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Excess Crude Account dips to $5bn

….States’ budgets, projects, salaries threatened

By Omoh Gabriel
Several states are being threatened by dwindling revenue from the Federation Account and are scared of a bleak future if the situation in the oil market does not improve as the excess crude oil account which serves as a buffer has dried up with only $4.8 billion left unshared.

With less than $5 billion  in the Excess Crude Account, many states are to face financial crises due to the dwindling revenue from oil, reckless spending by some governments and arbitrary deductions to pay for the confused Joint Venture Cash Calls, JVC.

What this means is that most of the states will not be able to implement their 2010 budgets fully and several projects that are ongoing in these states may have to stop. Salaries of workers and  teachers may remain unpaid for months.

According to The Economic Confidential report, only three states-Lagos, Kano and Rivers can survive the crunches if more funds were not released from the Excess Crude account to beef-up the monthly allocations from the Federation Account.

Other states are battle-ready to confront the new administration of President Goodluck Jonathan to perform some miracles in sustaining monthly federal allocation.

It will be recalled that at the last meeting of the Federation Account Allocation Committee, FAAC, in Abuja on 14 May, members representing each state of the federation and the Federal Capital Territory, Abuja, decided to suspend further consideration on the statutory allocation as well as arrears for the month because of what they considered as ‘meagre allocation.’

They insisted on implementation of 2010 Appropriation Act; from January to April on the basis of $58 per barrel with payments of the arrears.

With less than $5bn left in the Excess Crude Account, ECA, if the cash crashes further and revenue plummets, many states would be grounded financially because only very of them can survive to even pay civil servants salaries in the next three months.

Apart from the fact that revenue from gas has not been accounted for in many months, the revenue from crude oil sales is being directed to servicing joint venture cash calls, leaving the Federation Account with revenue from Federal Inland Revenue Service, FIRS, Nigeria Customs Service, NCS, and Petroleum Profit Tax, PPT.

FAAC has resorted to the excess crude money, in its naira equivalents to finance monthly allocations to all tiers of government because of the dwindling revenue. The revenue from gas no longer gets to the Federation Account because it is no longer reflected data on gas.

The Economic Confidential further gathers that banks are not ready to provide fresh loans to states that have depended on borrowing tofinance their budget because of weak internal revenue drives. The banks’ refusal is necessitated by a circular from the Central Bank of Nigeria in 2009 which limit loans to the public sector to 10 per cent of their overall credit portfolios, an apparent effort to divert more funds to the private sector. By this development, the three tiers of government may have to look outside the banks for financing.

The Federal Government too has planned to part-finance from domestic money market and foreign loans. The last year’s budget had a deficit of over one trillion which the government financed largely through short term borrowing from banks.

The Finance commissioners at FAAC had a plenary meeting where they insisted that the arrears of about N 746 billion that should be the differential between the actual receipts that was distributed in the last three months and the budget estimate should be paid along the statutory allocation as well as the augmentation.

The Chairman of FAAC who is also Finance Minister of State, Remi Babalola could not submit to the demand because of the huge amount involved and the likely effect it would have on the economy.  He insisted that approval to release more funds from the Excess Crude Account must be made by President Goodluck Jonathan. Remi told aggrieved commissioners that “The money in the excess crude is only $4. 8 billion, The money we need to pay the federating units every month is half a trillion naira and what we are getting is less than that.

On a monthly basis we need to augment about N 100 billion and we would have use the entire excess crude money and there is a problem… if we pay this entire money now we may not have enough in the next one or two months. So, there is a problem.”

During the meeting Finance Minister of State for Finance, Remi Babalola advised against any form of profligacy by all tiers of government to enable them address the various fiscal challenges likely to be faced in the near future. He asserted that the growth of discretionary spending by all tiers of government has outpaced the annual growth rate of the overall economy over the past 10 years, with deficits being the expected consequence.

He said, “The production and price assumptions in the 2010 budget leave minimal headroom for adjustment and expose the economy to higher risks of exogenous shocks. It reduces the accretion to our honey pot of Excess Crude account which is already below comfortable cushion.

“If we embark on any form of fiscal profligacy today it will certainly hinder our ability to address the various fiscal challenges we are likely to face in the near future.”


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