FAAC considers new guidelines for excess crude account savings, withdrawals

Finance minister, Zainab Ahmed. [PHOTO CREDIT: Daily Trust]
Finance minister, Zainab Ahmed. [PHOTO CREDIT: Daily Trust]

The Federation Accounts Allocation Committee (FAAC) is considering fresh guidelines for revenue inflows and withdrawals from the excess crude oil revenue account (ECA).

Under the guidelines recommended by an ad-hoc committee constituted in July 2018 by the former Minister of Finance and then chairman of FAAC, Kemi Adeosun, minimum monthly statutory revenue to be shared from the Federation Account by the three tiers of government has been pegged at about N680 billion.

The committee was constituted to consider series of complaints by some Finance Commissioners, particularly those from the nine oil producing States of the federation, concerning the manner of transfers into and withdrawals from the Excess Crude Oil, Petroleum Profit Tax (PPT) and Royalty Accounts.

Its recommendations were contained in a report submitted to the FAAC last November on guidelines on transfers into and withdrawals from the accounts.

A copy of the report was obtained by PREMIUM TIMES in Abuja on Monday.

In the report, 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by the federal, states and local governments from the Federation Account falls below N680 billion, funds should be withdrawn from the ECA to augment the shortfall to at least N680 billion.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.

Besides, 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, or a minimum of N150 billion, if the figure is above N830 billion.

Also, the committee spelled 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 made net of the 13 per cent derivation, which component should be paid to the oil producing states.

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In addition, the committee said withdrawals from the ECA in respect of the 13 per cent derivation share to the oil producing states should be calculated and credited to their accounts accordingly, while future withdrawals from the ECA should be net of the 13 percent derivation share paid to the oil producing states.

The ECA is a special account created by the federal government to save oil revenues earned above approved crude oil benchmark price in the annual budget as a strategy to provide cushion for the annual budgets against negative impacts of revenue shortfalls as a result of crude oil price volatility.

The oil producing states had expressed dissatisfaction with the way their share of the 13 per cent derivation funds have always been handled by the FAAC.

PREMIUM TIMES learnt that the states had frowned at the practice where they were being forced to save significantly more from their statutory allocation every month than other states.

According to the states, a situation where revenue transfers to the excess revenue account were made without first paying their share of the 13 per cent derivation revenue due to oil producing states did not take cognizance of the equity and equality of states as enshrined in the constitution.

To help develop clear guidelines for such transfers into as well as withdrawals from the ECA, the five-member committee was constituted headed by the Delta State Commissioner for Finance, David Edevbie.

Other members included the Adamawa State Finance Commissioner and Chairman, Finance Commissioners’ Forum in FAAC, Mahmood Yunusa; director, Home Finance Department, Federal Ministry of Finance, Olubunmi Siyanbola; director, Federation Accounts, Office of the Accountant General of the Federation, Sabo Mohammed, and deputy director, Allocation, Revenue Mobilization, Allocation and Fiscal Commission (RMAFC).

The Committee, which had the Deputy Director, Home Finance Department, Federal Ministry of Finance, AO Bello, as secretary, was mandated to examine the issues raised by the affected States and recommend appropriate guidelines to address them.

In addition, the Committee was also asked to review the current modalities adopted by FAAC in making transfers into the various accounts before recommending new guidelines to follow in future.

At the end of its assignment, the committee presented a report during the FAAC meeting last December identifying some deficiencies in the previous method of transfers and withdrawals of revenues from the ECA, which it said needed to be reviewed going forward.

The committee faulted the practice where transfers into the ECA considered excess revenue was determined monthly as individual item based on surpluses above each revenue items against monthly budgets of the revenue generating agencies.

In its report, the committee observed that the practice adopted when the revenue generating agencies were continually declaring surpluses and not considered periods of low revenues, revenue inflows from previous months, nor the excesses or deficits in collective revenues of the agencies.

To correct the observed deficiencies in the previous practice, the committee resolved that transfers into the ECA would henceforth be made based on the cumulative revenues reported by each revenue generating agency from the beginning of the budgetary year to the month of distribution, rather than monthly individual revenue items.

It was learnt that the committee report would be deliberated upon by the FAAC when it resumes, before final adoption.

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