States groan over high cost of governance despite improved FAAC revenue

Despite improved allocations from the federation account, states and Local Government Areas (LGAs) in Nigeria are in dire straits over rising cost of governance, Business Hallmark findings have revealed.

Revenue allocations to federal, state and local governments have improved substantially since the coming to power of the administration of President Bola Tinubu on May 29, 2024.

According to BH findings, revenue allocations to federal, state and local governments improved by about 45 percent to 50 percent in the last one year.

For instance, the Federation Account Allocation Committee (FAAC) had so far disbursed the sum of N12.948trillion as statutory allocation to the three tiers of government – the federal, state and local governments in the first seven months (January- July) of 2024, compared to the combined N10.1trillion shared to the three tiers of government in the whole of 2023.

A further analysis of the 2024 FAAC monthly allocation revealed that in the first seven months of 2024, the 36 states of the federation and 774 local government areas combined got N685.621billion in January, N634.103billion in February, N687.377billion in March, N617.219 in April, N670.898billion in May, N798.998billion in June and N817.18billion in July 2024, compared to the sum of N520.87billion they received in January 2023, N432.21billion in February, N410.4billion in March, N403.39billion in April, N504.38billion in May, N521.71billion in June and the sum of N540.079billion in the month of July 2023.

However, BH checks across the federation showed that despite the massive increase in revenue, the last two tiers of government are still battling fiscal challenges brought about by the high cost of governance induced by rampaging inflation.

Many public officials, who spoke to our correspondent lamented that the costs associated with the running of government have increased dramatically over the last one year, eroding the gains from improved revenues.

The situation, according to the official, is worsened by the N35,000 wage award (palliative) to public workers, which many states struggled to pay within the period negotiations for a new minimum wage lasted.

A director of finance in one of the ministries in Osun State, who demanded anonymity because he didn’t have the official permission to speak on the matter, complained over the high cost of maintaining public assets and facilities in the state, such as government offices, vehicles, generators, schools and hospitals, among others.

According to him, many government offices now operate in the dark anytime there is no power supply from the national grid, owing to the high cost of diesel and petrol needed to power their generators.

“If you go around Osogbo (the state capital), you will understand what I am telling you. Apart from the offices of top officials like the state governor and his deputy, SSG, head of service, commissioners, head of agencies and parastatals, as well as that of permanent secretaries, other government offices mostly operate without power for the most part of the day.

“The problem is not synonymous with Osogbo. It is even worse in cities and towns like Ife, Ilesa, Ikirun, Ede, Iwo and Ejigbo with government offices, where workers used to disperse outside their offices to escape the searing heat anytime the Ibadan Electricity Distribution Company (IBEDC) takes light.

“Most offices cannot afford to buy the required quantity of fuel to power them. Before now, we used to buy a litre of petrol for our petrol generators for less than N200.

“But today, you can’t get it anywhere in Osun State less than N650. That’s even before the fuel crisis started as it now costs about N1,000 to get fuel from the black market. The same goes for diesel, which now sells for between N1,200 to N1,350, as against N800 to N1,000 and below in January 2023”, the top official disclosed.

BH learnt that many ongoing infrastructural projects, especially roads, health centres and low cost housing estates are being abandoned daily in states owing to scarcity of funds, with only urgent and essential projects attended.

An engineer in the Ogun State Ministry of Works, who spoke to our correspondent on the matter, said the state government now pay more for uncompleted projects awarded in the past, with contractors constantly reviewing upward the cost of projects.

“You know we have this general habit of mobilising contractors to site with as little as 5% to 10% of the actual cost of construction in form of mobilisation fees.

“This is against the norm in other climes, where, at least, 50% of the total cost of a project is paid as mobilisation fees to contractors. With this arrangement, contractors will be able to make bulk purchases for materials needed and rarely come back to ask for price review.

“Unfortunately, this unconventional practice has come back to haunt us. I can tell you with authority that all contractors we engaged to do long-term projects for us have all come back to ask for an upward review of the project cost”, the official told our correspondent.

One of the casualties of the rising cost of governance and projects execution in Ogun State is construction giant, Julius Berger, which recently lost a lucrative road project to an Indigenous firm, Craneburg Construction Company, owned by late Chizoba Wigwe, wife of the former Group Chief Executive Officer (GCEO) of Access Holdings Plc, Herbert Wigwe, who perished with her husband and son in a helicopter crash in the United States in February.

Ogun State Governor, Prince Dapo Abiodun, had last Friday, August 23, 2024, flagged off the reconstruction of the 70-kilometer Abeokuta-Ifo-Ota-Lagos Expressway with a pledge to complete it in 18 months.

BH gathered that Julius Berger was originally billed to construct the road after it was handed over to the Ogun State government for reconstruction in 2023 by the Federal Government.

However, owing to the substantial upward review of the initial cost of the project earlier presented to the state government in 2023, the state executive council decided to review the bidding process, which was eventually won by Craneburg, BH learnt.

According to sources in Ogun Government House, though the contract sum presented by the winning bid is more than the one Julius Berger had presented in 2023, it is far lower than the rate the German construction giant is presently asking for.

BH findings revealed that the situation is not limited to Osun and Ogun States, but cuts across all states of the federation.

In May 2024, the Delta State Government approved the upward review of contract price of some ongoing projects across the state due to the rising cost of construction materials.

“We approved the upward review of the contract due to fluctuations in unit rate and balanced additional works for the construction of Kwale/ Beneku Road and approach road in Ndokwa West and Ndokwa East local government areas.

“Approval was also given for the upward review of the contract due to increase in the prices of construction materials for the construction of Obi-Ibabu Road in Onicha Ukwuani in Ndokwa West Local Government Area of the state”, said the Delta State Commissioner for Information, Dr. Ifeanyi Osuoza, while briefing journalists on some of the decisions reached at the State Executive Council meeting presided over by Governor Sheriff Oborevwori, Osuoza added

that approval was also given for the upward review of the contract sum for the construction and rehabilitation of roads in Sapele town, Sapele Local Government Area of the state, and a six-lane access road to Asaba waterfront project due to fluctuations in unit rate and additional works for the

“We equally approved the upward review of contract due to fluctuations in unit rate and additional works for the construction of a bridge across Orere River with access roads and spur in Orere, Ughelli South Local Government Area of the state.

“Exco approved the upward review of contract sum due to increase in prices of construction materials and labour for the construction/rehabilitation of Emevor-Orogun Road, phase l, in Isoko North Local Government Area of the state.

“We approved the review of contract sum due to fluctuations in unit rate or balanced and additional works for the construction of Okpanam/Ibusa Road from Benin /Asaba Expressway by Okpanam junction to Ibusa/Asaba Road in Oshimili North Local Government Area”, the commissioner said.

It was learnt at the weekend that states mostly affected by the high cost of governance are those that secured external loan denominated in foreign currencies for the development of infrastructure in their states.

The states, sources informed our correspondent, are now paying through their noses as as result of the crash of the naira.

“Most of these states got the foreign loans when the naira was being traded for a dollar at the official market at a rate of between N385.40 to N461.50 a few years back.

“But because of the unification of the multiple foreign exchange windows by the present administration, which has pushed the official exchange rate to an average of N1,500/$, states now pay more when paying back the loans.

“Let’s say a state took a billion-dollar loan in 2020 at the rate of N390, translating to N390 billion then, it will be paying back N1.5 trillion with today’s exchange rate.

“It is a ‘catch-22 situation’ which the states cannot escape. What they (states) collected on the one hand, they are paying back much more on the other hand.

“It is the same dilemma that the Federal Government is presently going through. Our leaders mortgaged our commonwealth cheaply in the form of sovereign loans and resources for loan deals and are now paying back through their noses.

“The recent wage increase will exacerbate the problem with many states not able to embark on new projects or even complete old ones.

“They will only be able to pay workers wages, which I believe many states, especially those from the Northern part of the country will struggle to even achieve without help from the centre”, said Dr. Peju Beckley, a development economist based in Lagos.