What monthly FAAC tells us about Nigeria, oil revenue
The Federal Accounts Allocation Committee (FAAC) is responsible for the distribution of revenue accruing to the Federation Account between the Federal and State Governments and the Local Government.
The federation account is currently being managed on a legal framework that allows funds to be shared to the three tiers of government under three major components. These components are the statutory allocation, Value Added Tax distribution and allocation made under the derivation principle.
The FAAC committee is made up of commissioners of finance and Accountants-General from the 36 states of the federation; the Accountant General of the Federation, and representatives from the NNPC. Others are representatives from the Federal Inland Revenue Service; the Nigerian Custom Service; Revenue Mobilisation, Allocation and Fiscal Commission as well as the Central Bank of Nigeria.
The key agencies that remit funds into the federation account are the Nigerian National Petroleum Corporation (NNPC), the Federal Inland Revenue Service and the Nigerian Custom Service.
The monthly federation account allocation tells some stories about Nigeria and her oil revenue.
Nigeria far from being weaned from dependence on oil revenue
When in July Tunde Fowler, Chairman, Joint Tax Board (JTB) and Executive Chairman, Federal Inland Revenue Service (FIRS), said the Federal Government sourced about 70 percent of over N500 billion allocated by the Federal Accounts Allocation Committee (FAAC) in June 2016 from non-oil sources while only 30 per cent came from oil sources, most people thought Nigeria is seeing the last days of its dependence on crude oil. However, persistent low crude oil output which has ensured that oil revenue remained has proved that the country is still far from being weaned from dependence on oil revenue.
Nigeria’s oil exports in August averaged 1.468 million bpd, according to OPEC data, 52,000 barrels less than the 1.520 mbpd in July and a decline of 3.4 percent. Militant attacks had put a lid on crude exports for the better part of the year, worsening an era of record low prices for the commodity dependent country and cutting its oil revenue predications by almost half.
Allocations have been quite volatile in the months through May and August, rising 8.3 percent in May from N281.5 in April and 83.2 percent in June from N305.128, the previous month. It then fell in July by 20.6 percent to N443.663 billion from N559.032 in June. August saw a 14.9 percent increase to N510.2 billion from N443.663 billion in July. At the Federation Account Allocation Committee, FAAC, meeting in September, federal, states and local governments shared N516 billion as against the N530 billion that was shared in August.
Despite low revenue from crude oil, it still represents an average of 61.3 percent between January and September 2016.
Force majeure now permanent phrase on Nigeria’s oil sector
Oil exports account for about 80 percent of the Nigerian government revenue and force majeure are becoming permanent phrase impacting negatively on revenue from crude oil. Nigerian oil output plummeted to near 30-year lows of around 1.4 million b/d in May from 2.2 million b/d earlier in the year as attacks on oil facilities in the Niger Delta rose at an alarming pace amid resurgent militancy.
For most part of this year, force majeure was declared at the Bonny Terminal and there was a subsisting force majeure at the Forcados Terminal. Shut-in and shutdown of pipeline for repairs and maintenance also contributed to the drop in revenue.
And there seems to be no end to the force majeure. Recently, another militant group, the Niger Delta Greenland Justice Mandate (NDGJM), warned multi-national oil companies and the military not to re-open the Trans-Forcados Pipeline (TFP), which was destroyed several months ago.
OPEC oil freeze is meaningless to Nigeria
Declining oil production and export volumes due to militancy and large-scale crude theft cut the Nigerian government’s gross revenue in September by about 12 percent from August to Naira 279.75 billion ($8 billion), the finance ministry said.
The ministry said that despite the rally in global oil prices averaging $48.43/b in June, Nigeria’s export volume declined by 1.15 million barrels in that month, resulting in a $46.52 million drop in oil export sales for the government.
Amidst decline of Nigeria’s crude oil production output, the Organization of Petroleum Exporting Countries (OPEC) is currently negotiating with members and non-members of the cartel about oil production freeze. However, the freeze talks which takes centre-stage in the forth-coming OPEC meeting in November pales into insignificance as Nigeria continues to struggle to get back on its production strength of 1.7 million barrels per day and facilities repairs.
“Given what we are faced with in Nigeria in the last 11 to 12 months, we have lost literally between 500,000 and 700, 000 barrels per day on an average. It is very unrealistic to expect Nigeria to make more sacrifices. We will expect to be one of those people to be granted an exemption”, said Ibe Kachikwu, Nigeria’s Minister of State for Petroleum Resources.
Along with Iran and Libya, whose output has been hit by sanctions or conflict, Nigeria have asked to be exempted from the production freeze.
FRANK UZUEGBUNAM