By Omoh Gabriel, Business Editor & Emman Ovuakporie
ABUJA — THE House of Representatives, yesterday, mandated its Joint Committees on Finance and Appropriations to investigate alleged indiscriminate withdrawals from the stabilisation account by the Federal Government.
The stabilisation account is meant to be used to fund deficits in the budget when oil price is below the approved budget bench mark price.
The Reps had raised alarm over the spending of N114 billion in eight months. Disturbed that the series of alleged withdrawals were gradually converting the account “into a mere slush fund instead of its original mandate,” the House directed the Committees on Appropriation and Finance to look at the issue and ascertain the actual amount so far withdrawn by the executive arm..
The committees are expected to review the legality or otherwise of the expenditure made and submit its report within four weeks.
When on May 27, 2011 the president signed the 2011 Appropriation Amendment Bill and Nigerian Sovereign Investment Authority, NSIA, Bill into law, he stated that revenues accruing to the authority would be invested by it through three special funds — the Nigeria Infrastructure Fund, Future Generations Fund and Stabilisation Fund.
According to President Goodluck Jonathan, while the infrastructure fund will be dedicated to investments in the development of critical national infrastructure, future generations fund will build an inter-generational savings base by investing in longer term assets that generate returns to accumulate wealth for future generations of Nigerians.
He also announced that the stabilisation fund would help to protect annual national budgets by providing a stable, last resort source of financing during periods of fiscal deficit resulting from a sustained fall in oil prices.
N114bn spent within eight months
The legislators noted that although the revenue sharing laws provided for the remittance of 0.5 per cent of funds accruing to the Federation Account to be kept in the stabilisation fund, the President had within the period of eight months spent about N114 billion for certain expenditures which they argued should ordinarily be budgeted for.
The motion for the investigation of withdrawals from stabilisation account was moved by Rep. Haruna Fatahi (ANPP, Kano) which was unanimously adopted without debate. He said the revenue sharing laws provided for the remittance of 0.5 per cent of funds accruing to the federation account to be kept in the stabilisation account.
Explaining the motion, Fatahi noted that about N114 billion was spent by the Federal Government within eight months for some expenditure not budgeted for.
He said: “The account being a buffer against oil price shock, spending from it should be guided with caution in order to maintain a sound fiscal policy,” maintaining that the account which ought to be for special occasions has become a slush fund because of the indiscriminate withdrawals.
Before the setting up of the Sovereign Wealth Fund and the stabilisation account, revenue from oil above the budget benchmark was paid into the excess crude account which had no legal backing.
The need to legalise the savings led to the creation of the Sovereign Wealth Fund and the stabilisation account component. By 2007, much of the savings in the excess crude account had been disbursed and what was left based on what the three tiers of government in the country agreed on will not be enough to make any significant impact on the budget if the prices of oil fall below the budget benchmark.
The federation account committee had agreed that N1trillion be set as the base for the savings and whatever is earned as excess revenue in any particular period that is above the one trillion mark, 80 per cent should be shared among the three tiers of government while 20 per cent is saved.
In May 2011, the Federal Government passed into law the Nigeria Sovereign Investment Authority (NSIA) Act 2011 aimed at building a savings base for Nigerian citizens, enhancing the development of Nigerian infrastructure, providing stabilisation support in times of economic stress and carrying out such other matters as may be related to the stated objects. The Act provides for the appointment of a managing director of the NSIA whose role is to manage the affairs of the fund.
NSIA’s framework and objectives
The Act makes NSIA an independent body capable of holding, acquiring and disposing assets and suing in its corporate name. NSIA will not be subject to the direction and control of any person or authority in Nigeria. The Act specifies that the NSIA will work to provide savings for future generations and also participate in stabilisation measures to safeguard the Nigerian economy.
The Act provides for the establishment of a Governing Council headed by the President. Other members of the Governing Council include Governors of the 36 states, Ministers of Finance, Justice and Planning, the Governor of the Central Bank, the Chief Economic Adviser to the President.
The Stabilisation Fund is to be established to effectively conduct a sound and responsible fiscal policy, while reducing the effects of the “boom and bust” commodity cycle of oil on Nigeria. The Stabilisation Fund is to be invested prudently and in a way that supports the objective of the Fund to be made available to stabilise federation revenues.
The NSIA may invest in or sell all such assets, and use such derivative instruments for the purposes of hedging or efficient asset management, as may serve such objective. Perhaps, the most important provision of the Act which reveals the Government’s commitment to the success of the NSIA is the provision which permits appointment of external asset managers on the basis of comprehensive assessment criteria, policies and procedures as the NSIA may develop from time to time.
By virtue of their extensive research capabilities and experience, external asset managers should ensure prudent investment and asset management which will lead to the success of the SWF.
International Regulation of SWFs
The Act mandates the NSIA to implement best practices with respect to management independence and accountability, corporate governance, transparency and reporting in regard to the Santiago Principles. Thus, giving an indication that plans may be underway for the Nigerian SWF to join the International Forum of Sovereign Wealth Funds (IFSWF), established by IWG in 2009. Issues of regulation and transparency of SWFs have always been areas of major concern for SWFs.
The IWG, recognizing that SWF investments are beneficial and critical to international markets, sought to ensure that SWF arrangements are properly set and investments are made on economic and financial basis when it developed the Santiago Principles, a set of Generally Accepted Principles and Practices (GAPP) for SWFs.