Governors in Nigeria are looking for ways to attain constant income from crude oil to guarantee fiscal stability for both federal and sub-national governments.
Kayode Fayemi, chairman of the Nigerian Governors ‘ Forum, said there is a need to reinforce their relationship with the state-owned oil and gas industry to realize that goal, considering the key role oil earnings play in financing the budgets of the different levels of government in the nation.
Mr Fayemi, who is also Ekiti State Governor, spoke in Abuja on Wednesday when he led a number of Forum leaders to meet the newly appointed Nigerian National Petroleum Corporation (NNPC) Group Managing Director Mele Kyari.
The governor was accompanied by his counterpart to the Sokoto State, Aminu Tambuwal ; the NGF’s directorgeneral, Bayo Omoigui-Okauru ; and other top secretariat members of the Forum.
Mr. Fayemi said in his statements to Mr. Kyari that the NGF has developed a working partnership with the NNPC over the past few years on issues related to the size and allocation of oil profits in the nation.
According to him, both organizations held series of commitment meetings to discuss methods to address the oil industry’s problems, lamenting the effect of plunging crude oil prices as well as declining oil output on government revenue.
The oil industry’s development and stability, he said, has a important impact on public plans at all levels, be it federal, state or local.
He said the Federation Account Allocation Committee (FAAC)’s monthly allocations to the three levels of government have been erratic for some moment due to difficulties that the sector is facing.
When crude oil prices on the global market were at their peak in June 2014, the NGF chairman said FAAC allocations rose to as high as N1.1 trillion.
However, in May 2016, with the fall in crude oil prices, government-shared FAAC allocations fell to a record low of just over N289 billion.
Other problems that compounded the instability on the oil industry, Mr Fayemi said, apart from the drop in the cost and output of crude oil, include the effect of cash call obligations on the NNPC joint venture and the accumulated liabilities.
Other difficulties include theft / loss of crude oil through sabotage of unpatriotic elements in the Niger Delta region, with more than 200,000 barrels of crude oil lost daily to oil theft, and another 500,000 barrels deferred daily in production shutdowns.
He also said the current Production Sharing Contracts (PSCs) regulation is grossly restricting public royalties and tax revenues.
Mr Fayemi said the governors have pushed for the implementation of a number of accountability measures in the petroleum industry’s activities to assist address some of these problems.
For example, he said the NGF, working with the president, resolved to transfer the collection and remittance of oil royalties to the Department of Petroleum Resources (DPR) as stipulated by the petroleum industry law.
Similarly, the Petroleum Profit Tax (PPT) collection and remittance should be transferred to the Federal Inland Revenue Service (FIRS) in accordance with the existing laws.
In addition, he said the president directed that the NNPC, the Federal Ministry of Finance, the Federation’s Office of the Accountant General and the Revenue Mobilization Allocation and Fiscal Commission jointly develop a revised revenue remittance template.
He said that a major direction for the NGF will be to define alternatives that will assist stabilize crude oil profits.
“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.
Accordingly, the governor said in 2017, the Minister of Finance presented an estimate that the FAAC must generate and share a minimum of N700 billion monthly to the three levels of government in order to allow them to fulfill payment commitments, statutory transfers and debt servicing commitments.
Mr Fayemi said the NGF decided to work with the NNPC to create a realistic income forecasting model for oil profits in order to maintain that estimate.
This model, he said, will assist governments plan their income projections properly to mitigate their recurring fiscal shocks.
The chairman of the NGF also outlined the challenge of continuing subsidy payments on petroleum products, stating it remains a significant disadvantage 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, when oil traded at an average of $48.11 per barrel, the nation reported its smallest subsidy price in 2016, with complete subsidy at around N28.6 billion for that year.
He said the figure has since risen to N219bn in 2017 ; N345.5bn by mid-2018, with the figure skyrocketing each year.
A recent study by BudgIT, a non-governmental organization focused on public finances, released in April, said about N10 trillion could have been spent by the government between 2006 and 2018 on subsidizing the pump price for petroleum products.
The new GMD has already made assurance that it will lead the NNPC to function in line with internationally acceptable norms as a global company and maintain that by 2023 the nation will become a net exporter of petroleum products.