The cat-and-mouse game between the federal government (FG) and the 36 state governments (SGs) over the Excess Crude Oil Account (ECA) and the Nigeria Sovereign Wealth Fund (NSWF) is gradually coming to a climax. After listening to the arguments of both parties in the case filed by the SGs against the FG over the ECA/NSWF, the Chief Justice of the Federation (CJN) on May 21, 2012 decided to adjourn the case to September 25, 2012 for what may be the final decision on the case.
It will be recalled that since President Obasanjo unilaterally established the ECA in 2004, there has been a raging controversy between the FG and the 36 SGs over the constitutionality of the ECA. In 2008, the 36 SGs went to court to compel the FG to stop operating the ECA and to transfer the funds in it to the Federation Account (FA) for sharing among the three tiers of government. While the case was still pending in court, President Jonathan in May 2011 compounded it by replacing the ECA with the Nigerian Sovereign Investment Authority (NSIA), otherwise known as the Nigeria Sovereign Wealth Fund (NSWF). In October 2011, the 36 SGs went back to court to stop the FG from withdrawing $1 billion from the ECA to the NSWF as “seed” money to start the operation of the NSWF. After failing to force the SGs to withdraw the case from court, the FG decided to pursue the case in court. However, when the case came up for hearing at the Supreme Court in March 2012, the FG pleaded that the court should allow it to seek an out-of-court settlement with the SGs. Meanwhile, the FG continued to operate the ECA by paying “excess oil revenue” into the account and depleting the account at the same time.
The FG also continued with plans to start operating the NSWF in May 2012, one year after the NSWF Bill was approved by the National Assembly and signed into law by President Jonathan amid opposition by most state governors, some political parties, notably the Action Congress of Nigeria (ACN), many constitutional lawyers and members of the civil society. Following fears that the FG was planning to withdraw another $2 billion from the ECA to the NSWF, the 36 SGs returned to the Supreme Court on May 21, 2012 to restrain the FG. This time around, the FG decided to challenge the jurisdiction of the Supreme Court to rule on the case. The CJN, Justice Musdapher, decided to adjourn the case till September 25, 2012 for a definite hearing while conceding to request by the governors that their originating summons be heard alongside the preliminary objection that was filed by the FG.
Most legal analysts agree the ECA and its successor, the NSWF, as designed, are unconstitutional because they contravene section 162(1) of the 1999 Constitution which states as follows: “The Federal Government shall maintain a special account to be called ‘the Federation Account’, into which shall be paid all revenues collected by the Government of the Federation”. The ECA and NSFW also offend the principles of true federalism and the oil derivation principle resulting in significant loss of revenue to the oil producing states. For instance, if the budget price of oil is $70 per barrel and the budgeted oil revenue is N6,500 billion in a year, but the actual oil price turned out to be $100 per barrel resulting in actual oil revenue of about N9,000 billion, the 13 percent oil derivation revenue accruable to the oil producing states will remain N845 billion (13 percent of N6,500 billion) instead of N1,170 billion (13 percent of N9,000 billion), which means a loss of N325 billion by the oil producing states because the “excess oil revenue” of N2,500 billion (N9,000 – N6,500) will be paid to the NSWF for the benefit of the “whole country”.
Therefore, unless the FG is expecting a miracle to happen before September 25, it must now look for an alternative solution to the ECA/NSWF impasse by abolishing the ECA and amending the NSWF Act. If the FG fails to do so, there is a very high likelihood that it will be embarrassed by the Supreme Court decision. Hint: During the March 26, 2012 hearing of the case, the CJN asked rhetorically: “If states and the Federal Government are not ready to uphold the sanctity of the Constitution, who will?” Translation: the ECA and NSWF are unconstitutional. Therefore, to quote from the application of the 36 SG before the court, “It is in the interest of justice, preservation of integrity of the Supreme Court and the Rule of Law that this application be granted.” If the Supreme Court decides otherwise, or if the case is further adjourned, cynics will say the presidency has “settled” the court.
Therefore, now is the time to amend the NSWF Act. All the presidency needs to do is to forward a bill to the National Assembly to amend NSWF Act as follows: (a) Delete “State Government, Federal Capital Territory, Local Government and Area Councils” from the preamble and from various parts/sections of the Act, leaving “Federal Government” only. In other words, the NSWF is “to receive, manage and invest a diversified portfolio of medium and long-term of the Federal Government” only; (b) Amend part III (Financial Provision) of the Act in such a way that the funds for the NSWF will come from the FG’s receipts from the Federation Account. This means that if the FG budget is based on, say, $70 per barrel for crude oil, and the budgeted FG revenue for a year is, say, N4.8 trillion (or N400 billion a month), and if the price of crude oil for a month is $100 and the FG revenue for that month is N570 billion, then the FG can transfer the “excess revenue” or “residual funds above budgetary smoothing amount” (which is the N130 billion, i.e., N570b – N440b) to the NSWF account. If the price of oil drops to, say, $60 per barrel in another month and the FG revenue for that month is N340 billion, then the FG can withdraw the budget shortfall (N400b – N340b = N60b) from the NSWF (the stabilization component of it) to fund FG operations for that month.
The above suggested amendment to the NSWF Act will ensure that all tiers of government (FG, SGs and LGs) get their full share of the federation account in accordance with the constitution and the subsisting revenue allocation formula. It will not violate the Constitution and will ensure budget discipline by the FG. Furthermore, each state or group of states (on regional/zonal basis) as well as each LG or group of LGs can establish its own sovereign wealth fund (or a stabilisation fund or a future generation fund or infrastructure fund or any combination of these). This will promote true federalism as against the current one-size-fits-all controversial NSWF which promotes centralisation.
In the United States, there is no national SWF, but each state is free to set up its own SWF. For instance, State of Alaska has the Alaska Permanent Fund (oil-based SFW), the State of Wyoming has the Wyoming Mineral Trust Fund (a mineral-based SWF), and the State of New Mexico has the New Mexico State Investment Trust (a non-commodity SWF). Also, Canada does not have a national SFW, but Alberta Province has the Alberta Heritage Fund (oil-based SFW) while the Quebec Province has the Caisse de Depot Placement du Quebec (non-commodity SWF). In most countries that have a “national” SWF, such as Indonesia, Malaysia, Libya, Russia, Iran, Venezuela and Australia, the funds for the SWF come from the “central” government; state, regional, provincial or local governments are not forced or required to contribute to the national SWF.
If the Nigerian federal (central) government is unwilling or unable to fund the NSWF from its share of the federation account, it should scrap it and allow states to establish their own SWF from their own resources if they so desire. In my article at the recently concluded Second South-South Economic Summit, I recommended that the South-South (Niger Delta) states should consider establishing their own South-South Petroleum Fund, which will comprise an Investment Corporation, Future Saving Account and a Capital Projects Funds. The other geographical zones in the country can also do the same if they have the resources and political will to do so.