Guardian

Governors return to the trenches over Excess Crude Account

ONCE again, governors of the 36 states have threatened to resume hostilities with the Federal Government on the legal turf of the Supreme Court, over the continued operation of the Excess Crude Account (ECA), following the inability of the two parties to reach an amicable out-of – court settlement, as originally advised by the seven wise men of the apex court.

But as the two parties remained enmeshed in their unending battle, concerns are mounting among major stakeholders in the oil and gas sector, especially in view of a recent British Petroleum (BP) Annual Statistical Review for 2012 just released, which declared that Nigeria’s crude oil reserves and production ratio may not last beyond the next 46 years.

Excess crude savings is the difference between the budgeted crude oil price benchmark per barrel and the actual price of the commodity at the international market. That difference, now referred to as “Excess,” is pooled together in a separate account as part of fiscal discipline, to cater for the rainy days.

Introduced by the Okonjo-Iweala’s led Economic Management Team in the former President Olusegun Obasanjo administration, it was from the ECA that Nigeria financed its debt liability to the Paris and London Club of creditors between 2005 and 2007, totaling around $12.4 billion; as well as the financing of some National Integrated Power Projects (NIPP), which reportedly gulped an estimated $10 billion during Obasanjo’s and the late President Umaru Musa Yar’Adua’s administrations. It was also from the account that the sum of $1 billion was transferred, last year, to kick-start the Sovereign Wealth Fund (SWF) in the country.

The ECA, which once pooled up to $45 billion in savings during Obasanjo’s administration, was later depleted below $3 billion, following protests by the States that the account was unknown to the Constitution

In September 2012, the apex court had charted the path that would spare both parties and itself the legal brickbats, advising them to sit at a table, discuss the matter and reach what former President of the United States, William Jefferson Clinton calls a “honourable compromise.”

The parties took the hint in and an adjournment was granted to give them enough time. However, months passed by with both parties seemingly non-committal to the negotiation process. As a result, on November 23, last year, when both parties were due to report their new position on settlement efforts to the Supreme Court, the counsel representing the states, Chief Adegboyega Solomon Awomolo (SAN) declared that his clients had lost confidence in the ability of the Federal Government to reach an out-of-court settlement on the dispute.  He prayed the apex court to proceed with a definite hearing of the case, as his clients (Governors) wanted the case decided on merit since the parties could come up with amicable settlement terms.

Although, the Federal Government’s counsel, Chief Wole Olanipekun (SAN), admitted that no agreement had been reached on settlement terms, he reiterated his client’s commitment to resolving the matter out-of-court. Olanipekun therefore prayed the court for an adjournment, to enable the two parties reach settlement terms acceptable to both sides. He also described the matter in contention as “political.”

But Awomolo quickly disagreed with Olanipekun’s description of the subject matter as ‘political,’ insisting that it was a matter of ‘grave constitutional importance.’ He opposed the federal government’s request for an adjournment and prayed the court to hear and give a definite pronouncement on the suit, which had been pending since 2008.

After evaluating the submissions by the counsels, the apex court moved in favour of Olanipekun by adjourning to May 9, 2013 for reports of the anticipated settlement. It also ordered the parties to make sure that all processes were filed before that day.

The 36 states of the federation had sued the Federal Government over plans to transfer $1 billion from the ECA to a new account known as the Sovereign Wealth Fund (SWF). They also sought an order, to compel the Federal Government to pay N5.51 trillion into the Federation Account, being the balance of the money that accrued to the central purse, from the proceeds of crude oil sales, petroleum profits’ tax and oil royalties between 2004 and 2007.

However, the Federal Government had classified such earnings as “excess crude proceeds” and “excess PPT and royalties,“ which were paid into the ECA. The governors also prayed the court to order the Federal Government to transfer to the Federation Account, all sums standing to the credit of the ECA.

Although a ceasefire was agreed to enable them settle the dispute, half-hearted negotiations between both parties and their failure to resolve the issues amicably, prompted the states to, on January 30, 2013, express a renewed determination to resolve its dispute with the Federal Government in court.

The state governors had always argued that their monthly allocations from the fund were inadequate to meet their development-related needs. They are also afraid of arbitrary withdrawal of funds from the account by the federal government.

The governors had also insisted the ECA was illegal on the one hand, just as it gives too much power to the federal government to distribute the country’s wealth among the three tiers of the government. Besides, they are curious about an alleged $35 billion shortfall, between what accrued to the ECA between 2004 and 2007, and the funds eventually released to them.

In April 2012, Okonjo-Iweala, who is also now the Minister of Finance, had estimated the amount in the ECA at $3.6 billion, which falls short of the projected amount. While the account’s value rose to $4.2 billion in May of the same year, exports have been hampered by oil bunkering.

Revealing that the ECA had been overdrawn by $16.4 billion between 2006 and last April, and highlighting potential oil price fluctuations, Okonjo-Iwaela was of the view that the monthly sharing of the ECA proceeds among the state governors was economically unhealthy. To her, the account should maintain a minimum balance of $50 billion.

But the continued depletion of the ECA in 2010, despite economic recovery and stronger oil prices, exposed weaknesses in the rules surrounding the fund’s management. In an attempt to resolve the legal issues surrounding the ECA and protect the economy from oil price volatility, the National Assembly passed the Nigerian Sovereign Investment Authority Bill in 2011, which created a new Sovereign Wealth Fund (SWF).

Okonjo-Iweala observed that the enabling law setting up the SWF provides for the inclusion of governors, civil society organizations and other reputable bodies to manage the fund collectively. However, securing the initial transfer of $1 billion from the ECA to establish the SWF proved difficult, because of the governors’ stance that all monies accruing in excess of the budget benchmark should be shared. To the governors, ECA remains the common wealth of both the states and the Federal Government, and that constitutional procedure should be applied in disbursements from the account.

The federal government had, last year, approached the Supreme Court to discuss the possibility of an out-of-court settlement, a promise many states see as insincere. The move was followed by the 36 governors’ call on the Supreme Court to bar the federal government from withdrawing $2 billion from the fund until the suit determining the account’s legality was concluded.

The NGF had constituted three committees in April 2012, to examine various issues in the contentious ECA and oil subsidy deductions,” and brief it as appropriate, against the background that the ECA “negates the principle of Federalism and budgetary provision.”

The Committee’s recommendations to the Forum are still unknown, but it  most certainly formed part of the agenda that was discussed at the NGF’s inaugural meeting this year.

Rising the meeting, its chairman and Governor of Rivers, Rotimi Chibuike Amaechi who read the communiqué, criticized the Federal Government’s attitude on all issues relating to the ECA. He said that it was this attitude that informed the forum’s decision not to take any more adjournment and to head to the Supreme Court for a better interpretation of the issue. He also disclosed on the same day, that the Federal Government had approved the distribution of $1 billion from the ECA among the 36 states and the Federal Capital Territory (FCT), to enable them to execute projects. Amaechi said the governors were disappointed at the attitude of the Federal Government in respect of the issue.

The decision of President Goodluck Jonathan may well be an evidence that the Federal Government had soft-pedaled under the pressure by the governors, because as recently as December last year, the 36 state governors had requested for $1 billion from the same ECA to “fund ongoing projects” and “help state governments meet up with their financial responsibilities,” but were turned down by the federal government.  The Sokoto state Deputy Governor, Mukhtar Shagari had presented that request on behalf of his colleagues at that time.

While most of the governors have declined making individual comments after the meeting, they seemed comfortable with the resolution to see to the immediate conclusion of the case. Furthermore, the argument of the Governors has been that, their craving to have the money saved in the ECA shared is to use it to execute projects that would fast-track the development of the states.

Governor of Niger state, Babangida Aliyu had once remarked that the states “had been looking for other sources of funds to enable them meet their obligations, (while) some states have gone to the capital market to get money to finance capital projects. Others go for loans from commercial banks.”

Although, a lecturer with Bingham University, Mr. Anthony Igyuve was of the view that the Governors’ demands may not be out of place, he however insisted that the so-called specific projects they desire to carry out should be made public. He declared: “The public till is so depleted because of the reckless spending of the state executives. Most of them cannot account for the much they collect at the end of month from the Federal Allocation.”

Some of the worried stakeholders, who spoke to The Guardian yesterday, said the new BP projection has very serious economic implications for the country, which derives its major revenues come from oil mineral resources. They expressed the need for more proactive strategies in the administration and application of mineral resources now, to prepare for the worst scenario in the future if the BP survey turns out to be true.

One of the concerned Nigerians is the former Chief Justice of Nigeria (CJN), Mr. Alfa Belgore. He suggested that one way of avoiding the unnecessary bickering over the ECA was for the states to evolve a strategy that would make them less dependent on revenues from oil.

Belgore, who is the chairman, Governing Board of the International Institute for Petroleum Energy Oil and Gas said: “If  I were a governor, I would not depend on allocations from the centre. I would tell my people that we should develop the rich resource base at home and generate employment and wealth with which we would run our activities.

“We have not utilized the potentials of the many resources we have, spread across the federation: the rivers, fertile arable lands and several other natural mineral resources that are locked in the belly of the ground here in Nigeria. A study conducted in the country shows that if we utilized the resources of the rivers alone in this country, from the Cross River to Anambra - the Ethiope River, up to Kebbi, Sokoto and the Adamawa Rivers, we would have all year farming through irrigation and can also generate electricity, boost our industrial base and even sell power to our neighbours.

“That is the only way we can guarantee growth in governance because what we do now with oil revenue from the centre is just pumping money into private pockets, which cannot positively affect the people.”

In his own contribution, an Executive Director at the Nigerian National Petroleum Corporation (NNPC), Dr. Timothy Okon said if the States are suspicious of the Federal Government in the administration of certain revenues, what they need to do is to seek for the review of the Revenue Mobilization, Allocation and Fiscal Commission Law, which specifies how federally collectible revenues are distributed.

His words : “These unending face-off over whether it is derivation or excess crude administration are not healthy and some people are even suggesting that these should be included n the PIB. I think this is not necessary, so that we don’t over load the Bill with matters that would distract it from the main purpose.

“If the constituent units, be they States or Communities, feel strongly and are suspicious of lack of transparency in the handling of finances that concern them, what the need to do is to seek for the National Assembly to review the Revenue and Fiscal Law to redefine how such revenue should be handled and distributed.“