Subsidy removal: FG, states, LGs allocations hit N10.14tn

  Subsidy removal: FG, states, LGs allocations hit N10.14tn

The removal of subsidy on Premium Motor Spirit, popularly called petrol, pushed up the statutory revenue allocations from the Federation Account that was shared by the three tiers of government in 2023 to N10.14tn.

Data released on Tuesday by the Nigeria Extractive Industries Transparency Initiative in its latest report on the Federation Account revenue allocations for the year 2023, showed that the amount shared by the federal, state and local governments increased by N1.93tn last year, when compared to what they got in 2022.

NEITI attributed this increase to the removal of subsidy on petrol by President Bola Tinubu in May 2023, when he declared during his inaugural address on May 29, 2023 that fuel subsidy was gone.

Tinubu’s declaration was immediately implemented by the Nigerian National Petroleum Company Limited the next day, as petrol price jumped from N198/litre to about N500/litre.

The cost of the commodity moved up again within a month to N617/litre at filling stations operated by NNPCL, while other marketers dispense the product at between N660 and N700/litre depending on the area of purchase.

Commenting on the latest report, NEITI’s Executive Secretary, Dr Ogbonnaya Orji, who announced the release of the report at the NEITI House, Abuja, said that the agency embarked on the NEITI FAAC Quarterly Review to enhance public understanding of Federation Account allocations and disbursements as published by government.

“The ultimate objective of this disclosure is to strengthen knowledge, awareness and promote public accountability of all institutions in public finance management,” Orji explained.

A breakdown of the revenue receipts showed that the Federal Government received N3.99tn, representing 39.37 per cent of the total allocation.

The 36 states got N3.585tn representing 35.34 per cent, while the 774 Local Government councils of the Federation shared N2.56tn equivalent to 25.28 per cent.

A further analysis of the N10.143tn disbursements in 2023 showed an increase of N1.934tn or 23.56 per cent when compared to the disbursement of N8.209tn shared in the preceding year of 2022.

The review attributed the increase to improved revenue remittances to the Federation Account due to the removal of petrol subsidy and the floating of the exchange rate by the new administration.

The report highlighted that while total revenues distributed from the Federation Account recorded an overall increase of 23.56 per cent in 2023, the increase accruing to each tier of government varied, largely due to the type of the revenue streams contributing to the inflows into the Federation Account.

The NEITI Quarterly Review of 2023 FAAC allocations disclosed that the federal, states and local governments cumulatively received N1.934tn more than the amount shared in 2022.

The first quarter of 2023 increased by N579.71bn (33.19 per cent) when compared to the first quarter of 2022. The second quarter increased 10.32 per cent, third quarter by 27.49 per cent, while the fourth quarter had an increase of 23.42 per cent.

The Federal Government’s share increased by N574.21bn (16.79 per cent) from the N3.42tn it received in 2022 to N3.99tn in 2023.

The state governments shared N3.59tn in 2023 compared to the N2.76tn they got in 2022, showing an increase of 29.99 per cent. Similarly, Local Government councils’ share of federation allocation was N2.57tn in 2023 compared to N2.032tn in the 2022, which amounts to a 26.22 per cent increase.

While total distributed revenue from the Federation Account recorded an overall increase of 23.56 per cent in 2023, the increase accruing to each tier of government varied, largely due to the type of revenue item contributing to the inflows into the Federation Account.

In the same period (2023), states and Local Governments recorded increases in their allocations by 29.99 per cent and 26.22 per cent respectively. The increase in allocation to the Federal Government, however, was 16.79 per cent

State by state share of the allocations showed that Delta State received the largest share of N402.26bn (gross). The figure is inclusive of the state’s share of oil and gas derivation revenue.

Delta was followed by Rivers State which received N398.53bn. Akwa-Ibom State received the third largest allocation of N293.58bn. Nasarawa State received the least amount of N73.32bn, while Ebonyi and Ekiti states received N73.91bn and N74.04bn respectively.

The review observed that the first five states that topped the allocation during the period under review are among the major oil producing states in the country.

On the share of 13 per cent derivation revenue, nine states received the 13 per cent allocated to mineral producing states from the proceeds from mineral revenue.

The derivation revenue remains a significant portion of revenue for states like Delta, Akwa Ibom, Anambra and Rivers states. Also, the derivation revenues of states such as Delta, Akwa Ibom, and Bayelsa, which were 161.47 per cent, 141.25 per cent and 127.89 per cent respectively, eclipsed their statutory revenues.

Rivers State’s derivation revenue was 74.15 per cent during the period. Notably, the other five oil producing states recorded lesser derivation revenue compared to the four above.

For example, Ondo State had 27.71 per cent, Edo had 30.04 per cent, while Abia, Anambra and Imo recorded a derivation revenue of about 20 per cent or less.

The NEITI report noted that solid minerals producing states did not receive derivation revenues during the last quarter of last year because of the need to allow the revenues to accumulate over a period of time before sharing can occur.

On direct deductions from state, Delta State recorded by far the largest debt deductions in 2023. With total deduction of N12.97bn, Delta debt deduction was more than the deductions for Bauchi State, the second largest in 2023 by N282m. Lagos State recorded the least cumulative debt deductions amounting to N370m.

The report stated that the reduced debt burden was attributable more to the increase in the size of Federation Account allocations than a reduction in the size of debt.

“The stark similarity in the debt size and sustainability charts indicates that states’ borrowing decisions are being determined by the size of their Federation Account allocations and expected future earnings.

“While this pattern indicates good fiscal decisions by the states, it may also cause states to increase their current borrowing as revenues from the Federation Account allocations are beginning to increase,” NEITI stated in its report.

Other key findings of the report showed that revenue remittances to the Federation Account fluctuated significantly on monthly basis due to corresponding fluctuations in oil and gas revenue.

Oil and gas revenues reflected crude oil prices and Nigeria’s output which in turn is significantly affected by crude oil theft and acts of sabotage.

The report pointed out that the main sources of revenue inflows to the Federation Account/contributors to the Federation Account in 2023 were the Nigeria Upstream Petroleum Regulatory Commission, Federal Inland Revenue Service and Nigeria Customs Service, through earnings from the different revenue stream.

This include oil, gas royalties, petroleum profit tax, company income tax, value added tax, import and excise duties.

The report also revealed that revenue from solid minerals sector was very negligible, and reflects the underperformance of the sector. The NEITI Quarterly Review proffered key recommendations for enhanced performance of the Federation Account.

“Government (the National Assembly and the Executive) should adopt more conservative estimates for crude oil prices and output to enhance budgetary performance, reduce budget deficits and borrowing and strengthen fiscal stabilisation.

“NEITI renewed its earlier recommendations for the Federal Government to highly prioritise the ongoing efforts at economic diversification and investment to improve power generation to encourage small, medium and large businesses to promote local production, reduce import and dependence on oil revenues,” it stated.

NEITI’s FAAC Quarterly Reviews also underlined the need for states to join hands with the Federal Government to deal with insecurity in rural communities where agro-based businesses thrive, pay attention to internally generated revenues through innovations and leadership that are citizen-centered.