Special Report: Nigeria’s four seasons of lavishness with N15.46 trillion Excess Crude Fund

In the last fifteen years, the Nigerian government has spent at least $107.4 billion (the equivalent of N15.46 trillion) from the Excess Crude Account (ECA) under the administrations of Olusegun Obasanjo, Umaru Musa Yar Adua, Goodluck Jonathan and incumbent President Muhammadu Buhari.

A Premium Times Centre for Investigative Journalism (PTCIJ) report revealed that Nigeria earned $109.37 billion, approximately N15.274 trillion, as excess crude money between 2004 and 2018. According to the report, the fund reached its peak with a real inflow of $18.16 billion in 2008.

The rise in crude oil prices raised the funds in the ECA three-fold between 2005 and 2008, with the account growing from $5.9 billion in 2005 to over $17 billion in 2008. Other years of boom, in terms of direct inflows into the account, were in 2011 and 2012 with an inflow of $16.19 billion and $13.59 billion, respectively.

After a careful review of the document obtained from the Cash Management Office (CMO) of the Ministry of Finance through the FOI mechanism, PTCIJ has determined that successive administrations, since 2004, have expended an estimated $107 billion out of the $109.15 billion, approximately N15.274 trillion, on various projects/programmes from the ECA. By 2010, the account had fallen to less than $6 billion due to the steep drop in oil prices, mismanagement and budget deficits at all levels of government in Nigeria.

A review of the same data revealed that a claim by the former Minister of Finance, Kemi Adeosun, where she notes that the first payment into the ECA by the Buhari administration was in April 2017, was incorrect. The CMO document revealed that there was a $1.43 billion real inflow in 2016 that included $1.23 billion from Monthly Excess Inflow, $9.68 million from Interest and $189.55 million as Interest and Special Transfer/Refund.

Mrs Okonjo-Iweala, the Finance Minister in the Olusegun Obasanjo administration, committed a similar error when she insinuated Nigeria earned $61.7 billion in five years as excess crude oil money. She quoted the four-year earnings as $18.14 billion, $18.16 billion, $15.19 billion, $8.01 billion and $2.17 billion, consecutively, between 2011 and 2015. The CMO document revealed, however, that the five-year total earnings were actually $42.33 billion annual earnings, a difference of $19.5 billion from the figure quoted by the Finance Minister at the time.

Errors such as the ones committed by both finance ministers are misleading and have consequences on the projections made based on incorrect figures, especially since there have been no full details on the actual inflow/outflow activities on the account until recently

The federal government spent about $12.95 billion from the foreign excess crude revenue account savings on fuel subsidy payments to petroleum products marketers between 2009 and 2014. In 2009 and 2010, the subsidy payments were made to the Petroleum Product Pricing Regulatory Agency (PPPRA) who subsequently paid the marketers.

An analysis of the Excess Crude Account (ECA) spending by categories showed that in the last fifteen years, distribution to the three tiers of government, at the highest, was $61.86 billion. Spending on oil subsidy in the same period was $12.06 billion, debt financing took $15.42 billion and investment on power projects $8.71 billion. The empowerment project popularly known as Sure-P got $5.74 billion while the stabilisation fund, through payments to Sovereign Wealth Fund, was only $1.25 billion. Additionally, the NNPC pipeline and joint ventures operations on gas took $1.51 billion. The other expenditures from the ECA were Security, Transportation and Sundry Contingencies with $496.37 million, $250 million and $100.38 million respectively.

ECA spending contrasts with the Intention of ECA

The Excess Crude Account is a special account established to warehouse excess revenues from the prevailing crude oil price at the international market. Income generated above the approved crude oil benchmark price in the annual budget is saved in the account.

Withdrawal from the account is statutorily subject to the approval of the three tiers of government and the Executive Council of the Federation (FEC). These earnings are meant to be used for the development of the country and serve as a buffer in times of grave economic conditions.

Unfortunately, Nigeria has failed to transform decades of oil earnings into sustainable development, despite being the largest producer and exporter of petroleum in Africa and one of the ten largest producers in the world.

According to a report published by the Yar’Adua Foundation, in the period spanning 1970 to 2014, Nigeria wasted five oil booms –earning a conservative estimate of 1 trillion Dollars in oil revenue but making no significant savings. Also, these earnings did not translate into lasting or productive capital through the development of infrastructure, institutions or citizens. Nigeria’s failure to effectively manage revenue earned from oil and gas has delayed the country’s transition from a developing economy to an advanced one.

Further analysis of the ECA revenue and spending by various administrations revealed that the fund has been used in direct contradiction of its initial intention. Stabilisation funds, such as the ECA, are expected to operate in a counter-cyclical spending structure. This implies lower spending in the days of boom and higher spending in the days of gloom/recession.

Administration’s Budget vs ECA inflow/Outflow

During President Obasanjo’s administration, a total of $33.74 billion was accrued in the ECA as inflow between 2004, when the ECA was created, and 2006. Out of the total accrual of $33.74 billion, his administration expended a total of $25.65 billion. It should be noted that in 2004, 2005 and 2006, the National budget was N1.3 trillion, N1.6 trillion and N1.9 trillion, respectively.

The value of the total inflow into the ECA between 2004 and 2006 in Naira was N4.36 trillion and the annual budget within the same period was N4.8 trillion.

President Yar’adua, between 2007 and 2009 received $27.36 billion and spent $28.73 billion. While the national budget between this period was N7.53 trillion, the total inflow into the ECA account was N3.2 trillion and the total outflow under Yar’adua’s administration was N3.7 trillion.

Between 2010 and 2014, President Goodluck Jonathan recorded the highest excess crude account inflow with $45.56 billion (N6.9 trillion) and succeeded in spending $50.44 billion (N7.7 trillion). Total budget size during Jonathan’s presidency was estimated at N23.47 trillion.

President Buhari, faced with severe economic crunch, has earned $2.49 billion (N650 billion) and spent $2.59 billion (N721 billion), so far. The total budgetary allocation between 2015 and 2018 was N27.11 trillion with N4.49 trillion, N6.08 trillion, N7.44 trillion and N9.1 trillion in 2015, 2016, 2017 and 2018, respectively.

The spendings by these administrations is clearly reflective of an inability to refrain from plundering the ECA, with most of the consecutive administrations spending even more than the account held.

Contentions on legality of Excess Crude Account

The Excess Crude Fund, designed to enable savings for the proverbial rainy day, has been bedevilled by controversy since its establishment. One of such controversies is the legal status of the body and the constitutional role of the Ministry of Finance in operating both the Federation Accounts and Allocation Committee (FAAC) and the ECA. The constitutional provision puts all three tiers of government in a position of oversight over the activities of the Ministry of Finance when it concerns the ECA, this oversight role has, however, been largely ignored. The National Economic Council (NEC) also has oversight functions on the administration of the ECA.

All these institutions have failed in curbing the excesses of the leadership of the Federal Ministry of Finance and the far-reaching effects of this lapse have strapped Nigeria in an unending cycle of penury that has led to incessant contingency loans from local and international bodies. The dividends that would have reached the country because of this stabilisation mechanism have been consistently squandered.

The Auditor-General of the Federation, Anthony Ayine, in his latest report, advised the Nigerian government to legalise its continued maintenance of the ECA. In his report, the Auditor recommended that relevant government agencies and the Federation Accounts and Allocation Committee (FAAC) initiate the process to legalise the creation of the Excess Crude Oil/Petroleum Profit Tax/Royalty Account, through the National Assembly.

Over $107 billion spent, yet Nigeria still faced with development challenges

Four administrations accrued $195.6 billion between 2004 and April 2018 and these administrations have withdrawn $107 Billion for the execution of sundry projects/programmes. Most of these programmes have not yielded any developmental result for the country and its economy. For instance, despite heavy withdrawals from the ECA, there has not been any serious impact in the reduction of the rate of unemployment in the country, which increased from 13.4 per cent in 2004 to 23.10 per cent in the third quarter of 2018.

The unemployment rate in Nigeria averaged 12.31 per cent from 2006 until 2018, reaching an all-time high of 23.10 pere cent in the third quarter of 2018 and a record low of 5.10 per cent in the fourth quarter of 2010 according to the Nigeria Bureau of Statistics.

Between 2006 and 2016, Nigeria’s GDP grew at an average rate of 5.7 per cent per year as volatile oil prices drove growth to a high of 8 per cent in 2006 and a low of -1.5 per cent in the same year. Consequently, inflation soared from 15 per cent in 2004 to 18.5 per cent in 2016.

When Nigeria’s economy sank into recession in 2016, the ECA, which was set up just for such a time to mitigate volatility and insulate the budget and the economy against commodity price swings, was empty.

Disturbingly, most of the projects/programmes, on which successive governments have spent heavily, remain incomplete and unresolved. One of such programmes known as the National Integrated Power Project (NIPP), set up in 2004 under the Obasanjo administration, was conceived as a fast-track initiative to add significant new power generation capacity to Nigeria’s electricity supply industry. The power generation projects were accompanied by supporting transmission, distribution and gas transport infrastructure projects.

The NIPP programme was to provide ten medium-sized gas-fired power plants and its aim was to address the issues of insufficient electric power generation and excessive gas flaring from oil exploration in the Niger Delta region.

Today, of the ten power plants, only six are functional and the federal government is currently planning to repair the remaining four power plants. ThisDay newspaper published a report by the Niger Delta Power Holding Company (NDPHC) where the company said the remaining four power stations being built under the National Integrated Power Project (NIPP) will be completed by the end of 2018. The end of 2018 marked the 14th year of the NIPP programme.

Another event, which has cost the Nigerian government a lot from the ECA and has generated a considerable amount of controversy, is the fight against terrorism through the procurement of security equipment. In April 2018, President Muhammadu Buhari approved the withdrawal of $462 million from the ECA without any appropriation from the National Assembly. So far, the fight against extremism and terrorism has shown itself as another opportunity for ECA funds to be squandered.

Greater Concerns About Arbitrary Withdrawals

Poor levels of transparency exhibited by various agencies and officials of government charged with managing the funds over the years has compounds the problems faced by this fund even further.

In recent years, the Ministry of Finance has failed to proactively disclose detailed withdrawals from and accruals to the ECA, making it difficult to track budget spending and ascertain the periodic status of the nation’s treasury.

Over the years, there have been issues with the way and manner withdrawals are made from the ECA. In December 2018, it was revealed to the FAAC that the excess crude revenue account savings have fallen to only $631 million within three weeks.

The Permanent Secretary of the Federal Ministry of Finance, Mahmoud Isah-Dutse, said the money was withdrawn to settle the last tranche of the Paris Club loan refund to states. Mr Isah-Dutse, who disclosed that a total of N812.762 billion was distributed between the federal, states and local governments for November 2018, announced that the balance in the excess crude account stood at $0.631billion as at December 19, 2018.

When asked exactly how the savings in the account had depleted from $2.319billion in late November 2018 to $0.631billion on December 19 2018, Mr Isah-Dutse maintained that the withdrawals were for the final payment of the Paris Club loan refund to states.

FAAC Moves To Regulate Transfers/`withdrawals From ECA

Following the revelation of what has been happening to the ECA in August 2018, the FAAC set up a committee to establish rules that will guide the effective management of the ECA.

The committee, under the Chairmanship of the Delta State Commissioner of Finance, David Edevbie, submitted their report in November 2018. A copy of the report obtained by PREMIUM TIMES showed that the committee recommended that any month where the net distributable revenues available for sharing by the federal, states and local governments from the Federation Account falls below N680 billion, funds should be withdrawn from the ECA to augment the shortfall to at least N680 billion.

Similarly, the committee recommended that if, on the other hand, the net distributable revenue is between N680 billion and N730 billion, up to about N50 billion should be transferred into the ECA as saving. If the net distributable revenue for the month is between N730 billion and N830 billion, the committee recommended that up to about N100 billion should be transferred to the ECA, and a minimum of N150 billion, if the figure is above N830 billion.

The committee spelt out new criteria for monthly revenue transfers into and withdrawals from the ECA. According to the committee, henceforth further transfers into the ECA should be net of the 13% derivation, the components should be paid to the oil-producing states, the report noted.

Stabilisation Mechanism And How Countercyclical Spending Structure Should Work – The Chilean Example

In 2008, the world price of copper —Chile’s largest export— hit $800 per metric ton, an historic high in nominal terms and more than quadruple its price in 2001. Despite the time of boom, the Chilean government insisted on saving most of the proceeds for a rainy day.

About a year later, in 2009, there was global economic meltdown that did not skip Chile. The price of copper fell abruptly, growth turned negative and unemployment topped 10 per cent. But the government of Chile was able to respond with sharply increased spending to cushion the blow and speed up the country’s recovery, drawing down revenues that had accumulated while the world was unable to get enough Chilean copper.

The significance of this episode is not that an especially wise or brave policy prescription can make a very big difference, it can, but the idea of saving in a boom in order to be able to spend in the bust is not new. Also, while actions to this end are less common than the words, there are certainly examples of governments that have had the courage to put away the fiscal punch bowl before the crowd drinks its fill.

Unlike Chile, successive administrations since the Obasanjo presidency have been unable to honour this major characteristic of the stabilisation mechanism (saving for the rainy day) as exhibited by Chile. As in Niyi Osundare’s poem, administrations since 1999 have been “eating tomorrow’s yams,” finding it difficult to control their spending habits and feeding fat on excess crude inflows meant to serve as seeds for periods of drought.

What the world needs —and what was delivered by Chile, not a mature industrialised economy— is institutions designed to produce good policies even when the officials charged with carrying them out are vulnerable to wishful thinking or inclined toward expediency. Indeed, Chile’s handling of the copper-price roller coaster could serve as a template for other countries where the political pressures to follow “pro-cyclical” fiscal policies are very hard to resist.

Which Way For Stabilisation Mechanism In Nigeria – Experts

According to Ronke Onadeko, Principal Consultant DeltR Energy Limited, the reality of the balance left in the Excess Crude Account, its operations and management leave some unanswered questions.

“The rationale for ECA’s existence and guide for inflows are simple to understand and concise. However the outflow guide and directives are broad and unrestricted.

“This may be perhaps one of the reasons the nation has not been able to shore up funds for lean times.

” The opaqueness of oil receipts have not given any positive support to a somewhat flawed management. Production volumes are hazy, deductions are made indiscriminately, inflows are not strictly directed to dedicated statutory accounts and so on and as such perhaps the inflows should be stronger than we have seen.

“The focus for mismanagement of the ECA has been focused largely on the outflows. Inflows should be scrutinised also”.

“In cases where Pre export finance means have had to be a form of recourse to raise funds for projects the pledged funds of future sales of oil and the proceeds are denied as inflows into the ECA. This also applies to funds that service debts and interest on debts accrued on subsidy payments yet to be paid to marketers.”

Fuel subsidy deductions do not fall under the agreed ECA utilisation policy line items and as long as this option exist for deductions the much needed liberalisation of the downstream sector will not be actualised. Perhaps the legal rights ascribed by the David Edevbie report need to be examined as it legalises the ECA as a last recourse funder for FAAC withdrawals, Ms Onadeko said.

The ECA management is perhaps too weak or conflicted and as such is unable to meet the requirement it was set up for to the detriment of the economy of the nation, she said.

She also recommended fiscal reforms which will lead to tighter laws, increased government revenues as well as reduction of losses on income to the government. These are the advantages that should speed up the passage of the bills.

Speaking with Dauda Garuba, a Natural Resource Governance Policy expert, on whether the government should keep maintaining the ECA or not, he said: “Firstly, I think the initial objective or the initial aim for setting this ECA account were laudable. I think the whole idea was to try and put some money aside that the federal government can assess in any critical moment. However, in practice, the way it’s being used or managed has contributed to quite a lot of people having strong reservations about, not only if it should be maintained but, equally, if it is actually legal.

“I think what really bothers a lot of observers and stakeholders is the fact that the Excess Crude Account doesn’t fall under the scrutiny of the National Assembly. I think it is with an executive fiat this account can be accessed and the funds in this account can be almost arbitrarily expended or used without some sort of scrutiny from the National Assembly, so I think that is why a lot of people are, today, feeling a little bit uncomfortable about the fact that there is no oversight on how this account is managed and what the rationale is behind the federal government deciding, for whatever reason, either to buy aircrafts, give to state governments, you know, whatever reasons they gave for accessing these funds today feel that maybe there should be some sort of oversight, rightly or wrongly so. My take is that the initial objectives for setting up this account were laudable and probably they still are, the question is, is it being managed the way it should be? Equally, should there be some sort of additional oversight, especially from the National Assembly? These are the questions that are being asked and I think probably these questions are, you know, justified.”

Inemo Sami, Coordinator of the Centre for Peace, Development and Child Welfare, argued that the idea for creating ECA to save for rainy days is laudable but it is necessary for a legal framework to be put in place to manage it.

“For me, I want to say that there is actually nothing wrong in saving for the rainy day, but given what we are as a country, it is expected that the necessary legal framework should have been put in place that will regulate how you save and also how you spend from that account.

“So, the absence of such regulatory framework has led to different successive governments establishing arbitrary procedures of putting in money and taking out money, and you are never going to get to an acceptable means of growing such an account and it is that context that if you ask for my very personal opinion, I would wish that the account is closed and whatever you get above the oil price as a benchmark for the budget, should be rolled into the Sovereign Wealth Fund so that at least the Sovereign Wealth Fund is established by law and also there are regulations on how to spend money in that fund.”