Subsidy: FG withdraws N395bn from Excess Crude Account

The Federal Government withdrew the sum of N395bn in 2013 to fund subsidy on petroleum products, the Fiscal Responsibility Commission has said.

FRC said this in its 2013 Annual Report and Audited Accounts which was released recently and obtained by our correspondent in Abuja on Friday.

The commission said the withdrawal of the money from ECA to fund the subsidy regime on petroleum products was illegal as it lacked the backing of the law.

The summary of transactions in the Excess Crude Account as of 2013 showed that N50bn was used to fund the subsidy regime in the first quarter of the year. In the second quarter, the sum increased to N110bn.
No money was spent on the subsidy from the account in the third quarter of the year, but in the final quarter of the year, the withdrawal leaped to N235bn, making a total of N395bn withdrawal for subsidy funding within the year.

The Federal Government created the ECA in 2003 as a buffer against volatility in crude oil prices. Proceeds from the sale of oil above the budget benchmark price are paid into the account which belongs to the three tiers of government.

The Fiscal Responsibility Commission said the use of money from the Excess Crude Account to pay for petroleum products subsidy and Petroleum Equalisation Fund was not justifiable by law.

It said, “Funds have been deployed towards payment for petroleum products subsidy and PEF. It is difficult to find justification for this in the Fiscal Responsibility Act 2007.”

A tabulation of the inflows and outflows from the ECA for 2013 showed that the fund received a total of N1.01trn while outflows amounted to N1.77trn.

This means that the outflows into the account were N757.13bn higher than the inflows in 2013. In percentage terms, the outflows were higher than the inflows by 74.86 per cent.

Others transactions on the account in the year included augmentation for the three tiers of government which gulped the sum of N1.07trn; and transfer to Special Intervention Fund, N298.98bn.

The report said, “The total inflow into the ECA in 2013 was N1, 011bn while the total outflow from the account was N1, 768.57bn.

“It is clear from Section 35 of FRA 2007 that the EC belongs to all tiers of government. Over the years, the three tiers have, in collaboration, drawn down from the ECA under conditions that are not consistent with the prescription of Section 35 (5) of FRA which states that no government in the federation shall have access to the savings made in the ECA, unless the reference commodity price consistently stays below the predetermined oil benchmark price in the budget for a period of three consecutive months.”

It also faulted the conditions under which the three tiers of government had regularly withdrawn money from the ECA to fund shortfalls in the money shared by the governments during the monthly Federal Allocation Accounts Committee meetings.

It said, “What has typically been the case is that draw-downs occur when there are shortfalls in revenues available for distribution to all tiers of the federation. They are simply used to augment FAAC allocations during periods of revenue shortfalls arising from oil production disruptions due to pipeline vandalism and oil theft.

“Incidentally, such augmentation is not consistent with the provisions of FRA 2007 as the three-month window is not respected. The FRC has not been availed with oil price and volume records to enable it determine the extent to which Section 35 (5) of FRA 2007 is being adhered to.”

In a covering note to the report, Chairman of Fiscal Responsibility Commission, Mr. Victor Muruako, said the agency had helped the government to recover N336bn from Ministries, Departments and Agencies.

He also lamented that the country was losing much money through pipeline vandalism.

Muruako said, “Crude oil projections for 2013 were 2.53 million barrels per day while actual figures averaged 2.3 million barrels per day leading to a shortfall of about nine per cent. This has been blamed on oil theft and pipeline vandalism that resulted in the loss of about 300,000 – 400,000 barrels per day.

“In addition, the government’s revenue from oil sales has been declining in recent years as a result of the changing structure of business arrangements (e.g. from joint ventures to production sharing contracts) and this quantity shock continues to impact on the level of external reserves and ECA.

“In the period under review, the commission intensified its efforts in monitoring the scheduled corporations in the areas of preparing their budgets, rendition of audited accounts and payment of 80 per cent operating surplus to the Federal Government.

“In its five years of existence, the FRC has been instrumental in getting scheduled corporations to pay over N336bn into the Consolidated Revenue Fund of the Federal Government.”

Muruako added that the safest guarantee against imprudence in the management of national affairs, especially fiscal affairs, remains openness and inclusion for which the Federal Government established the commission.