NewsReel 19/1/2014 - NNPC And The Federation Account

[ Masterweb Reports: Chudi Offodile reports ] – Veteran journalist and author, Olusegun Adeniyi, in his article titled – Sanusi’s letter, Jonathan’s burden, offered interesting insights into the disagreement between the Nigerian National Petroleum Corporation [NNPC] and President Goodluck Jonathan on one side and the Central Bank Governor, Sanusi Lamido Sanusi, over the ‘missing’ $49.8 billion dollars.
 
 
Adeniyi’s prescription on how to resolve the question of transparency in the management of our oil resources by listing the NNPC in the stock exchange is right on the mark. I had advocated for such listing in 2002, in a paper I presented as the Chairman of the House of Representatives ad hoc committee on joint venture oil operations. That paper, titled ‘The Commercial status of NNPC’, was published in Thisday and Guardian newspaper of 27th June, 2002.
 
 
However, I depart from my dear friend, Adeniyi, when he suggests that the CBN governor had no political motives in that leaked communication with the President and his position that ‘bringing such fears about possible financial leakages to the Presidents notice, even if via a letter, is within Sanusi’s remit as CBN governor and to foreclose such interventions would be to expose our system to serious danger’.
 
 
Everyone knows that the President and Sanusi have not had a cozy relationship in the past year or so and the fact that the central bank governor wrote a potentially damaging letter to the President was common knowledge within informed Abuja circles. The President had queried the audited accounts of the CBN for the preceding years and had rejected Sanusi’s nominees to the board of the CBN, appointing instead, Musa Kafarati and Lagos based corporate lawyers, Ayuli Jemide and Collins Chikeluba to the board of the CBN.
 
 
Sanusi’s letter was his own response to a raging but quiet conflict with the President. So it was clearly political and was designed to achieve a coup de grace against the President. But the casual manner NNPC staffers waived off the allegations when the letter leaked was an early indication that Sanusi had goofed. A bewildered nation watched in disbelief as the CBN governor recanted. It was an anti climax. The coup had failed.
 
 
The autonomy of the Central Bank was designed to provide the monetary institution with operational independence from political authorities not to create an alternative government. Sanusi has expanded the autonomy beyond the contemplation of the advocates of central bank autonomy, the norm in civilized climes, to include challenging and ridiculing political authorities. First was the National Assembly and in this case, the President. No one should applaud that, no matter on which side of the political divide you are, because it traumatizes the economy and exposes the central bank institution to unnecessary political risks.
 
 
And his math was wrong by a wide margin. Sanusi is very eloquent and I enjoy listening to him. Not surprising for a Kings college old boy. But the most important skill set for a banker is math not English language. Therefore, when a central bank governor, alleges in writing, that $49.8 billion dollars is unaccounted for by the NNPC and it turns out that the figure is actually $10.8 billion dollars, a difference of $39 billion dollars, he needs not be persuaded by anyone to resign from office if he has any modicum of integrity. The margin of error calls to question his competence and lends credence to the fact that the letter was politically motivated.
 
 
On the outstanding $10.8 billion dollars, the NNPC has explained it as expenditures incurred as part of statutory responsibilities which the NNPC as the national oil company, executes on behalf of the federal government and by extension, the entire people of Nigeria. $8.4 billion dollars spent on subsidy claims, $1.22 billion dollars spent on repair of damaged pipelines, $0.72 billion dollars incurred on products and crude oil losses and $0.37 billion dollars expended on holding the country’s strategic products reserve.
 
 
These figures represent the operational expenses of the NNPC and so long as NNPC continues to determine its own operational costs, the federal government will continue to short-change the other stake holders of the federation account. It also allows the NNPC to pass on to the Nigerian people the costs of its inefficiencies. It is not just wrong, it is unconstitutional. This was the focus of my article on the commercial status of the NNPC earlier referred to in the aftermath of the Supreme Court Judgement in Attorney General of the federation v Attorney General of Abia State and others [2002] 6NWLR[Part 764][2] delivered on the 5th of April, 2002.
 
 
Prior to the Judgement of the Supreme Court, the federal government usually deducted monies paid to the National Judicial Council for funding of state and federal judiciaries, monies for servicing of external debts and for funding joint venture contracts and NNPC priority projects as first line charge on the federation account. The Supreme Court held that the practice of such deductions was alien to the 1999 constitution pointing out that “even if any enactment has provided for them, like the Appropriation Act by the National Assembly, such enactment is inconsistent with the constitution and is therefore invalid to the extent of the inconsistency”.
 
 
In a quick response to the judgement, the federal government under President Olusegun Obasanjo, announced that the NNPC would henceforth be run as a commercial venture and would operate two new accounts, one for operations cost and the other for the net profit returns which would then be paid into the federation account. The operation cost account is first line charge in another guise. It contravenes s.162 of the constitution and flies in the face of the Supreme Court decision. The only legal remedy is if the operation cost account is at the instance of the owners of the federation account and it is operated transparently to their satisfaction or on agreed terms.
 
 
The federation account is managed by the federal government but is owned by the three tiers of government – THE FEDERAL, STATES AND LOCAL GOVERNMENTS. S.162 [1] of the constitution states clearly that the federation shall maintain a special account to be called the federation account into which shall be paid all revenue collected by the government of the federation. Revenue means any income or return accruing to or derived by the government from any source and includes: [a] any receipt, however described arising from the operation of any law [b] any return, however described arising from or in respect of any property held by the government of the federation [c] any return by way of interest on loans and dividends in respect of shares or interest held by the government of the federation in any company or Statutory body.
 
 
To avoid these cost escalations which are oftentimes legitimate but sometimes unverified and which breeds tensions at the monthly federal accounts allocation committee [FAAC] meetings, the owners of the federation account should agree on a framework to regulate, limit or peg the annual operations cost of NNPC to no more than a particular agreed figure or a percentage of its gross revenue. I had expected the Governors forum to focus on this but they focused on politics, so much so, that twelve years after the Supreme Court decision, NNPC’s unrestrained appetite persists at the expense of the federation account.
 
 
The other option would be for the government to set up a technical team to advice on the options for listing the NNPC on the Nigerian stock exchange and other exchanges around the world. This would require some form of divestment by the government from NNPC but it will stimulate the economy, provide cheaper source of funds and engender public confidence in the corporation.
 
 
Above all, it will subject NNPC to the eagle eyes of market operators since they would have to submit quarterly, half yearly and annual accounts to the exchange to be made available to market operators. The exchange will provide the most transparent platform to resolve the number game of gross and net accruals.
 
 
Chudi Offodile ( Email: c_offodile@yahoo.com ) reports.
 


*Photo Caption NNPC logo
 
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