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FG admits to illegal diversion of N4trn federation account fund

By Ise-Oluwa Ige
ABUJA — THE Federal Government yesterday admitted before the Supreme Court that its operation of the Federation Account between 2004 and 2007 was largely illegal, being not in conformity with the provisions of the 1999 constitution.

The Federal Government, had, for instance, diverted certain revenues, in excess of N4 trillion, which ought to accrue to the Federation Account for sharing among the three tiers of government during the period.


The Federal Government had labeled such monies as independent revenues of the Federal Government which a total 27 states of the Federation, as at yesterday, kicked against.

Some of the revenues allegedly diverted illegally by the Federal Government include proceeds from signature bonus, dividends from the Nigerian Liquefied Natural Gas Company Limited (NLNG), sale of government properties, privatisation proceeds, education tax proceeds, dividends and other Internally Generated Revenues (IGR) of federal ministries, parastatals and agencies.

Besides, the government had, since 2004, also diverted whopping sums of monies which ought to accrue to the Federation Account to maintain excess crude savings account and had unilaterally used the account to fund federal projects.

The Federal Government had also unilaterally ceded 4% of the revenue accruing to the Federation Account from non-oil taxes since 2005 to the FIRS and 7% from customs and excise collection to the Nigerian Customs Service (NCS).

The percentages so ceded are annually deducted upfront and paid monthly to the FIRS and NCS contrary to provisions of section 162 of the 1999 constitution.

From 2005-2007, a total N99 billion was withheld from the Federation Account for this purpose.

The 27 state governments which are presently before the Supreme Court to seek its order compelling the Federal Government to refund them their share of all the monies illegally diverted are also contending that the tax waivers and exceptions granted by the Federal Government amounted to expending revenues which ought to accrue to the Federation Account.

But the Office of the Attorney-General of the Federation which admitted yesterday that the Federation Account was largely operated in breach of the 1999 constitution said there was no need wasting the precious time of the court to litigate on such issues, having consented that it was illegal.

The government said in line with the rule of law paradigm of President Umaru Yar’Adua administration, all that mattered now was to address issues of fiscal federalism which can advance the cause of constitutionalism.

But it pleaded with the apex court to give it till January 18, next year, to finalise with the aggrieved state governments on how it intended to refund their shares of the illegally diverted public funds.

Chief Chris Alege (SAN) was the lead counsel who represented the Attorney-General of the Federation in the case yesterday.

Although Chief Adegboyega Awomolo (SAN) who is the lead counsel to about 15 of the aggrieved states had requested for just four weeks to get the endorsement of all parties to the case, Alege had said that giving them up till January 18 next year will help them to agree finally on the areas in which they had reached consensus for out-of-court settlement.

He said the long adjournment will also enable them to prepare their briefs on the areas both parties could not resolve amicably.

But both Alege representing the Federal Government and Chief Awomolo (SAN) did not give details of the consensus they had reached on the issue in the court yesterday.

However after proceedings in the case yesterday, both senior counsel spoke with Vanguard exclusively on the issue.

According to Alege (SAN), he said they had reached an agreement on some of the constitutional issues tabled by the states for the pronouncement of the court.

He said that there were however two areas in which they were yet to reach an accord.
He gave the two issues to include the education tax and the proceeds from sale of Federal Government properties.

He said both parties had already agreed to refer the areas they could not reach consensus on to the Supreme Court for its pronouncement.

Chief Adegboyega Awomolo (SAN) on his part told Vanguard that series of meetings were held before yesterday, saying the last of which held on September 8, 2009 at the Conference Room of the Minister of Finance.

He said that at the meeting, the report of the Harmonisation Committee was considered with far reaching recommendations made by the technical committee.

He said that presently, “consensus has been reached on six issues namely excess crude account, signature bonus (subject to treatment of backlog and the Federal Government concern on future funding of PTDF), cost of collections, waivers and concessions, other dividends and internally generated revenue (subject to treatment of backlog) and the Central Bank of Nigeria charges.”

He said conditional consensus (subject to the ascertainment of sources of funding for acquisition and treatment of backlog) has been reached on three issues including NLNG dividends, proceeds from sale of government properties and privatisation proceeds.
He concluded by saying that there is yet no consensus on Education Tax.

He said the agreement is to refer this issue to the Supreme Court for interpretation of the Education Tax Act in the light of section 162 of the 1999 constitution.
Explaining further, Chief Awomolo (SAN), said part of the recommendations agreed upon by both parties are:

•That the provisions of section 162 (1-10) of the 1999 constitution is the basis and the authority for the operation of the Federation Account

•That the operation of the Excess Crude Account during the period 2004-2007 was inconsistent with section 162 of the 1999 constitution

•That the impending review of the constitution should feature a proposal to provide appropriate legislative backing to the operation of the Excess Crude Account without prejudice to the FRA 2007

•That the sum of $8.425 billion deducted from the Federation Account for the NIPP should be converted to equity contribution with a caveat that NIPP should be properly incorporated as a company; assets acquired by the company should be clearly stated and identified and the shareholding of stakeholders should be clearly spelt out and this will form the basis of allotment of shares in the company to be backed up by shares certificates in the name of states and individual local government councils.

•That the sum total of $250 million deducted from the Federation Account for modernization project of the Nigeria Railways should be converted to equity contribution

•That the $80 million invested in the equity of the Ibom Power Plant should be shared amongst the federating units and shares certificates issued to them individually

•That the CBN should refund 75% of the commission charged on the Paris Club debt exit to the Federation Account and pay it into the Federation Account for distribution to the states

•That henceforth, all revenues from signature bonus should be paid into the Federation Account as contained in the FIRS (Establishment) Act 2007

•That to deal with claim for backlog of signature bonus, how much is in the PTDF Account should be ascertained, ascertain the amount required by PTDF to meet its funding obligation for 2009 and transfer the remaining balance into the Federation Account for sharing

•That the FGN’s equity in NLGN should be treated as an asset of the Federation Account and the dividends so far received should be paid into the Federation Account if it is found that the funds used for investment in the company was from the Federation Account asset among others.

It would be recalled that about three states of the Federation spearheaded the on-going legal battle with Oyo state at the vanguard.

As at today, 27 states of the Federation have so far filed papers seeking for similar reliefs.

It is the case of the 27 plaintiff states that the Federal Government breached the provisions of the 1999 constitution by so diverting and withdrawing monies that should have constitutionally stood to the credit of the Federation Account for onward sharing among the three tiers of government in the country.

According to the plaintiff states, the funds were illegally used to finance Federal Government projects like the power and railway projects, Federal ministries like the Federal Inland Revenue Services and the Nigerian Customs and to service the debts owed by the Federal Government against the Paris Club.

In their lawsuits, the 20 states of the Federation are praying the apex court for an order compelling the Federal Government to refund to them all the said monies illegally diverted between 2004 till date with interest.

For instance, Oyo government alone has summed up the total amount it was allegedly shortchanged between 2004 and 2007 by the Federal Government as N97.2billion.

The various writs already filed before the courts by different states of the Federation were filed by a team of seasoned legal practitioners.

Oyo State’s writ of summons was filed by a team of tested legal practitioners including Chief Adegboyega Awomolo (SAN), Yusuf Ali (SAN), Dr Konyinsola Ajayi (SAN), Prof Yemi Osinbajo (SAN), Chief Chris Uche (SAN), Dr Akin Onigbinde, Prof Akinseye George and Ogunmuyiwa Balogun.

In the Oyo writ, the state government is contending that between 2004 and 2007, several monies that ought to be paid into the Federation Account were unconstitutionally diverted by the Federal Government to finance projects unknown to the constitution.

The state also said that, at times, such monies were also diverted into accounts like the Excess Crude Account, which are unknown to the constitution.


Comments expressed here do not reflect the opinions of vanguard newspapers or any employee thereof.