Oil price crash: FAAC records N108.5bn revenue drop

Central Bank of Nigeria headquarters.

Central Bank of Nigeria headquarters.

*Govt dips into falling external reserves to meet shortfalls
*SURE-P receives zero allocation

Oscarline Onwuemenyi

18 January 2015, Abuja – Revenue available for distribution to the three tiers of government for December 2014 has continued to nose dive as a result of the dwindling crude oil price in the international market.

The Federation Account Allocation Committee, FAAC, met in Abuja on Friday and shared N580.378 billion among the Federal, State and Local Governments.

The distributable revenue shows a drop of N108.560 billion, when compared to N628.775 billion shared in November.

Meanwhile, the Federal Government was forced to dip into the excess crude account (ECA) yet again to augment the revenue shortfall for the month. The sum of N15.63 billion was on Friday deducted from the ECA leaving its balance at $2.45 billion from about $3.1 billion last month.

This came on the same day JP Morgan said it would assess Nigeria’s suitability to remain in a key emerging currency bond index because of a lack of liquidity in the African country’s forex and bond markets.

The reality of the ensuing fiscal crisis became even more glaring as unlike in the previous months, no provision was made for the subsidy re-investment programme (SURE-P) by FAAC yesterday. In November, the sum of N35 billion had been distributed monthly to the three tiers of government.

The mineral revenue in the period under review declined to N381.58 billion compared to N383.14 billion while the non- mineral component also fell to N107.79 billion from N115.16 billion in November.

However, revenue from value added tax (VAT) increased by N12.82 billion to N73.46 billion compared to N60.63 billion in November.

Notwithstanding, a total distributable revenue amounting to N580.37 billion was shared yesterday among the three tiers of government for the month of December. This was lower than the N628.77 billion shared the previous month.

Addressing journalists in Abuja after the monthly meeting of the Federation Accounts Allocation Committee (FAAC), Minister of State for Finance, Alhaji Bashir Yuguda blamed the N10.04 billion drop in gross revenue in December on the drop in crude oil prices which slashed revenue from 87.8 million in October to $77.5 million in November.

According to him, that had resulted in $62.8 million loss in revenue as well as 52 per cent loss in production volume and 31 per cent price drop-all culminating in total revenue loss from the Liquefied Petroleum Gas (LPG) and Natural Gas Liquids (NGL).

Explaining the zero allocation to SURE-P, Yuguda said: “We all know the prices of crude are falling and that’s why you see that zero allocation. We’ve been telling Nigerians to brace up; we’ve come up with measures, we’ve been telling Nigerians that from the month of November, we would start seeing the effect of the falling oil prices. And that’s what we are seeing now.”

The minister added that the persistence of Force Majeure declared by Shell since June, 2014 as well as shut down and shut in of trunks and pipelines at various terminals also had negative impact on overall revenue receipts in December.

He said revenue performance particular the non-oil receipts was further worsened by the fact that the timeline for payment of taxes by many companies was yet to fall due.

Also speaking to journalists at the FAAC meeting, Chairman, Forum of Finance Commissioners, Mr. Timothy Odah said the current situation portends a clarion call for individuals and government to tighten their belt and for economic diversification.

He said, “I think it is good for Nigeria provided that with time it (oil price) will come up because this time around, we should make our budgets-from local governments up to the federal government-rating the country as a non oil nation. That will help us such that anything we have rather than being a shock, it will be a surprise. That’s what we have to learn. It is because we depended so much on oil.”

However, from the net statutory allocation distribution for the month, the Federal Government received the sum of N220.48 billion while the states shared N111.83 billion as well as N86.21 for the local governments.

The sum of N47.22 billion was shared among the oil and gas producing regions under the derivation principle.

For VAT, the federal government got N10.57 billion while the states shared N35.26 billion, leaving the local governments with N24.68 billion.

Meanwhile, JP Morgan said yesterday that it would assess Nigeria’s suitability to remain in a key emerging currency bond index because of a lack of liquidity in the African country’s forex and bond markets.

The bank, which runs the most commonly used emerging debt indexes, said it had placed Nigeria on a negative index watch and would assess its place on the Government Bond Index (GBI-EM) over the next three to five months.

Removal from the index would force funds tracking it to sell Nigerian bonds from their portfolios, potentially resulting in significant capital outflows. This in turn would raise borrowing costs for Africa’s largest economy, although analysts said they did not expect JP Morgan to take such a step.

The bank added Nigeria to the widely followed index in 2012, when liquidity was improving, making it only the second African country after South Africa to be included. It added Nigeria’s 2014, 2019, 2022 and 2024 bonds, which make up 1.8 percent of the GBI-EM Global Diversified index.

David Spegel, head of emerging debt at BNP Paribas, said: “I would be very surprised if Nigeria was ejected from the index entirely given the size of the economy and potential for future capital raising in the debt and equity markets there.

“Eventually the whole oil risk issue will be priced into the market and flows of capital and investment will return to Nigeria.”

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