.
According to Saraki the Forum acknowledged the challenges of instability of the crude oil price which further decline would critically affect implementation of states budgets and agreed on the need to look out for appropriate political and legal solution in addressing their finances. They also forum agreed on the need for more transparency on the management of excess crude account.

The House of Representatives added its voice to the fiscal logjam by rejecting a proposal that revenue in excess of the $45 per barrel should be kept in a separate account other than the Federation Account. The House announced this while passing a federal government’s budget of N3.087 trillion. In fact the legislative chamber asked the Federal Government to stop the operation of special accounts, as it passed the Budget with stringent conditions. The lawmakers also inserted a clause that no special accounts should be maintained, and that all revenue must be channeled to the Consolidated Revenue Fund of the federation. The action of the House was based on the discovery by its Committee on Finance that about N450 billion was placed in nine such accounts.

The amounts being demanded by the states are mind-boggling. Lagos State is demanding for the sum of N127.43 billion as its entitlement from the illegal deductions over the years. Taraba State is also claiming N84.98bn for the same reason. Bayelsa state actually makes the highest claim of N300bn followed by Imo State N102.46bn, Oyo State N100.87bn, Niger N99.68bn and Edo N99.26bn. Others include Benue State which demands for a refund of N95.30bn Abia N93.09bn, Ogun N84.07bn, Yobe N82.55bn, Osun N80.77bn, Ekiti N74.31bn and Bauchi N28.52bn.

In their efforts to prove that they are indeed serious on their demands, the states hired the service of highly respected legal experts which included constitutional lawyers such as Chief Adegboyega Awomolo SAN, Yusuf O. Ali SAN, Dr. Konyisola Ajayi SAN, Daniel Dodo SAN, Chief Chris Uche SAN. The list included legal scholars: Prof. Yemi Osibanjo SAN, and Prof. Yemi Akinseye George, Dr. Akin Onigbinde and Ogunmuyiwa Balogun.

At the resumed hearing of multiple suits filed by the states, and considering the weighty case before it, the Supreme Court ordered the Federal Government and the 14 States to settle their disputes within two months.

It is necessary to understand the genesis of these controversies over the so-called illegal withdrawals.

The Federation Account, as described in Section 162(1) of the 1999 Constitution of the Federal Republic of Nigeria is an account maintained by the Federal Republic of Nigeria into which shall be paid all revenues collected by the Government of the Federation (except the proceeds from the personal income tax of the personnel of the armed forces of the Federation, the Nigeria Police Force, the Ministry or department of government charged with responsibility for Foreign Affairs and the residents of the Federal Capital Territory, Abuja).

The beneficiaries of the Account are the Federal and State Governments and the Local Government Councils in each State and the amount standing to the credit of the Account is distributed in accordance with the Allocation of Revenue Formula. The Revenue formula used for sharing from the Federation since January 2004 gives Federal Government 52.68%, the 36 States 26.72% and the 774 local government councils 20.60%.

Constitutionally the Federation Account is a zero account whereby all accruals to it must be shared in such a manner that no funds remain in the account after each month’s sharing. Since the Supreme Court verdict of April 2002 which nullified all Special Funds that included stabilization for saving fraction for rainy days, the Obasanjo’s administration established and maintained an Account known as the Excess Revenue Account for revenue derived from crude oil sales, Petroleum Profit Tax (PPT) and Royalties over and above the budgeted benchmark of the Federal Government of Nigeria for each year.

It is necessary to also know that while the excess revenue account is in dollar, there exists another account for excess revenue known as the Excess Domestic Crude Account for amounts over and above the budgeted benchmark for crude oil allocated to the Nigerian National Petroleum Corporation for domestic consumption.

The accounts have been maintained since 2003 by the Federal Government and on several occasions, special projects have been funded from the Excess Crude Accounts, while states and local governments received some releases to augment shortfall in their monthly allocations from the Federation Account.

It could be recalled that during an intense debate over the same Excess Crude Account at the National Assembly in May 2006, it was discovered then that a total sum of $27bn was in the Foreign Excess Crude Account, while N354bn was in the Domestic Excess Crude Account. That enormous wealth influenced President Olusegun Obasanjo to undertake some projects using the funds to offset the nation’s indebtedness to the Paris Club of Creditors, payments made for the controversial National Integrated Power Project and funding of additional days during the National Census exercise.

It has been expected that President Umaru Musa Yar’Adua would have jettisoned the old practice of maintaining the Excess Crude Account. It is learnt that he may probably like the judiciary to give proper interpretation or adjudicate on it once and for all.

The lawyers of the states are presently demanding that the Federal Government should set aside sums standing to the credit of the states in the so-called Excess Crude Account, in an interest yielding Escrow Account with the Central Bank of Nigeria to abide by the decision of the Supreme Court on their cases.

They made the demand because of the real fear that with sharp decline in the market price of crude oil and the antecedence of the Federal Government in unilaterally spending money from the Excess Crude Account, the Government will turn to the Excess Crude Account to fund the implicit gap in the Federal Budget and deplete the Excess Crude Account to the detriment of the states.

The states are also miffed by the continued withholding of their funds by the Federal Government in the light of the response of America and Europe to the global financial crisis which response is to encourage government spending to help stimulate the economy and ameliorate the effects of the recession.

Consistent with the approach taken by America and Europe, the Governor of the Central Bank of Nigeria, Professor Chukwuma Soludo recently advocated a stimulus package which will see the injection of funds into the economy to help stem the effects of the global financial crisis on Nigerians.

As much as the states have the rights to their funds are they capable of managing the funds judiciously and appropriately without going to private pockets? There are indeed a lot of experiences in the past at Federal and states not to talk of local government councils where their top officers, elected and appointed corruptly enriched themselves while their people remained in abject poverty.

It is necessary that all fiscal and monetary agencies should intervene but proffering professional if not political solutions to the crisis in ensuring macroeconomic stability by controlling money supply, mopping up excess liquidity as well as building protective mechanisms against inflation and fluctuations in oil prices. A mechanism should also be put in place by anti-corruption agencies to closely monitor withdrawal of funds against pilfering by the political custodians.

I believe if the Fiscal Responsibility Act is replicated in all the states, it may also have positive effects in promoting transparency and accountability at all levels of governance. By the way, are Nigerians actually bothered to enquire on the monthly releases from the Federation Account and monitor their utilizations by their governments? It seems ordinary citizens do not really care to hold public officers accountability on how they use our money.

This article was originally published in Economic Confidential February, Daily Trust February 16, New Nigerian February 17, Daily Independent February 18, Leadership February 24, Nigerian Tribune February , Triumph February 27 and Thisday February 28, 2009

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About the author

yashuaib

Yushau A. Shuaib is an award winning public relation professional. He is popularly called Idiagbon during his university days, He has distinguished himself with several credible awards in the field of public relations. Notable amongst them are Campus Writer of the year, Alhaji Sabo Mohammed Best Student in Public Relations, Delta State NYSC Merit Award, Automatic Scholarship for the Best Corps Writer, Head of State National NYSC Honours Award, NIPR Public Relations Person of the year in Kano/Jigawa State and the Young Achiever of the year from a Business, among others

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