Three oil-producing states Akwa Ibom, Rivers and Bayelsa may be expecting higher FAAC receipts going by a Supreme Court judgment. The court ordered the Federal Government to recover all revenues lost to oil exploring and exploiting companies through its failure to adjust the production sharing contract.
The three states took the Federal Government to court in 2016, accusing it of failing to readjust the Production Sharing Contract between itself and the companies since 2003, when oil crossed the $20 mark. The agreement was reached following the signing of the Deep Offshore Act in 1993.
What is the PSC ?
The Production Sharing Contract Act of 1993 was enacted in response to the difficulties faced by the government in funding Joint Venture (JV) arrangements as well as encourage companies to invest the deep offshore space.
A section of the Act provides the review of the agreement once the crude oil price exceeds $20 per barrel. Oil price has traded above $20 for over a decade but no form of review was carried out.
Eyes on the money
The Federal Government had also woken up from its slumber as Minister of State for Petroleum Resources Ibe Kachikwu in December last year, stated that the act would be amended.
“The first and most substantial for me is the decision to work with the Attorney General to amend section 15 of the PSC of the Deep Offshore Act. Under the Act, there was a provision in 1993 that once the price of crude exceeds $20 per barrel, the government will take steps to ensure that that premium element is then distributed at an agreed premium level.
The National Assembly had also waded into the matter, accusing the Department of Petroleum Resources (DPR) of gross negligence, and had resolved to write to the embassies of the affected oil companies, seeking a refund.
For the states, the judgement would lead to improved FAAC receipts. This would enable them meet their recurrent expenditure as well as capital projects. Bayelsa state in particular owes several pension and salary arrears
Buhari appoints new Ag. Chairman of EFCC, gives reason for Magu’s suspension
The statement revealed why Ibrahim Magu, was suspended by the President.
President Muhammadu Buhari has approved the appointment of Mohammed Umar as the new acting Chairman of the Economic and Financial Crime Commission (EFCC).
Umar who is EFCC’s Director of Operations was asked to take charge and oversee the operations and activities of the anti-corruption agency pending the conclusion of the ongoing investigation on the allegations against Ibrahim Magu and further directives in that regards.
This was disclosed by the Special Assistant Media and Public Relations to the Attorney General of the Federation and Minister for Justice, Dr Umar Gwandu, in a press statement on Friday, July 10, 2020, in Abuja.
The statement revealed that the former acting Chairman for EFCC, Ibrahim Magu, was suspended by the President in order to allow for an unhindered probe by the Presidential Investigation Panel which is headed by Rtd Justice Ayo Salami under the Tribunal of Inquiry Act and other relevant laws.
The presidential panel was set up to investigate various cases of official misconduct and financial irregularities against Ibrahim Magu, who has been in detention since Monday, July 6, following his invitation for questioning by the panel.
The allegations were made by the Attorney General and Minister for Justice, Abubakar Malami, who demanded for his removal as the acting Chairman of the EFFC in a memo to President Muhammadu Buhari.
Buhari signs N10.8 trillion revised 2020 budget
The revised 2020 national budget, which was passed by the National Assembly in June, was signed by President Muhammadu Buhari today.
The personal assistant to the President on New Media, Bashir Ahmad, disclosed this on Friday morning on Twitter. “At exactly 11:04am today, President @MBuhari signed into law, the revised N10.8 trillion budget for the year 2020,” Ahmad tweeted.
— Bashir Ahmad (@BashirAhmaad) July 10, 2020
Recall that the National Assembly passed a revised budget of N10,805,544,664,642 on the 11th of June after the Federal Executive Council (FEC) approved a revised budget of N10.523trillion in May.
President Buhari announced that the budget was revised due to the effect of the COVID–19 pandemic on the economy, and disclosed all MDAs will be allocated 50% of their capital allocation by months end.
The Oil benchmark in the budget was reduced from $57 per barrel to $25 and crude production was reduced from 2.18 million to 1.94 million barrels per day in the new revised budget which was disclosed by Zainab Ahmed, the Minister of Finance.
She announced that N5.365 trillion of the budget will be funded by domestic and foreign borrowing while direct revenue funding will cover N5.158 trillion. Adding that the revised sum is just a difference of N71.5 billion compared to the previously approved budget.
“This is because, as we cut down the size of the budget, we also have to bring in new expenditure previously not budgeted, to enable us adequately respond to the COVID-19 pandemic,” she said.
Nigeria’s excess crude account falls to $72 million
Nigeria’s excess crude account has now fallen by a whopping 98% in just 5 years.
Nigeria’s Excess Crude Account (ECA) now stands at $72 million as the country continues to grapple with an unprecedented revenue crisis not seen since the early eighties. The ECA account has now fallen by about 98% within the last 5 years.
The information on the excess crude account was revealed by the Minister of Finance, Zainab Ahmed in a National Economic Council Meeting during the week. The ECA is a savings account retained by the Federal Government and is funded by the difference between the market price of crude oil and the budgeted price of crude oil as contained in the appropriation bill.
There were major concerns last November when it was reported that the ECA balances held just $324.5 million one of the lowest balances recorded at the time. At $72 million the ECA is in low territory highlighting the effect of the fall in crude oil prices this year. Crude oil prices have crashed to sub-zero in March and have risen back o just over $40/barrel in recent weeks. However, it still remains low from Nigeria’s previous budget benchmark.
ECA in the news
About a year ago Nairametrics reported Nigeria’s Excess Crude Account has dropped to $480 million. This is as controversy continues to trail the $1 billion military spendings which were withdrawn from Nigeria’s Excess Crude. According to the Central Bank of Nigeria’s annual report for 2018, Nigeria’s crude excess account fell from $2.45 billion in 2017 to $480 million as of December 2018.
Just 5 years ago (August 2015) the ECA stood at $2.2 billion. This was the early days of the Buhari administration. It was $3.6 billion in February 2014, one of the highest balances on record. That same month, at its monthly FAAC, the government agreed to remove fuel subsidy from its books. Fuel subsidy is currently being borne by the NNPC.
The Controversies: Last year, the federal government under President Muhammadu Buhari was accused of mismanaging the country’s Excess Crude Account especially the $1 billion reportedly spent on military equipment.
- The National Security Adviser (NSA) retired Major General Babagana Monguno Gen. Babagana was quoted to have disclosed that he was not aware of the whereabouts or disbursement of the $1billion drawn from the ECA by the Buhari presidency in 2017 for security purposes.
- While controversies trail the statement credited to the NSA, with many describing it as diversion of public funds, the Presidency provided some explanations.
- Responding to the allegations, Senior Special Assistant on Media and Publicity, Garba Shehu, disclosed that various procurements had been made for the purchase of critical equipment for the Nigerian Army, the Nigerian Navy, and the Air Force, contrary to the allegations.
Nigeria’s ECA in retrospect: In Nigeria, there are two Sovereign Wealth Funds: the Excess Crude Account and the Nigeria Sovereign Investment Authority (NSIA). Note that these two are funded by the savings earned when oil prices are at peak.
- Hence, as a larger chunk of revenue is appropriated for ECA and NSIA, the country’s external reserves are likely to fall.
- Note that the sovereign wealth fund was established to address the controversies surrounding the Excess Crude Account.
- The fund is usually expected to generate revenue to meet budget shortfalls in the future, provide dedicated funding for the development of infrastructure and saves for future generations.
ECA depleted by 98% in 5 years: A closer look at the various annual reports of the Central Bank of Nigeria shows that Nigeria’s excess crude account has now fallen by a whopping 98% in just 5 years.