By: Ifeanyi Izeze
Manipulation of the differences between the National Assembly and the executive over the benchmark oil price in the proposed 2013 Appropriation Bill clearly shows the disagreement has unnecessarily been elevated from the arena of economics to the realm of politics.
Politicians on both sides seem bent on making a show of strength out of the debate introducing all sorts of issues some reasonably true, most outright political jiving.
This is the position of the executive arm of government: An overly high benchmark price would lead to higher inflation, decline in the value of the naira, lower savings and reduced investment. The legislature’s proposal was premised on an overly-optimistic outlook of global oil prices. The current world oil price is not based on actual economic fundamentals, but rather on uncertainties due to conflict in the Middle East.
Nigeria cannot base its plan simply on the expected misfortunes of others. The current global oil prices are not sustainable because of possible reduction in global oil demand, due to recession in the Euro-zone, low growth in the US, and economic slowdown in China and India.
First, benchmark is a theoretical level, which determines fiscal savings from oil revenue. For example, if spot price is $100 and benchmark is $70, then savings is $30. The difference between revenue received and what is available for spending is the contentious issue now.
The current impasse would do nobody any good. Resolution of the disagreement is not going to come by intimidation or blackmail from both sides but constructive engagement in the interest of the real Nigerians. What does the law of the land say concerning annual budgets?
The law provides the executive proposes the expenditure profile and the National Assembly makes modifications and approves the Medium Term Expenditure Framework, which is supposed to constitute the ingredient that the executive will use to present the budget. If this is true, then it is outrightly wrong for the Finance Minister’s and the CBN governor to talk as if they’ve already made up their mind to disobey the law. Is their insistence on the $75 per barrel oil benchmark or nothing (for whatever good intentions) not a breached of the 2013-2015 Medium Term Expenditure Framework (MTEF) and Fiscal Strategy passed by the House of Representatives on 9th October?
The House had approved $80 as the oil benchmark for revenue projections in the 2013 budget under the MTEF. As said by the Chairman, House Committee on Finance, Dr. Abdulmunini Jibrin, the MTEF was already a law that must be complied with.
“What she (Finance Minister) is simply doing is that she is going against the laws of the Federal Republic of Nigeria.
This is what the law of the federation says; it is not a law of the Speaker of the House of Representatives or the Chairman of the House of Representatives Committee on Finance. She cannot be above the law of the Federal Republic of Nigeria. But, if she claims that she is above the law, let’s watch and see what will happen.†The legislature’s proposal as said by the executive would result in much lower savings in the Excess Crude Account (ECA). To be precise, it would deny the ECA of significant additional inflow.
These savings are necessary to cushion the impact on the Nigerian economy, in the event of a drastic slump in world oil prices.
It is very true that possible drop in oil prices and/or disruption in production could negatively impact projected revenue profile and increase fiscal deficit beyond the points projected in the budget, but for over four years now, Nigeria had been selling crude oil above whatever benchmark we set for ourselves. Do we need to be involved in popularity contest to ask the justification of building up foreign reserves to about $41 billion while at the same time accumulating a debt portfolio of over $40 billion and still counting? Is this not an outright contradiction?
In the first instance, the Excess Crude Account was borne out of the manipulation of oil price benchmark matrix. The Ministry of Finance deliberately underestimated the benchmark to generate funds for the ECA and Sovereign Wealth Fund (SWF). The current policy of government is that all revenues in excess of the crude oil benchmark price be kept in the Excess Crude Account as a buffer. The idea was to protect the fiscal operations of government from a crisis, which could arise from a drop or crash in oil prices.
However, Section 80 (1, 2, 3) of the Constitution is explicit on the control of public funds. It is a creation of the constitution that all revenues accruing to the federal government go into the consolidated Account (Federation Account). So the essence of the Excess Crude Account is: let’s share the money. Every month, the Ministry of Finance shares the Excess Crude funds among the three tiers of government. And we have been sharing this money for 13 years now, what can we point at as achievement from the excess crude account both at the federal and state levels? Nothing!
We have to learn to start being fair to the laws of the Federation. The executive arm said $75 per barrel, the Senate said $78 and the House said $80. The reality of the matter is that the National Assembly is operating from the point of the law and their argument is driven from the laws of the land and that is where both the executive and the legislature should derive their strength.
Meanwhile this Excess Crude thing has been a source of litigation and we are aware that the Nigerian Governors Forum dragged the federal government to court to explain the continued existence of the account which they described as illegal. Agreed we must make some savings as a nation but why is the centre not cutting down on its obvious excesses and trivialities to save from its own shares of allocations from the Federation Account? Whether or not the executive has its way in the current impasse with the National Assembly over this benchmark controversy, we still have to address the legality or otherwise of the existence of this Excess Crude Account and the earlier we do that the better for the relationship between the centre and the states.
IFEANYI IZEZE can be reached on: iizeze@yahoo.com; 234-8033043009