So prices of crude oil have spiked up in recent days, and analysts worldwide have had fun discussing every aspect of it.
In terms of our Federal Republic, there is a curiously contradictory outcome.
On the one hand, higher oil prices mean more revenue for the government and higher GDP growth figures. The infamous "Excess Crude Account", which had been on the brink of being completely depleted, has bounced back, with an estimated US$2.1 billion in new funds accrued to the account in the last seven weeks. And we all know how the Obasanjo II Administration claimed the credit for "economic growth" in the early 2000s when demand from India and China exogenously raised the barrel price of Nigerian crude.
But on the other hand, the equally infamous "fuel subsidy" somewhat negates the effect. We get a certain price for our exports of unrefined crude. We then import refined fuel products. Part of the price of the imports is paid by the consumer, and the rest, the so-called subsidy, is conventionally assumed to be paid by the federal government, but is apparently actually paid by the Nigerian National Petroleum Corporation (NNPC).
Trustworthy (emphasis on trustworthy) information about the fiscal picture of our federal republic is scarce. All three tiers of government have a vested interest in making sure no one can accurately track exactly how much money is coming in to government coffers and how much is going out. But as near as I can tell, there is a fiscal sleight-of-hand going on. The extra revenue is going to the government, not the NNPC, but the extra expense is going to the NNPC, not the government. The government is free to spend the "awoof" as though it were free money, a true windfall, with no costs attached, making no provisions to deal with funding the subsidy since that is the NNPC's responsibility ... while the NNPC faces increased costs which it cannot offset against the fiscally detached, surging revenue stream.
In the last year or so, there has been much discussion of whether or not the NNPC is bankrupt. I have not said anything about it on my blog, because there is very little substantive information on which to base an opinion (which is, alas, the normal state of things in our Federal Republic). The different sides of the argument just insist on their position, and say a few meaningless things designed to sound as if they have given you the fiscal facts even though they haven't actually said anything about anything, least of all the NNPC.
What is certain is the NNPC owes billions in payments to the importers of refined fuel products. In January of 2011, a report in the excellent Business Day said the NNPC's debt to importers was =N=499 billion (US$3.3 billion), and quoted sources who predicted the debt would rise to =N=600 billion (US$4 billion) by June of 2011.
In addition to this, NNPC reportedly owes =N=450 billion (US$3 billion) to the Federal Government, or more appropriately the Federation Account from which all three tiers of government are "allocated" funds. The National Assembly has variously attempted to force the NNPC to cough up the funds, which seems to be something of an exercise in fiscal self-delusion.
And I don't know if it has been released yet, or if the investigation is still on-going, but I have not yet heard the result of the probe into the =N=1.2 trillion (US$8 billion) "scandal" involving the mishandling, mismanagement, misallocation and alleged embezzlement (of a portion thereof) of fuel-subsidy-related expenses managed by the Petroleum Products Pricing Regulatory Agency (PPPRA) in the five years between 2005 and 2010. The investigation began in December, 2010.
Because the NNPC cannot pay its debts, the Federal Government must, every so often, grant, allocate or (amusingly) loan billions of dollars to the NNPC to service its debts. Since these funds ultimately come out of the federal budget, the federal government in effect has spent =N=2 trillion (US$13.3 billion) on the fuel subsidy in the last four years.
Last year, the Deputy Finance Minister, Remi Babalola, ignited controversy when he said the NNPC was "insolvent". What followed was a year of denials by the federal government and by the NNPC ... until February 2011 when Business Day ran a report captioned:Finally, NNPC admits: ‘We are broke’. Speaking at the Oil and Gas Conference and Exhibition in Abuja, the corporation's senior officials went so far as to say corporate failure was possible if the NNPC didn't undergo "transformation" major Oil and Gas Conference. Interestingly, they also said the NNPC cannot pay its =N=450 billion (US$3 billion) debt to the Federal Government until the Federal Government pays the NNPC =N=1.156 trillion (US$7.7 billion) in reimbursements for fuel subsidy expenses.
This is our fiscal dilemma.
On the one hand, higher barrel prices for crude oil mean more revenue for our three tiers of government, and higher GDP growth.
And on the other hand, the dubious structure of our accounts means the gains are less than they appear to be ... and the three tiers of government will continue the practice of spending as "profit" funds that should have gone to pay the costs of the subsidy.
It is the sort of thing that led to problems for RISONPALM, for Nigerian Airways, for the Refineries, the Railways and everything else. It is not just that we consume capital rather than invest it. It is not just that we consume "input" as though it were "output", leaving us with insufficient input to create future output. It is not just that we consume funds that should have been used for maintenance. But we are now taking the money that is supposed to pay for our subsidy, and spending it on short-term consumables as though it were "profit" from increased crude prices.
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