Excess Crude Account Slumps 98%, Federal Allocation Spikes
Balance in Excess Crude Account (ECA) slumped by 98% in May 2023 due to withdrawals as oil price and 2023 budget benchmark draw close. Weak export receipts from crude oil sales remain a drag on the ECA balance which was designed to accommodate savings between budgeted and actual oil prices in the global market.
Meanwhile, federal allocation to the three tiers of government increased by about 20% in June as a new government takes over the administration. The significant increase reported came following a tough call to remove subsidies in addition to other reforms.
In the past, subsidy payment affects crude oil sales deposits into the government purse. Also, Nigeria’s inability to meet the oil target set by the Organisation of Petroleum Exporting Countries and the Allied group constitutes a drag to inflows into ECA.
The account has been a major backup whenever collective income that tiers of government would share declines. In its macro note, Coronation Research continues to emphasize that overdependence on FAAC by state governments is unsustainable.
“A considerable boost to internal revenue generation is required to pursue necessary capital projects within respective states and cater to recurrent expenses”, its chief economist Chinwe Egwim stated in the research note.
Some states cannot carry out basic functions without FAAC disbursement, a trend that led to ramping up loans from commercial lenders. States heavy dependence often impacts salary payment due to weak internal revenue generation.
In June, gross monthly distribution for the Federation Account Allocation Committee (FAAC) to the three tiers of government and public agencies amounted to N786.2 billion from May revenue.
This marks an increase of 19.8% or N130.3 billion from the previous payout largely due to an increase in Petroleum Profit Tax (PPT), Companies Income Tax (CIT), Oil and gas royalties, Value Added Tax (VAT), and import excise duties. Meanwhile, contributions from the Electronic Money Transfer Levy (EMTL) declined marginally.
The FGN received N301.8 billion, state governments collectively received N265.9 billion and local government councils received N195.5 billion. Oil-producing states received N22.9 billion, representing a 13% derivation for mineral revenue.
The distributable statutory revenue is N519bn. This is an increase of 4.4% when compared with N497bn recorded in the previous month. Furthermore, N251.6bn came into the VAT pool and N14.4bn from the Electronic Money Transfer Levy (EMTL).
The total deduction for the cost of collection was N38.2bn. We note that the NNPC has made no remittance to the federation account this year. As of May, NNPCL had spent N1.8 trillion on petroleum motor spirit (PMS) subsidy payments compared with N1.3 trillion spent in the corresponding period of 2022.
Also, the federal allocation account committee disclosed that the excess crude oil account balance stood at US$473,754. This is about 98% decline from the balance of US$35.4 million recorded in May 2022.
Coronation Research said the recent removal of PMS subsidy payment should support FGN revenue generation efforts, given the expected savings of about N3.9 trillion which could be channeled towards priority areas such as revamping refineries and by extension, boosting the ECA balance.
Analysts added that the recent fx liberalization is expected to assist with boosting FAAC payouts (in naira terms) as proceeds from oil would improve on the back of the exchange rate differential.
Analysts said the recently assented electricity bill, which authorizes states to generate, transmit and distribute electricity is a welcome development that should encourage investments if implemented effectively.
Presently, Lagos, Kaduna, and Edo states have enacted specific electricity laws. However, other states likely to enact electricity laws include Ogun, Abia, Anambra, Edo, Kano, Rivers, and Ebonyi, according to Coronation Research. Six out of these states are among the top 10 states with highest internally generated revenue as of 2021. Nigerian Treasury Bills Yield Rises to 7%
