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FG saves N300bn from crude oil sale

By on May 26, 2014

The Federal Government has begun moves to increase the Excess Crude Account following massive depletion of the account within the last two years.

It was learnt that the move was necessitated by the need to shore up buffers following the huge decline in the country’s external reserves which have witnessed massive decline of about $4.72bn within the last four months.

The ECA was set up to serve as a stabilisation and savings account in 2004 to protect planned budgets against shortfalls due to volatile crude oil prices.

By isolating government expenditures from oil revenues, the ECA aimed to insulate the Nigerian economy from external shocks.

Shortly after the account was set up in 2004, there was increase in crude oil prices which led to the ECA increasing from $5.1bn to over $20bn by November 2008.

Owing to declining oil revenue which was caused by pipeline vandalism, oil theft and production shut-in, the account recorded massive withdrawals and went down to $11.5bn at the end of 2012 and then $2.5bn by January this year.

The drop in the account had led to disagreement between the Federal Government and state governments who had complained about the way the account was managed.

Rivers State Government, for instance, had recently alleged that the sum of $5bn was withdrawn from the account without the governors knowing why the money was withdrawn.

Replying, the Federal Government had stated that the states could not claim ignorance of the money since monies taken from the ECA are first put into the federation account before being shared.

Findings showed that within the first four months of this year, a total amount of N302.45bn had been transferred into the ECA by the Federation Account Allocation Committee.

The committee is chaired by the Minister of Finance and it’s made up of commissioners of finance from the 36 states of the federation; the Accountant General of the Federation, and representatives from the Nigerian National Petroleum Corporation.

Other members of the committee 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

It was further learnt that in a bid to boost the account as well as save the economy from external shocks, the committee transferred the sum of N37.18bn in January, and N135.41bn for February into the account.

Similarly, it approved that the sum of N79.45bn and N50.40bn be credited into the account for the months of March and April thus bringing the balance in the account to $3.6bn as at May 15.

The target of the Federal Government, according to the Minister of Finance, Dr. Ngozi Okonjo-Iweala is to ensure that the account increases to $10bn by December.

It was gathered that unlike in previous years when withdrawals were made from the ECA to augment revenue shortfalls caused by disruptions in production, vandalism of pipelines, and crude oil theft, no augmentation had been made from the account this year.

Despite the fact that the account had not witnessed massive withdrawals in recent times, experts have expressed concern about the low balance in the ECA despite increases in oil prices.

They said the massive decline in the ECA in recent times had exposed the economy to vulnerabilities arising from both domestic and external shocks.

They noted that the erosion had accentuated the regime of persistently high interest rates as well as elevated demand for foreign exchange.

According to the Deputy Governor, Financial System Stability of the Central Bank of Nigeria, Dr. Kingsley Moghalu; the increase in the ECA needed to be sustained over a long period of time for confidence level to be restored.

Moghalu in a recent presentation on the fiscal outlook for the economy made at the Monetary Policy Committee meeting of the apex bank stated that the Excess Crude Account had been severely depleted in recent months, resulting in marked domestic and international concerns over the absence of safety buffers for the Nigerian economy in the event of any shock.

He said, “The factors are balanced, however, even if tentatively at this time, by higher oil revenues and new inflows to the ECA, accompanied by increased crude oil production by 30,000 barrels per day in February 2014 to 1.928 million barrels per day compared to 1.898 million barrels per day in January 2014.

“These increases will have to be sustained over a significant period if confidence levels are to be restored.”

Also speaking on the ECA, the Registrar, Chartered Institute of Finance and Control, Mr. Godwin Eohoi, said the country’s over dependence on oil is having lots of pressure on the ECA.

He said since the country had comparative advantage in many sectors of the economy, there was need to come up with deliberate polices that would improve non-oil revenue.

Eohoi said, “We have so much depended on oil to the extent that it is hurting our economy and this shouldn’t be the case.

“Nigeria would have been one of the greatest countries if we had effectively managed our resources. We have so many resources especially in the agricultural sector.”

He added that but for the sole reason that crude oil sales give quick money, the country would have shifted attention to other sectors of the economy.

 

 

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