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Author Name: Ifeanyi Izeze
Number of articles: 166
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Federal Government of Nigeria, state governors and the excess crude arguments
Author: Ifeanyi Izeze | April 17, 2012

When the federal government accused the state governors of mischief and insincerity as they allegedly set out to frustrate the planned creation of the Sovereign Wealth Fund (SWF), it knew what it was doing. And when the governors in-turn accused the federal government of manifesting insincerity in her earlier stand for an amicable out-of-court resolution of the case, they also knew what they were doing. However, it is not clear whether both parties know how insincere and mischievous they have been in their relationships with the real owners of the controversial monies- the citizenry. The Government of the Federation, through the Minister of Finance, Dr. Ngozi Okonjo-Iweala, on 18th October 2011 announced its intention to withdraw US$1 billion from the “Excess Crude Account” to start -off a national sovereign wealth fund.

This did not go down well with the governors who perceived the decision as a sheer disregard to the subsisting suit on the same issue and outright disrespect for the authority of the Supreme Court.
According to the Governors: “The conduct of the Government of the Federation and her officials is a violation of the principle of the Rule of Law and breach of the Independence of the Judiciary and constitutes a violation of the principle of Rule of Law handed down by the Supreme Court in the case of Governor of Lagos V Odumegwu Ojukwu (1986) pt 1 NSCC 304 and Rotimi Chibuike Amaechi V INEC (2008) 5 NWLR (PT 1080) 277.”

The governors had in their consolidated suit, beseeched the Supreme Court for an order restraining the Federal Government from making any withdrawals howsoever from the account styled the “Excess Crude Account” (or any account replacing same by any name howsoever) pending the hearing and determination of a subsisting suit legal action they had initiated in 2008. Also, the governors had among others things, sought for an order compelling the Government of the Federation to pay into the Federation Account the sum of N5.51 trillion being the balance of the sum which accrued to the Government of the Federation during the period 2004 and 2007 from the proceeds of crude oil sales, petroleum profits tax and oil royalties which the Government of the Federation classified as “excess crude proceeds” and “excess PPT and Royalties” and paid into an account which was styled “Excess Crude Account.”

As we have it today, the revenue allocation formula is 56.68 percent for the Federal Government; 26.72 percent for the state; and 20.6 percent for council areas, while 13 percent is given to the oil producing states as derivation. This is it: If we agreed to share our monies in certain ways, why would you pay part of my own share into an account you set up for yourself? The question is: what makes you think I can trust you to manage my money better than I should have done when you have not shown any convincing evidence that you can do better in handling the huge allocation that comes to you? This is the big issue the governors have argued and they have a genuine case here.
Since the central government takes the giant share of revenue, what prevents them from setting aside 30-50 or whatever percentage of their receipt in a fund for the future?

How could the federal government accuse the states of mismanagement of their resources when corruption and fraud at the federal level are oftentimes in multiples of magnitude of what we hear from the states? The federal government needs to convincingly show that it is judiciously using its revenue before it can talk of helping the states manage theirs. For now, there is no proof so it cannot be trusted to even safely keep monies for the states.

And for the states, is it not pathetic that most of them if not all have become rent seekers, solely living on proceeds from federation account? And more pathetically, these governors have gone to all sorts of places-banks and money and bond markets to borrow money mortgaging their allocations from FAC as collateral. But for the establishment of the Debt Management Office (DMO) Nigerians may never have known how callous some of these governors had been as they have literally mortgaged the future of their states. Is it not harrowing that our governors have resorted to spending much of our future earnings today?

States have encumbered themselves with bonds from the capital market, much of them long term. Lagos alone had participated in the financial bonds on three occasions, with a N15 billion bond in 2002 and two other series including N50 billion as the first series and another N57 billion in the second series. Other states on the bond market list include Imo(N18.5 billion); Kwara(17 billion); Bayelsa(N50 billion); Ogun N50 billion);Niger(N6 billion); Kaduna (N8.5 billion); Ebonyi(N16.5 billion); Delta(N5 billion); Kebbi(N3.5 billion); Rivers(N250 billion?)and Yobe (N2.5 billion). Osun has disclosed that it will take N50 billion to finance its 2012 budget. With such huge financial burden, it is apparent that the states are not only living from hand to mouth, but are mere appendages of the government at the centre. The fear is not in borrowing but the absence of proper procedures which further exposes the borrowed funds to misuse.

Local governments have, over the years, suffered from the continued whittling down of their powers, and state governments had continued to encroach upon what would normally have been the exclusive preserves of local governments and consequently there has been a divorce between the people and government at their most basic levels. The frank assessment by the Chairman of Revenue Mobilisation and Fiscal Commission (RMAFC), Elias Mbam, at the Senate hearing, was that “The critical roles of local governments have indeed been impaired, in fact, out-rightly subverted because of corruption in some instances by states. In other cases, the process of disbursement of the accruable funds as allocated from the Federation Account to the respective beneficiary local councils often get grossly abused. While some states deduct certain percentages before the release of the balance, in the name of servicing social amenities and infrastructure, which are non-existent, in most cases, others simply hold on, at will.”

So if the governors believe the federal government cannot be trusted to keep their monies for them, they should also be ready to free the local governments from their strangulating grip. This would obviously be the next legal battle if peradventure the governors triumph over the federal government at the Supreme Court. The states should equally be ready to immediately terminate the joint state and local governments’ accounts as this also is an outright anomaly. Delay in release of council funds and deductions by the states had become tools in suppressing the efficiency and service delivery by local governments across the country. This is the truth.

Ifeanyi Izeze ia an Abuja-based consultant on strategy and communication (iizeze at

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