NEITI Report: A Case for a Robust Oil Savings Fund for Nigeria

by Ode OjowuThe NEITI Report is, as usual, very lucid and straight to the point. It’s summary that “The failure of Nigeria to record meaningful savings from oil revenues despite establishing several accounts for that purpose, and in spite of consistently high oil prices especially in the ten years up to 2014, is traceable as much to a failure to comply with the rules guiding the stabilisation funds as well as to deficiencies in the rules”, cannot be put better.Reflecting on the report, it is obvious that aside from being members of bodies like the NEC, states are passive recipients/beneficiaries of the revenues from the oil sector. There is little of ‘federation’ in the policy and decision framework concerning oil sector revenue. This point is amply demonstrated by the report in two respects: •The policy framework that sets the benchmark for expected revenue from oil that guides budget preparation, and the related; •Centralization of revenues with decentralized expenditure.These two issues imply that there is neither a common baseline for the vertical alignment of budgets between the federal and state governments, nor a horizontal coordination of budgets between state governments, even among contiguous states within a zone. With every state running to the centre for its major revenue allocation from the common purse controlled by the federal authority, contiguous states rarely, if ever, develop strategies or share ideas on how to generate their internal revenues or share policies and programmes to support more efficient and effective budgetary outcomes for the citizens.Logically, the federal government becomes the common target for the states to distrust and to attack. These attacks are made legitimate by federal governments display of impunity in rules violation and “deficiency in the rules” put together by the federal authority for the use and management of the common wealth. Evidence of this impunity is provided by the report in what it describes as “unusual” withdrawals from the Excess Crude Account over a period of ten years between 2005 and 2015. While the story of each of the unusual withdrawals is now commonplace, attention still needs to be drawn to the withdrawals in support of the subsidy payments and in particular the withdrawal for “Petroleum Equalization Management Board” of NGN24.16 billion.The recommendations in the report on constitutional and structural changes required to pave way to save for the future and to provide diversified sources of revenue for the budgets and minimize shocks to the economy in event of commodity price volatility are in order. We need however to point out that in the immediate, the maintenance of the Petroleum Equalization Fund is an anomaly. The PEF was setup as a temporary fund to subsidize the cost of transport of petroleum products while the refineries underwent turn around maintenance (TAM). Over the years, various reasons have been advanced to rationalize the sustenance of the PEF. The fuel subsidy payments were phased out because they did not achieve their objectives, instead they became a source of massive corruption whose negative impacts on the economy are still being felt. The fuel subsidy also fed inefficiencies in the downstream sector. Likewise, the PEF is inefficient, unsustainable and thus represents a significant drain on oil revenues as exemplified by the so called, “unusual withdrawals”. Withdrawals from the Excess Crude Account for the PEF which totaled over NGN24.16 billion, with uncertain advantage to the consumer could well have been part of the savings fund. The PEF by subsidizing the costs of transport acts as a disincentive to investors to seek innovative ways of improving the transportation of petroleum products across the country. NNRC should lead the campaign for the abrogation of the PEF.In the medium to long term, it is unlikely that Nigeria is going to experience a robust increase in oil revenues. The capacity to save therefore lies in two important factors of discipline and economic diversification.Discipline: The recommendation to amend Section 162 of the Constitution to reflect the long term needs of the country. The various savings schemes deriving their authority from the Constitution will minimize the conflict between the Federal and Sub-national governments on issues of saving for the future.We also recommend that the National Integrated Infrastructure Master Plan be revisited as a basis for coordinating capital budgets between Federal and Sub-national governments. Governments should seek in the medium term to phase out their dependence on oil revenue for their recurrent expenses.Diversification: Diversification should be seen from two angles. 1.Diversifying into the Oil and Gas sub sector. Current activities in this sector are limited to exploration, exportation and limited refining. Diversifying into this sub sector provide multiple trickle-down effects such as:a.Providing feed resources for development of other oil and non-oil sectors of the economy. These include gas-to-power, fertilizer production and base oils.b.Employment opportunities far greater than the current enclaved Oil and Gas sector.c.Taking advantage of the Oil and Gas resource to become an aviation hub through competitive prices of aviation fuel and associated lubricants.2.Promote the non-oil sectors with initial emphasis on taking advantage of the domestic and ECOWAS markets as a priority over export to advanced economies.3.Promote physical and social infrastructure such as modes of transport, education and health as these are critically important as the back end to any form of financially based SWF.