The new legal status of the national oil giant, Nigeria National Petroleum Corporation Limited, NNPC Ltd, from a wholly government owned company to a commercial venture may be a double edged sword for the country and the federating units.
With the company ceasing to fund the Federation Account, which is the financial conduit that sustains the states and local governments through the Federation Account Allocation Committee, FAAC, shared every month by the three tiers of government.
In the new status, the company will only pay tax and dividends to the government like any other company. The implication is that the monthly largesse from Abuja will no longer be forth coming, as its obligations are met in a quarterly basis and only based on profits.
Already, hard pressed by the prevailing dwindling revenue of government because of subsidy as NNPC has not made contributions to the FAAC, the prospect looks really from for both states and local governments. Almost on the brink of insolvency, there is little hope for improvement in their financial state.
Many experts have for long contended that the wisdom is: these states should merge together so that at the end of the day, we could reduce them to somewhere in the region of 16 states as regions with capacity to conduct business without depending on FAAC.
According to the 2019 Annual States Viability Index, ASVI, released by Economic Confidential, two years ago, only six states in the federation are economically viable.
These include, Lagos, Ogun, Rivers, Kwara, Kaduna and Enugu. Also seen as poor and insolvent are Katsina, Kebbi, Borno, Bayelsa and Taraba states, based on their poor internally-generated revenue, IGR, which is far below 10% of their receipts from the federation account.
The interpretation of the index is that without the monthly disbursement from FAAC, many of these states would be unviable, and incapable of surviving without the federally-collected revenue, mostly from the oil sector.
The IGR of the 36 states of the federation totalled N1.3 trillion in 2019, as compared to N1.1 trillion in 2018, an increase of about N200 billion.
In the pack of the states that are not viable, Katsina is, according to Budgit, the least in terms of internally revenue.
On the other hand, the IGR of Lagos state which nudges to N398 billion is higher than that of 20 other states put together.
Meanwhile, the Federal Capital Territory, which is not a state but the nation’s capital, generated N74 billion IGR against N30 billion from the Federation Account in the same period.
Lagos State remained in its number one position in IGR with a total revenue generation of N398 billion compared to FAA of N270 billion, which translates to 147% in the 12 months of 2019.
This was closely tailed by Ogun, which garnered IGR of N70.92 billion compared to FAA of N92 billion representing 77%; Rivers with N140 billion compared to FAA of N219 billion, representing 64% and Kwara with a low receipt from the Federation Account, has maintained its impressive IGR by generating N30 billion compared to FAA of N80 billion (38%).
Others with impressive IGR include Kaduna, N44 billion compared to FAA of N129 billion(35%); Enugu, N31 billion compared to FAA of N103 billion(29%); Ondo, N30 billion compared to FAA of N103 billion(29%); Edo, N29 billion compared to FAA of N108 billion(27%); Anambra, N26 billion compared to FAA of N98 billion(27%), while Cross River earned N22 billion IGR against FAA of N99 billion representing 25%.
It is almost certain that hard times await some of these states over the new status of NNPC.
Many experts who have viewed the situation are saying that the Federal Government and the newly constituted Nigerian National Petroleum Company Limited (NNPC) could face a volley of legal actions over the transition of NNPC to a limited liability company.
Dr. Olufemi Omoyele, director of Entrepreneurship at Redeemers University told this medium that 36 states of the federation and the 774 local councils would not be able to survive without NNPC whose status has now changed.
“The new status of the NNPC translates to a new engagement and loyalty, as it is now it would no longer contribute to the Federation Accounts Allocation Committee (FAAC), for states to might seek reprieve in court.
The FAAC, normally allotted to the three tiers of government monthly, has been endangered of recent because of monumental payment of subsidy on premium motor spirit, (PMS) popularly called petrol by the NNPC under the old order.
Analysts say the metamorphosis of NNPC to a limited liability company would put paid to that and henceforth, permanently stop it from contributing to the FAAC.
Dr. Omoyele hinted that the new status of NNPC has also raised fresh issues from the Petroleum Industry Act (PIA), especially sections of the Act dealing with the ownership of the NNPC and taxes.
Under Section 53(3) of the Act, ownership of NNPC Ltd is in the hands of the government, which is defined under Section 318 as the “Federal government of Nigeria.”
On the other hand, Chapter four, which focuses on Fiscal Framework, says a core objective of the Act is “to establish a framework that expands the revenue base of the Federal Government and not states or local governments.”
The Act has also stopped the Petroleum Profits Tax, replacing it with the Nigerian Hydrocarbon Tax (NHT) and Companies Income Tax (CIT); whereas NHT would be subject to 13 per derivation, CIT would not be.
In 2021, Ekiti State Governor, Kayode Fayemi, had sounded alarm and concern over dwindling FAAC as NNPC moved commitment to the over N4 trillion subsidy budget in the 2022 budget. The implication is that states and local councils will have to make do with non-oil revenue in the FAAC.
As NNPC will not be remitting to the FAAC, even as the Buhari administration is working on N6.72 trillion petrol subsidy in 2023, it remains only contributions from the Nigerian Custom Services and the Federal Inland Revenue Services (FAAC) for states to share.
Recently, Ledum Mitee, a legal practitioner and environmental rights activist, said that the 13 per cent derivation to the oil producing states was in danger under the current circumstances.
“I think the unveiling of NNPC Ltd has grave implications to the states, especially of the oil producing states. I think the states and the local councils took their eyes off the ball and they were done for in the passage of the PIB into PIA,” Mitee, who succeeded Ken Saro-Wiwa as President of Movement for the Survival of the Ogoni People (MOSOP), stated.
He urged states to as a matter of urgent importance head for the Supreme Court to set aside several offensive portions of the PIA.
He voiced out his concern over frontier exploration provisions as the new NNPC emerges, adding that if the objective was privatisation there shouldn’t be a need to legalise frontier exploration.
“That should be a risk that a business should carry. Who brings money from gold mines in Zamfara to be used to explore if gold would be found in Ogoni?
“The provision that where sabotage, vandalism or other unrest occurs that disrupts production activities within a host community that community should forfeit its entitlement to the extent of the cost of repairs does not only offend the constitutional provision that bars anyone from being punished for an offence for which he has not been found guilty by a court of competent jurisdiction; it is also alien to our criminal jurisdiction that forbids vicarious liability for crimes,” he said.
Not too long ago, a former chairman of the Nigerian Electricity Regulatory Commission (NERC), Dr. Sam Amadi, blamed the Buhari administration for the plights of the states, hinging it on the administration’s poor handling of the economy.
“The debt burden, the low productivity and the failure to restructure the federal public service mean that we cannot finance critical projects that would grow the economy and improve livelihoods.
“In spite of the dwindling revenue, neither the federal nor state governments are prudent and strategic in public expenditure. Corruption, leakages and ‘sippages’ are worse than they used to be,” Amadi stated.