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FAAC: Why figure may never add up

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FAAC: Why figure may never add up

In less than 12 months, the Federation Account Allocation Committee (FAAC) meeting was botched five times over the quantum of Nigeria National Petroleum Corporation’s remittances to federation purse. While previous stalemates were resolved within 24 hours, that of June appeared most intractable with complexities. Abdulwahab Isa gives insight into these developments and proffers solution.

 

Signs indicating June session of the FAAC wasn’t going to be a hitch- free one were glaring to a discerning reporter. FAAC is a monthly forum of economy eggheads. It comprises 36 states’ finance commissioners, Accountant- Generals (states), NNPC representatives, Federal Inland Revenue Service (FIRS), Customs; RMAFC, Department of Petroleum Resources ( DPR) and Office of the Accountant- General of the Federation ( OAGF).

Traditionally, Minister of Finance chairs FAAC, but may designate either Permanent Secretary or AGF to preside, if indisposed. It holds between 20th or 22nd of every month to decide the quantum of revenue flow into federation account to be shared to the three tiers of government – federal, states and 774 local government councils, using approved revenue formula.

 

Botched session

Signs of a stalemate began to unfold mid-June. As days skipped into month – end, officials of Ministry of Finance had no idea when the meeting would hold. On 23rd of June, they still had no idea when this reporter made inquiry.

Excitedly on 28 June, notice of FAAC meeting was sent out to reporters. FAAC meeting is two phase sessions: technical session being the first leg of FAAC session that scrutinises revenue details generated in the month by revenue generating agencies before its adoption. The second phase is plenary session where account is adopted and the media is briefed about outcomes of the meeting. Storms started gathering on first leg. The technical session couldn’t sail through after several hours of closed-door session.

As FAAC members filed out from the conference room of the Federal Ministry of Finance, venue of FAAC meeting late in the night of last Thursday, state Commissioners of Finance wore dull faces. None let word out when confronted by reporters who had laid siege to the conference lobby.

Prodded intermittently by barrage of questions from reporters, the Ministry’s Director of information Mr. Hassan Doddo, in a casual tone, said: “The meeting adjourned to reconvene at a later date to be communicated to you guys”.

 

States, NNPC square up

Revenue from the NNPC accounts for over 75 per cent of the total revenue accrual in to federation account to be shared to three tires of government. NNPC sells on behalf of FAAC portion of domestic crude oil allocated to it. Of course, there are expenses undertaken by NNPC in selling the domestic crude oil. The state oil firm always insists on netting off these expenses incurred by it before remitting final figure to the federation account.

There are Royalty, Petroleum Profit Tax payments also to be remitted into federation puree by NNPC. These funds, have been at the heart of frequent FAAC stalemate. Between last year and now, FAAC session encountered five stalemates. However, while previous stalemates were resolved within 24 hours, the June impasse was intractable with entrapping complexities. It dovetailed into July with stakeholders unable to access their monthly allocation.

 

NNPC’s position

The NNPC absolves itself of blame, saying it faithfully keeps to the agreement entered with FAAC on remittance to federation account.

NNPC’S Group General (Public Affairs Division) Mr. Ndu Ughamadu, confirmed to this medium that an agreement was reached with FAAC, one that the national oil firm never deviates from.

About N40 billion naira additional request put forward by the 36 states’ governors to the NNPC was responsible for deadlock that stalled FAAC meeting, the oil firm said.

“The agreement the NNPC has with the governors, is that FAAC be given N112 billion monthly. This , however, will be subject to sufficient funds from sales of domestic crude oil allocation for the corresponding month after meeting cash call obligations on JVs, deductions of PMS cost under recovery and pipeline maintenance.

“Incidentally, due to the posture of governors, the NNPC was able to raise N147 billion this month (June) for the Governors by taking from the amount meant for settling cash call obligations. Sadly, however, the Governors wanted additional N40 billion. Unarguably, this is very unfortunate, considering that NNPC is exiting the cash call phenomenon,” said Ughamadu.

 

States accuse NNPC of shortchange

The 36 states are the most important FAAC stakeholders. They wear a dual cap. In addition to representing themselves, they serve as the eyes of 744 local government councils in the federation. States’ Governors pull FAAC’s trigger remotely through their respective finance Commissioners whom they use as their proxies. The Commissioners always canvas common position on all contentious issue using their common platform: The Forum of Finance Commissioners as their mega phone.

Expectedly, on this contentious May allocation in the month of June, Forum Chairman and Adamawa State commissioner of Finance, Mahmoud Yunusa, said NNPC must lay all facts on the table.

“You don’t expect us to accept and adopt whatever amount remitted to FAAC by the NNPC. We have to go through it and if convinced, then we accept but where it is not clear to us, we have to seek for proper reconciliation,” he said.

“There are a lot of happenings with the NNPC figure. We have read in the papers that NNPC said it has remitted what it was supposed to remit to FAAC. NNPC claims it has remitted N147 billion but what the NNPC actually remitted to FAAC is N127 billion. By law, NNPC is required to remit all funds accrued from the sales of crude oil.

 

Based on our analyses, this N127 billion is inclusive of royalty and PPT. How can that be? But by the law establishing these agencies (DPR and FIRS), royalty should be given to DPR, while PPT should be given to FIRS. NNPC has remitted N127 billion and it claims it was expected to remit only N112 billion. Even if they had agreed with the governor’s to remit N112 billion when the oil was sold at $50 per barrel, what stops them from paying more now that the oil price is at $80 per barrel?

 

“We even want to know what are the cost incurred by the NNPC? What are the personnel costs? Are there other cost incurred by the NNPC? If there are, then we review the cost and know how much should be deducted for such cost. But it is not for NNPC to appropriate and reprobate at the same time”.

He said that, based on what was happening in the economy, especially in the oil and gas sector, the oil price hovers at $80 per barrel and the production is steady, producing about 2 million barrel per day. “We expect that the remittance from the NNPC should add value to what the Federal Government is doing,” he said.

 

Chairman of Commissioners Forum, added, “ DPR confirmed to us that , based on the production capacity, the Royalty should be at N60.8 billion. So when you add this N60 billion with the N127 billion remitted by the NNPC, it will give you N187.8 billion. The N60.8 billion royalty was supposed to have come through DPR. The royalty supposed to have come separately from DPR but the NNPC does not remit it to DPR. Again, based on the record of the NNPC, which it uses in calculating PPT is 1/1:46. Whatever, the amount, you multiply it by 1:46 therefore, the expected PPT N87.6 billion.”.

 

 

Presidency intervention

Vice-President, Prof. Yemi Osinbajo, in his capacity as the head of the economic wing of the administration, stepped in to broker truce in what has become a recurring quagmire. It’s left to be seen how the meeting pans out in the days ahead. Instructively, in the interim, states appear hell bent on their ‘no agreement posturing’ until NNPC remits all that are due to federation account.

 

“We don’t intent to join issues with the NNPC, but we want to make it very clear to the NNPC that it is a public company and it is requested that its operations be made public because it is meant to make profit. And as shareholders and stakeholders interested in the running cost of this public investment, the major issue we are having with the NNPC is discrepancies in the figure,” Mahmoud insisted.

 

Way forward

Solutions for avoiding repeat of frequent FAAC versus NNPC clashes lie with states. Depending on monthly handout, the income from federation account does not augur well for smooth running of state administration. It’s high time states expedite action, by looking inward and tapping into additional sources of income. Also, states governors have to put on their thinking cap, to seek a means of tapping into various mineral deposits in their enclave and reap bountifully from them. Failing to take this noble step will trap them in FAAC’s quagmire every month.

 

Last line

Intervention by the Presidency is long overdue. It should be resolved once and for all in the interest of civil servants. They (civil servants) are the unfortunate grass that bear the brunt when two elephants fight.

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