EDITORIAL

THE Sun Newspaper EDITORIAL

Tuesday, October 5, 2004

The new revenue allocation formula

After months of hiccups, the draft of the new revenue allocation formula was finally presented to President Olusegun Obasanjo, to mark the end of the five-year tenure of the Revenue Mobilisation Allocation and Fiscal Commission (RMAFC).

Under the revised formula, the federal government gets 47.19% of the entire allocation; the states get 31.10% while the local governments will make do with 15.21% of the federally distributable revenue. The balance of 6.5% is earmarked for special projects under an arrangement that would involve all stakeholders. Also, under its provisions, the National Assembly, the Independent National Electoral Commission (INEC), the RMAFC itself will have a first line charge from the distributable pool.

The implication is that the agencies will henceforth have their approved budgets charged directly to the federation account without recourse to the federal government’s disbursement procedures. Curiously, the judiciary is exempted from the first line charge even against the popular sentiment for its fiscal autonomy.

The new formula is of course a mixed bag of fortune for both the states and the local governments in some respects. While the states may have had their shares increased by nearly 5 % from 26.72% to 31.10%, it would now have to contend with the added responsibility of tending primary education, jointly with the local governments, which in the consequence has had its own allocation slashed from 20.6% to 15.21%.

The new formula certainly cannot be described as anything of a marked departure from the previous formula given that the centre still retains the disproportionate large portion of the federally collectable revenue. The current proposal would seem to be a compromise between the agitations in the states for greater devolution of fiscal powers, and the centre’s insistence on its primacy in its relations with the states.

The loser in all these is the local governments which has had its allocations reduced just as much at its functions in primary education have circumscribed with the provision for their joint attention with the states even at a time that questions about its continued relevance in our federalism has begun to be raised.

There is obviously a benign acknowledgement that all has not been well with the third tier of administration in the country. The problems have been variously identified in terms of glaring absence of capacity in project conception and execution; there are attendant issues of corruption and mindless interference by the state governors through the instrumentality of the local government joint account. The revenue body may have in fact recognized this in whittling down its powers even as it seems to have rewarded the states with appropriate notional increases to their allocations.

Naturally, Nigerians would expect to see better attention to funding, administration and management of the primary education system because of its pivotal role to the overall educational system under the new arrangement.

We agree that no revenue formula can be perfect particularly at this stage in our democratic experiment; hence we commend the work of the commission, which is only a first step, even if admittedly, is coming late in the day.

No doubt, much work needs to be done by our elected officials beyond the matter of the politics of revenue sharing to better management of resources. We do recognize that resources may never really be enough, hence our belief in the compelling need for states the local governments to pay greater attention to their Internally Generated Revenues (IGR) rather than wholesale dependence on the distributive pool to meet their budgetary requirements.

Corruption, graft and waste constitute some of the thorniest issues of our fiscal federalism requiring equal, if not greater attention, too. These undoubtedly cut across the three tiers and the impression should not be created that this is limited to the local or even the state governments. Ultimately, it is when these issues underlying the sharing of the revenue are dealt with that the nation can begin to talk of any gains therefrom.

Thisday Editorial

August 19, 2004

As Tenure of RMAFC Ends...

By the end of September, just six weeks away, the tenure of the current members of the Revenue Mobilisation, Allocation and Fiscal Commission (RMAFC) would have expired. The commission is, among other things, charged with adjudicating on matters of revenue sharing among the three tiers of government. Members who are appointed for a five-year term at the pleasure of the president may get a second term. Although the commission which has a representative from each of the 36 states and Abuja is appointed by the executive, the constitution grants it autonomy in the discharge of its duty. This, no doubt, is in recognition of the delicate nature of its assignment.
    As provided for in the Third Schedule of the constitution, the RMAFC is to monitor the accruals to and disbursement of revenue from the Federation Account and to review, from time to time, the revenue allocation formulae and principles in operation to ensure conformity with changing realities. The commission is also required to advise the federal and state governments on fiscal efficiency and methods by which their revenue can be increased. It is equally responsible for fixing the remuneration appropriate for political office holders including the President, Vice-President, Governors, Deputy Governors, Ministers, Commissioners, Special Advisers, Legislators and heads of certain grades of parastatals and foreign missions.
    In each of these functions, the incumbent commission has performed in a way that has not called into question its independence and integrity. Whether the commission was determining the revenue formula or fixing the salaries of political appointees, its conduct has generally inspired public confidence.Since his appointment as the chairman of the commission in 1999, Mr Hamman Tukur, a former federal permanent secretary, has come off as a fellow with a clear grasp of the dictates of his office. He has at every turn, demonstrated that the commission is not a stooge of any arm or tier of government. In line with its constitutional mandate, the commission has carried on in a manner that has earned it the admiration and respect of a majority of Nigerians.
    It is easy to recall that on a number of occasions the commission's decisions had seemed to put it on a collision course with either the executive or legislative arm of government. But it remained unswerving at such moments, convinced about the fairness of its position. A good example was its refusal to withdraw the revenue formula it submitted to the National Assembly for approval following the president's objection to aspects of it. While the formula may not be acceptable to everyone, most people are agreed that it is a significant improvement on the previous ones. It put into consideration current realities.
    Tukur and his commissioners obviously realise that fair and equitable sharing of revenue is at the heart of fiscal federalism. Both in determining the formula and fixing the wages of political office holders, the commission has demonstrated enough sensitivity to the public mood.
    Although a presidential appointee Tukur has shown dignified independent-mindedness in performing his duties. He has not betrayed the sort of grating sycophancy so common to presidential appointees. Even when it seemed clear that the commission's position on certain issues was unpalatable, the chairman and commissioners kept to their oath to serve without fear or favour. This is what makes it tempting to call for his re-appointment for another term.
    The commission has had to pay a price for its even-handedness. A good example was the National Assembly's drastic cut of its annual budget, leaving it with barely nothing to run its affairs. It is the sort of recrimination that could have made some people compromise but not the Tukur-led commission.
    As the commission nears the end of its first term in office, it will not be out of place to canvass Tukur's re-appointment, based strictly on his track record, and no other consideration. However, if a new chairman must be appointed, he or she must be someone with Hamman Tukur's integrity.

The Sun Editorial

Friday, September 24, 2004

Where is the N812 million fuel fund?

Hardly would anyone believe that a federal government which makes fetish of transparency, due process and accountability would practise the exact opposite vice.

But the latter appears to intepret the government’s silence over the question which has been asked repeatedly since April this year without a credible answer: Where is the N812 million collected illegally as the controversy-ridden fuel tax in January this year? This money should be found, especially now that the Federal High Court on Tuesday declared that the government could reintroduce the fuel tax.

Seven months after the government imposed the illegal N1.50 per litre tax and collected it from January 1 to 20 when a court order stopped it, none of the agencies of government has yet admitted knowing the whereabouts of the total sum which accrued from the deductions. Last April, the Revenue Mobilisation Allocation and Fiscal Commission (RMAFC) informed the nation that the revenue from the fuel tax was not deposited at the Central Bank of Nigeria (CBN) as expected.

If the sum was not deposited, it meant that it was used for the nationwide road rehabilitation purpose which the government claimed it had purportedly imposed the levy. But Ministry of Works said it has neither received nor spent any money from the fund. The ministry admitted that N10 million monthly was projected to be released to it from the levy for its "Operation 500" nationwide road repair works. But money disbursed to its federal controllers in the 36 states for the repairs came from the N10 billion take-off grant of the Federal Roads Maintenance Agency (FERMA).

A babel of voices came from the House of Representatives Committee on Finance and the Petroleum Products Pricing Regulatory Agency (PPPRA), among others, some concerned, others outraged. They claimed to have begun investigations to ascertain where the tax revenue was lodged. Nigerian National Petroleum Corporation (NNPC) subsequently explained that it had collected the N1.50 from the marketers at source, "a transaction that requires time to reconcile and complete." And that its reconciliation process with the marketers should not be misconstrued as "missing money." It promised to make accurate figures public after the reconciliation.

Why NNPC did not reconcile such figures by the end of the first quarter remains a moot question. Recently, PPPRA said it had deposited the sum in a CBN dedicated account. Thus, the paper trail ended at the apex bank. Explaining, CBN said the account was closed in February, as a result of a court order. But there is no information yet as to what was done with the accrued sum prior to the account's closure.

Hence the suspicion that the public fund might have been lodged in a corrupt public official's private bank account to yield interest. We cannot substantiate this suspicion, plausible though it sounds. Moreover, the discovery of another "missing" public revenue came barely weeks after the privatisation revenue went unaccounted for until legislators raised alarm about it. The government was compelled to explain, two years after, that it was spent in the 2001 budget.

So, without any further delay, the CBN should make public what happened to the fuel tax money. This is one case in which silence connotes another scandal over "missing" public revenue imposed in controversial circumstances leading to a nationwide strike called by the organised labour. For a government which preaches accountability and corruption-free governance, such unaccountable "missing" funds confirm skepticisms that the preaching is, too many times, antithetical to the vice it practises.

Thisday Editorial

February 27, 2003

NNPC, RMAFC and "Missing Money"

Since September last year, both the Revenue Mobilisation Allocation and Fiscal Commission (RMAFC) and the Nigerian National Petroleum Corporation (NNPC) had engaged each other in a battle of wits over what the former considered as discrepancies in the latter's returns on oil production and sales to the Federation Account.

In a letter he wrote to the Group Managing Director of NNPC, Mr Jackson Gaius-Obaseki, on September 10, 2002, the RMAFC Chairman, Engineer Hamma A. Tukur, had with facts and figures queried the discrepancies between expected oil revenue based on a daily allocation of 450,000 barrels to the corporation and actual oil revenue receipts into the Federation Account. Specifically, the RMAFC alleged that since the refining capacity utilisation of the refineries in the country is far less than the 450,000 barrels, and that since there is an assumption that the balance is being exported and sold at a commercial rate i.e. $18 per barrel, and with the balance not remitted into the Federation Account, the NNPC must be made to account for this money.

Similarly, the RMAFC alleged that the nation was being short changed by the NNPC over its share of crude sale at OPEC's quota, in its joint venture with oil companies. The NNPC's share is 60 per cent, but only about 53 per cent share is accounted for. And when the shortfall on this and that of local allocation for refining is put together, the corporation is unable to account for 302 billion naira within the first half of last year.

In the conclusion of his letter, the RMAFC chairman therefore sought clarifications to the following: one, what is the written or legal authority for the NNPC to have fixed the price of crude oil for domestic use at $18/bpd throughout last year? Two, what is the legal basis of the daily allocation of 450,000 bpd day to the NNPC when the refineries can hardly refine 50 per cent of this quantity in the best of times? Three, why should NNPC export part of the crude oil meant exclusively for domestic use?

Four, what reason can the NNPC adduce to justify why the proceeds of the above crude oil sales are not remitted into the Federation Account? Five, the exchange rate at all times seems to be fixed at N110 to the dollar. What is the legal basis for using exchange rate other than those determined by IFEM operating at the time of sale? And lastly, that the opening of an account with the Central Bank of Nigeria, instead of paying straight into Federation Account is illegal.

In his reply a few days later, Mr Gaius-Obaseki sought to clarify all the issues raised. In the main, he said that there is no money missing at all and that the RMAFC has only based its calculations on false assumptions.

In specifics, the NNPC's chief said in the first instance, that the OPEC quota for the period mentioned was 1.787 million barrels per day and that the commission had introduced an error of 124,000 per barrels per day to Nigeria's quota. Two, that NNPC's equity in the joint venture is not 60 per cent but 53.26 per cent and the balance is accounted for by the indigenous producers. Three, that there are no discrepancies in oil sale receipts as actual receipts in any one month are for sales of the previous month and deducting receipts of previous month's sales from current month sales gives completely wrong figures. Four, that the 445,000 barrels per day for local refining is part of the nation's OPEC quota and not separate. Furthermore, that the allocation for local refineries was based on the total capacities of the four refineries. And as the domestic refineries are undergoing Turn Around Maintenance, some quantity of refined products are imported to supplement local consumption, while the unutilised domestic crude is sold out and proceeds used for the payment of imports. Five, on the exchange rate of N110 to one US dollar, he said it was based on the advice from the Finance Ministry and Petroleum Products Price Revenue Committee. Finally, on the issue of NNPC Account with the CBN, it was the Attorney-General who gave the clarification based on a letter from RMAFC. The AG said the account was in order as it was in compliance with Section 7 (4) of the NNPC Act and that it was to enable NNPC deduct the cost of production which it shared with its partners in the venture before remitting the profit to the Federation Account and this is also in accordance with the letter and spirit of the Constitution.

Meanwhile, in the process of exchange of letters, the matter had already sneaked into the public gallery with several insinuations going round. The overall impression was that Nigeria's oil money has been stolen again which reminds us of the "Missing 2.8 billion oil money" in the Second Republic that later turned out to be a hoax. The RMAFC officials repeatedly charged at NNPC calling on it to account for the missing money. This was what perhaps led the House of Representatives Committee on Petroleum to look into the matter when it held a public hearing on it last week.

Although, the investigation by the committee continues, what came out of all the accusations last week was an anti-climax. The commission's chairman surprisingly denied he ever said N302 billion was missing from NNPC Account. Even when the committee members reminded him of newspaper reports and his letter to the NNPC he still denied. He, however, insisted at the hearing that the NNPC account with CBN is illegal and unconstitutional. As it is, it appears that there is no money missing despite the public hysteria already created. What was actually needed was clarification of issues and the need to make NNPC render proper account. We commend the commission's chairman for bringing the issue to the national burner and for insisting on transparency and accountability. This is in the spirit of what the commission is set up to do. At least, he has made the nation to keep an eagle eye on the nation's revenue. However, we caution that he ought to be circumspect in making accusations on sensitive issues on the nation's revenue once the matter cannot be ascertained. This sends wrong signals to an already traumatised public. Equally, we commend the House Committee for rising to the occasion. We urge it to quickly get to the bottom of the matter being an unbiased umpire and inform the public accordingly. As for the issue of constitutionality of the CBN account this should be taken to the court for a ruling.

THE PUNCH EDITORIAL

Monday February 23, 2004.

ROW OVER REVENUE SHARING

Governors of the 36 states of the federation recently insisted on the implementation of the new Revenue Allocation (Modification) Bill which President Olusegun Obasanjo withdrew from the National Assembly last November. The withdrawn bill allocated 46.63 per cent to the Federal Government, 33 per cent to the State Governments, and 20.37 per cent to the Local Governments. The one now in use allocates 45.5 per cent to the FG. But with sundry special funds, the total figure comes to 56 per cent; states get 24 per cent and the LGs, 20 per cent.

When the governors visited the Abuja office of the Revenue Mobilisation Allocation and Fiscal Commission (RMAFC) to register their reservations, they seized the opportunity to dismiss reported claims by the President that the decision to review the new formula was reached with their consent.

President Obasanjo had based his withdrawal of the bill on allegation that some fake versions were in circulation, and had promised to authenticate the valid version for the lawmakers’ consideration. Reports later had it that the President withdrew the new formula because of his dissatisfaction with the FG’s share of 46.63 per cent. The Chairman of RMAFC, Alhaji Hamman Tukur, reportedly confirmed that the real reason for the President’s withdrawal of the formula was because the FG was not comfortable with its share. It wants more. The governors are, therefore, insisting that since the President’s reason for withdrawing the bill was “the circulation of fake versions,” the revenue commission should authenticate the original one and forward same for consideration.

There are strong indications that the present administration, which has betrayed no pretence about its preference for a very strong centre, is reluctant to review the inequitable revenue sharing formula inherited from the military. The President’s withdrawal of the new revenue bill, ostensibly for reasons other than those he expressed, and the fact that the FG’s 2004 budget proposal is predicated on the old revenue formula of 56:24:20 are all indications that the FG is not in a hurry to alter the present arrangement. It may be said that with the President’s withdrawal of the new bill, the nation risks being robbed of a widely acceptable revenue sharing formula until the end of this administration’s tenure. For, according to reports, it took RMAFC about two and a half years to come up with the withdrawn proposal, while it may take no less a period to review it.

The nation’s founding fathers, in their wisdom, provided a revenue sharing formula in the 1960 Constitution, which conceded 50 per cent (in derivation funds against the present 13 per cent) on mineral resources, and 100 per cent in cash crops to the defunct regions. This encouraged competition among the regions as they strove to tap their individual resources for accelerated development. With the 36 states virtually dependent on oil funds, which are hardly enough, most of them have ceased to explore alternative ways to move forward. At best, they have become salary paying, instead of wealth creation centres.

It is also not unlikely that the National Assembly conspired in the perceived plot to frustrate the bill. Or how else can it be explained that for the period the bill was with them, before the President withdrew it, the lawmakers paid little attention to it? Though the governors deserve blame for sleeping on this matter for too long, their quest for a just revenue sharing formula deserves public support. For, only by so doing can the nation tone down the vicious scramble for the control of the centre, liberate the states and avert the danger of concentrating so much resources in the hands of one man. The President should be persuaded that it is in the interest of all stakeholders, including the FG, to gradually move the nation towards true fiscal federalism.

THE PUNCH EDITORIAL

Tuesday, April 20, 2004

OIL REVENUE ACCOUNTABILITY

The controversy over the whereabouts of the money collected from the controversial fuel tax levy is an eye opener to the absence of transparency and accountability in the management of the nation’s earnings from crude oil and gas. The Revenue Mobilization, Allocation and Fiscal Commission (RMAFC) recently raised an alarm that it could not locate the whereabouts of the proceeds from a N1.50k levy on a litre of diesel and petrol imposed by Federal Government. The levy had to be withdrawn after 20 days of collection. The RMAFC is empowered by the Constitution to “monitor the accruals to and disbursement of revenue from the Federation Account.” All the relevant agencies of government claim they do not know where the missing fuel tax money is. The Central Bank of Nigeria had admitted that two dedicated accounts were opened for the purpose of lodging the fuel tax, but that no kobo was found in them. Mum is still the word from the Accountant General’s office which is empowered to order withdrawals from government accounts. The Department of Petroleum Resources (DPR) that monitors oil industry activities is also silent over the missing funds.

The Petroleum Products Pricing and Regulatory Agency (PPPRA) that directed oil marketers to pay the special tax into two CBN accounts has confirmed that no payments were made. The intended beneficiary - the Ministry of Works - says it has not received reimbursement from the over N1b accruals. But the Managing Director, Nigerian National Petroleum Corporation (NNPC), Mr. Funsho Kupolokun, in his reaction to the issue, explained that PPPRA “captured” the fuel tax at source and that the NNPC has now commenced the reconciliation of figures from marketers. The so-called “reconciliation” is somewhat curious, in that marketers were supposed to pay the fuel tax at the port of loading for imported fuel and at depots of NNPC or that of private operators for fuel sourced from local refineries.

Sadly, the same accounting confusion that allows for fraudulent diversion of the nation’s revenues, characterizes the management of crude oil exports and Joint Venture projects between multinational companies and the NNPC. Industry experts have observed that the shoddy accounting system in use does not tie Joint Venture Cash Call to annual production. This therefore enables multinational oil firms and their collaborators in the bureaucracy to rip off the country by inflating Exploration and Production estimates.

All government agencies give contradictory figures of the nation’s oil exports and earnings. Despite the fact that sale of Liquefied Natural Gas (LNG) has been a significant segment of the nation’s revenue since 1999, the earnings have, over the years, been omitted from annual budgets. The FG should have allowed actual annual investments and real gas revenues to feature in the Federation Account. The inflation of oil reserve scandal which recently engulfed the Shell has only exposed the level of corruption involved in the Reserve Addition Bonus (RAB), which government has paid as incentives to its joint venture partners in the past 10 years for oil exploration. Recently too some oil firms were found to be operating illegally and selling crude from capped wells and pocketing the proceeds.

It is tragic that the nation’s oil finances are still mired in sloppy accounting. The missing money saga has once again indicated that the fuel tax would have been mismanaged if it was allowed to stay. The Auditor General, RMAFC and the Department of Petroleum Resources should throw more light on the missing tax money. As a nation that subscribes to the Extractive Industry Transparency Initiative (EITI), the sloppy handling of the Fuel Tax proceeds is a national embarrassment.

THE PUNCH EDITORIAL

Thursday June 17, 2004

ACCOUNTABILITY IN PUBLIC FINANCE

The latest effort by the Federal Government to bring more transparency and accountability to bear on public finance is quite commendable. The publication of the monthly statutory allocations from Federation Account Allocation Committee (FAAC) to states and councils, has increased public awareness and empowered opinion leaders to ask questions. Facts are emerging to suggest that funds meant for development at state and council levels are being mismanaged. The Chairman, Peoples Democratic Party (PDP), Chief Audu Ogbeh, for instance, revealed last week that some unnamed governors either misappropriated or stole the allocations to local councils, by delivering less than 10%, or N11 million of the N57 million received from the Federation Account.

Earlier, the Finance Minister of State, Mrs. Nenadi Usman, had expressed concern that some governors might be siphoning public funds into their private offshore accounts. Many governors took offence, claiming that the FG had a hidden agenda to discredit them in order to increase its own (FG’s) share from the central pool. Last week, President Olusegun Obasanjo, at a PDP forum, canvassed the arrest and prosecution of the culprits.

All these indicate an increasing awareness that the public finance system must be sanitized and made to serve the purpose for which it is meant. But there is a crying need for the government to also beam the new searchlight of openness on itself. As indicated by the Kaduna State Governor, Ahmed Makarfi, limiting the publication to state and council allocations is clearly one-sided and may be misinterpreted as a means of blackmailing the other tiers of government. The challenge, therefore, is for the President to order the immediate publication of all allocations to federal ministries, agencies, and parastatals. That way, the new battle for openness would become a veritable means of holding all public office holders accountable to the people, and not just a tool of political witch-hunting.

Beyond the controversies over the publication of FAAC allocation disbursements, all stakeholders should closely monitor the accruals into the Federation Account. Some Federal revenue generating agencies, including the NNPC, Customs and Excise Department, Federal Inland Revenue Services (FIRS), Department of Petroleum Resources (DPR), Bureau of Public Enterprises (BPE) and the Nigerian Ports Authority have been suspected of understating their returns to the Federation Account. Last year, the National Assembly investigated N77 billion unremitted taxes by revenue agencies and confirmed N28 billion unremitted petroleum profit tax in 2003.

The Revenue Mobilization, Allocation and Fiscal Commission (RMAFC), empowered by the Constitution to monitor accruals and disbursements from the Federation Account, has been having a running battle to sanitize all revenue streams. The RMAFC, for instance, is probing undeclared excess oil revenues. Yet, unresolved is RMAFC’s observation of conflicting official figures on oil revenue accruals provided by the Finance Ministry, Central Bank, NNPC and DPR. Also, RMAFC has urged, to no avail, for the establishment of State, Local Government joint accounts, as prescribed by the Constitution.

The RMAFC has shown exemplary leadership, but can do better by being proactive rather than reactive. It could publish monthly expected and declared revenue accruals from particular agencies as well as insist on being represented in the agencies to enhance on-the-spot monitoring. The National Assembly and State Houses of Assembly must improve on their oversight functions over the executive in order to enthrone an honest regime of probity in public sector finance. Finally, the passage of the Freedom of Information bill is the surest path to open up government accounts to public scrutiny.

THE PUNCH EDITORIAL

Thursday June 17, 2004

ACCOUNTABILITY IN PUBLIC FINANCE