Budget: Governors seek ways to achieve fiscal stability from oil revenues

Governor Fayemi of Ekiti State and chairman of Nigerian Governors Forum.
Governor Fayemi of Ekiti State and chairman of Nigerian Governors Forum.

Nigerian governors are seeking ways to achieve steady revenue receipts from crude oil to ensure fiscal stability for both the federal and sub-national governments.

The chairman of the Nigerian Governors’ Forum, Kayode Fayemi, said given the central role oil revenues play in funding the budgets of the various tiers of government in the country, there is need to strengthen their partnership with the state-owned oil company to realise that objective.

Mr Fayemi, who is also the governor of Ekiti State, spoke Wednesday in Abuja when he led some members of the Forum to meet with the newly appointed Group Managing Director of the Nigerian National Petroleum Corporation (NNPC), Mele Kyari.

The governor was accompanied by his Sokoto State counterpart, Aminu Tambuwal; the director general of the NGF, Bayo Omoigui-Okauru; and other top officials of the Forum’s secretariat.

In his remarks, Mr Fayemi told Mr Kyari that over the last few years, the NGF built a working relationship with the NNPC on matters relating to the size and distribution of oil revenues in the country.

According to him, both organisations have held series of engagement meetings to discuss ways of addressing the challenges facing the oil industry and lamented the impact of the falling crude oil prices as well as the cut in oil production on the revenue of states.

The growth and stability of the oil industry, he said, has a significant bearing on the plans of the various governments at all levels, whether federal, state or local government.

Unstable Allocations

He said monthly allocations from the Federation Account Allocation Committee (FAAC) to the three tiers of government have been unstable for some time as a result of the challenges associated with challenges the industry is grappling with.

The NGF chairman said in June 2014 when crude oil price at the international market was at its peak, allocations from the FAAC rose to as high as N1.1 trillion.

However, in May 2016, with the drop in crude oil prices, FAAC allocations shared by the three tiers of government dropped to a record low level of just over N289 billion.

Apart from the fall in crude oil price and production, Mr Fayemi said other challenges that have compounded the instability in the oil market include the impact of cash call obligations to the joint venture operated by the NNPC and the accumulated liabilities.

Other challenges include crude oil theft/losses through sabotage by unpatriotic elements in the Niger Delta region, with over 200,000 barrels of crude oil lost daily to oil theft, and another 500,000 barrels per day deferred in production shut-ins.

Also, he said the existing regulation for Production Sharing Contracts (PSCs) grossly limits government royalties and tax revenues.

Solution

To help resolve some of these issues, Mr Fayemi said the governors have pushed for the adoption of a number of accountability measures in the operations of the oil industry.

For instance, he said the NGF, working with the President, resolved that the collection and remittance of oil royalties be vested in the Department of Petroleum Resources (DPR) as stipulated under the petroleum industry law.

Similarly, the collection and remittance of the Petroleum Profit Tax (PPT) should be returned to the Federal Inland Revenue Service (FIRS) in line with the extant laws.

In addition, he said the president has directed that a revised revenue remittance template be developed jointly by the NNPC, the Federal Ministry of Finance, the Office of the Accountant General of the Federation and the Revenue Mobilization Allocation and Fiscal Commission.

Going forward, he said a major direction for the NGF will be to identify options that will help stabilise revenues accruing from crude oil.

“We need to consider options to determine a ‘revenue trend’ that corresponds to the long-term trend of exports that will be enough to stabilize government budgets,” Mr Fayemi said.

Consequently, the governor said in 2017, the Minister of Finance submitted an estimate that a minimum of N700 billion must be generated and shared by FAAC monthly to the three tiers of government to enable them to meet up with obligations of salary payment, statutory transfers and debt servicing.

To sustain that estimate, Mr Fayemi said the NGF has resolved to work with the NNPC to develop a realistic revenue forecasting model for oil revenues.

This model, he said, will help state governments plan appropriately their revenue projections to mitigate the recurring fiscal shocks they experience.

The NGF chairman also highlighted the challenge associated with the continued payment of subsidy on petroleum products, saying it remains a major drawback on government revenues.

“We may need to consider a new deal on how governments will absorb the cost of subsidy,” he told the new NNPC GMD.

“This has become necessary, given the new reality of low crude oil revenues and rising government commitments. We believe that at the current course, subsidy costs will continue to offset any recovery in the oil market,” he added.

According to him, the country recorded its lowest cost of subsidy in 2016 when oil traded at an average of $48.11 per barrel, with total subsidy for that year at about N28.6 billion.

Since then, he said the amount rose to N219 billion in 2017; N345.5 billion by mid-2018, with the figure skyrocketing every passing year.

A recent research report by BudgIT, a public finance-focused non-governmental organization, published in April, said about N10 trillion may have been spent by the government to subsidise the pump price on petroleum products between 2006 and 2018.

The new GMD has already given assurance that he will lead the NNPC to operate as a global company along the line of internationally acceptable standards and ensure the country becomes a net exporter of petroleum products by 2023.

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