Harder times ahead for state governments as NNPC projects zero remittance for May

Following the latest disclosure by the Nigeria National Petroleum Corporation (NNPC) that its projected monthly remittance to the federation accounts allocation committee (FAAC) for May will be zero, there are fears that this will affect the monthly allocation to states for the coming months, and make them unable to meet their statutory obligations such as payment of salaries to workers in their respective states.

The corporation made this revelation in a letter to the accountant-general of the federation, on Tuesday.

In the letter to the accountant-general, NNPC said N111.96 billion will be deducted from April 2021 oil and gas proceeds — due to the federation in May — noting that the deduction is necessary to ensure the continuous supply of petroleum products to the nation and guarantee energy security.

“The Accountant-General of the Federation is kindly invited to note that the average landing costs for Premium Motor Spirit for the month of March 2021 was N184 per litre against the subsisting ex-coastal price of N128 per litre, which has remained constant notwithstanding the changes in the macroeconomic variables affecting petroleum products pricing,” the letter read.

“As the discussions between Government and Labour are yet to be concluded, NNPC recorded a value shortfall of N111.966,456,903.74 in February 2021 as a result of the difference highlighted above. Accordingly, a projection of remittance to the federation for the next three months is presented in the attached schedule.”

There has been concern over a shortfall in the FAAC revenue for the three tiers of government, with Godwin Obaseki, governor of Edo state, accusing the Central Bank of Nigeria (CBN) of printing N60 billion to augment the March allocation.

Nigerian Tribune had reported on April 25 that state governments in Nigeria will need an amount that is at least three times their present Internally Generated Revenue (IGR) to settle their debt obligations, including the Budget Support Loans given to them by the Federal Government.

The revenue drama that dominated the public space in the past weeks does not look like it will end anytime soon.

In March, Mele Kyari, group managing director (GMD) of the Nigerian National Petroleum Corporation (NNPC), had warned that the corporation can no longer bear the burden of underpriced sales of premium motor spirit (PMS), better known as petrol, to consumers in the country. 

“The price could have been anywhere between N211 and N234 to the litre. The meaning of this is that consumers are not paying for the full value of the PMS that we are consuming and therefore someone is paying that cost,” he had said.

“As we speak today, the difference is being carried in the books of NNPC and I can confirm to you that NNPC may no longer be in a position to carry that burden.”

He, however, promised that there will be no increase in the price of petrol until talks between the government and stakeholders are concluded.

The Petroleum Products Pricing Regulatory Agency (PPPRA), through a petrol pricing template released in March, had announced an increase in the retail price of petrol. The template announcing the price increase was later deleted by the agency.

Oil revenue which for over two decades accounts for more than 60 per cent of remittances to FAAC purse has declined significantly from a peak of N8 trillion in 2012 to a threshold of N3.5trillion.

Consequent to this and the inability of most sub-nationals to substantially increase IGR, states debt portfolios have increased nearly four-fold from N1.8trillion to N5 trillion in 2020

“A pitch of IGR numbers against total debt shows that all except for the Federal Capital Territory (FCT) at 114 per cent have their annual IGR printing below 41 per cent of total debt stock in 2020.

“This implies that all state governments except FCT will need a minimum of three times their 2020 IGR to offset their debt burden as of 2020,” an investment banking and research firm, Afrinvest (West) Africa stated in a note to clients.

The Central Bank of Nigeria (CBN) Governor Godwin Emefiele recently said that state governments must begin to pay back the Budget Support Loans given to them by the Federal Government.

Emefiele said this while reacting to claims by Edo State Governor Godwin Obaseki that the Federal Government printed money to augment the March revenue shared by the Federation Account Allocation Committee (FAAC).

The governor alleged that the Federal Government is borrowing without a sustainable plan to sort out the debt load.

Analysts are concerned that at the level of IGR of the states, non may have the capacity to pay back such loans in the near term.

 Nigeria’s total public debt portfolio for the States and the Federal Government as of December 31, 2020, stood at N32.92 trillion.

It should be remembered that in April 2020, the Nigerian Governors Forum (NGF) urged the Central Bank of Nigeria to suspend all funds deductions from states and restructure their debt repayments to cushion the impact of Coronavirus on the states’ finances.

Developments in the global economy, particularly in the year 2015, grossly affected developing countries. Examples of which include the happenings in the crude oil market, where the Organization of Petroleum Exporting Countries (OPEC) was unable to reach an agreement amongst its member countries, while Non-OPEC producers, such as the US, were not prepared to cut down on production, Iran’s nuclear deal, amongst others.

The overall effect has been negative as indicated by the performance of most developing economies, which rely heavily on crude oil. The Nigerian economy is one of such economies affected by these developments. State governments became unable to pay salary and pension arrears alongside huge debts and falling internally generated revenue, hence the call for a bailout.

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