Recently, Nigerians received with shock, the news of the depletion of the Excess Crude Account (ECA) from a massive $2.1 billion in 2015 to $376,655 in July 2022. On July 26th, 2022, the Office of the Accountant General of the Federation disclosed that the account dropped sharply from $35.7 million in June 2022 to the current $376,655, which translates to about 10,000% drop in one month.
The Excess Crude Account (ECA) was created in 2004 by the Obasanjo administration to serve as an account into which the excess amount of the budgetary benchmark from the sale of crude oil is to be paid. The essence of the account is to protect planned budgets against shortfalls due to fluctuations in crude oil prices. For instance, in the 2022 budget, the price of crude oil is pegged at a benchmark of $62 per barrel, while oil is currently sold at $100 in the international market; the $38 profit per barrel is designated to be paid into the Excess Crude Account. The account was created to be jointly operated by the Federal, State and Local government and withdrawals could only be made with the approval of all three tiers of government. The account reportedly had a balance of $20 billion in January 2009.
The Special Assistant to President Muhammadu Buhari on Digital/New Media, Tolu Ogunlesi explained that the Excess Crude Oil Account declined as a result of $1 billion spent on purchasing security equipment, while a substantial amount went into the Sovereign Wealth Fund (SWF)/ Nigeria Sovereign Investment Authority (NSIA).
A further breakdown showed that in 2019, $1 billion was withdrawn for the procurement of critical equipment for the Nigerian army, Navy and Airforce; $496 million was paid for 12 Super Tucano fighter aircraft for the Airforce, while $380.5 million was disbursed for the procurement of various critical military equipment in a direct government to government contract. The major depletion of July 2022 has been attributed to the advanced payment for the purchase of brand-new offshore patrol Vessels for the Nigerian Navy, as part of the effort to strengthen maritime security.
Controversy over spending from the ECA is not new. The Federal and State governments have been accused of appropriating money arbitrarily from the ECA to execute various infrastructural projects not considered fit-for-purpose. In 2018, the President came under heavy criticism by the National Assembly when he gave an anticipatory approval to purchase the Tucano aircrafts from the US government without National Assembly approval. Legislators were outraged calling it an impeachable offence.
It has been said that for Reserve Funds to have the intended impact, there must be binding rules stating the purpose of the fund, defining conditions for deposits and withdrawals, and possibly indicating caps on withdrawals. This is particularly key as news reports have shown that withdrawals were made from the country’s “rainy day funds” at times when the sun of revenue surpluses was shining brightly.
Unfortunately, legislative response on this matter while attempted, has been inadequate. In the 8th Assembly, a motion titled “The Excess Crude Account: An Illegality and a Drainpipe” was debated in the Senate. At the time, it was reported that the ECA had “increased from $5.16 billion in 2005 to over $20 billion in 2008, and decreased to less than $4 billion by 2010, with no known tracking of its operations.” They referred to it as the “biggest slush fund” in the country for State Governors, adding that one-third of the spending were done with illegality. They called for the account to be abolished but failed to agree on a resolution to investigate the revenue that accrued to the accountsince its creation in 2004, as well as its utilisation.
Perhaps the bigger issue which has never been fully addressed is concern over the legality of the Excess Crude Account which many have said contradicts the provisions of the Constitution. Under the 1999 Nigerian Constitution, the only accounts created to be maintained by the Federal government for the purpose of collecting revenue is the Federation Account (in section 162 (1) and meant for the three tiers of government) and the Consolidated Revenue Fund (in section 80) into which revenues or other moneys raised or received by the Federation is to be paid into (excluding revenues or other moneys payable into any other public fund of the Federation established for a specific purpose). Therefore, there is really no law that provides for the establishment and maintenance of the Excess Crude Account. It has been recommended that the Excess Crude Account either be abolished to avoid duplicity as the Federation Account is still in existence or legalised through an Act of the National Assembly, so as to ensure properly regulation and accountability.
The government tried to address this through the establishment of the Sovereign Wealth Fund (SWF) in 2012 backed by the Sovereign Wealth Investment Authority Act 2011. The fund aims to encourage savings from crude oil earnings and promote investments. It followed from negotiations with State Governors who had initiallyquestioned its constitutionality and threatened to scuttle it. The fund was intended to replace the Excess Crude Account (ECA) but this did not materialise as the Governors wanted the ECA to remain. Like the ECA, the Sovereign Wealth Fund is owned by the three tiers of government (federal, state and local). However, unlike the ECA, it is expected to function independently of political pressures for withdrawals and transparency regarding its use.
Questions over the constitutionality of the Sovereign Wealth Fund however also remains as it is the product of an Act not the Constitution. In recent times, the body has had tensions with the National Assembly who has accused it of consistently refusing to present their budget for approval. The House of Representatives Committee on Finance had threatened them with a zero-budget vote for 2022, while the Chairman of the House Committee on Public Accounts, Hon. Oluwole Oke, went as far as proposing a bill to repeal the Nigeria Sovereign Investment Authority Act, although it was rejected by the House.
The National Assembly (NASS) no doubt has an important role to play in terms of tightening existing legal framework for reserve funds or savings mechanisms such as the ECA and SWF. Its bigger role, however, is probing the use of these funds and ensuring that it works for the public good. Many would say it has performed this role poorly.
Unfortunately, apart from weak oversight, the National Assembly has also been criticised for contributing to the challenges with poor savings in the ECA. Because the National Assembly has a habit of increasing the oil benchmark price proposed by the executive to allow for an expanded annual budget to accommodate their constituency projects, there has reportedly been reduced contributions or lost savings to the ECA. In addition to indiscriminate withdrawals and unchecked spending by the executive, alteration of savings in the ECA has been identified as a source of mismanagement of the account.
Ultimately, the victims in this story are Nigerian citizens who remain plagued by rising poverty and insecurity in spite of the alleged used of rainy-day funds to fight insecurity. For many citizens, the depletion of national savings in the name of tackling insecurity is one that has little evidence of tangible gains.