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Much Ado About Subsidy Funding

16 Dec 2012

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Federal and State Govt.


As the federal and state governments return to the Supreme Court to continue a lingering debate over the funding of the fuel subsidy regime, Vincent Obia writes that though the suit is largely over the disbursement of oil money, it may help to properly shape the country’s practice of federalism

For obvious reasons, members of the political class in Nigeria are always looking for a better phrase for true federalism. They have tried expressions such as “devolution of power,” “decentralisation”, and the like at convenient junctures. Those expressions are in vogue in the ongoing constitution amendment exercise – they featured prominently in the reports brought back by senators and members of the House of Representatives during the recent public sessions, which were a novel addition to the constitution review process. But all the semantic inventions have failed to allay the fundamental contradictions of the country’s pseudo-federal system. Nothing in recent history seems to illustrate this more than the recurrent frictions between the federal and state governments over revenue distribution.

Many of the state governors earnestly desire more power and more funds but they shy away from canvassing the structure, a truly federal system that would give them the real power to make and control wealth. However, occasionally, they try to appear radical in protest against the strangulating financial relationship with the federal government.

Governors of the 36 states, under the aegis of the Nigerian Governors Forum, again took the federal government to the Supreme Court last week to protest what they termed the central government’s unilateral deductions from the Federation Account to fund the fuel subsidy regime. The suit was filed on behalf of the Attorneys-General of Abia State and his counterparts from the other 35 states by a team of six lawyers, including Joseph Bodunrin Daudu (SAN) and Lateef Fagbemi (SAN). Citing the Attorney-General of Federation and the National Assembly as first and second defendants, respectively, the states accused the federal government of usurping the powers of the Petroleum Products Pricing and Regulatory Agency by giving the agency illegal directives to honour unverified vouchers from petroleum products importers to the detriment of the federating units. They said such porous procedure had created room for the huge fuel subsidy scams that the federal government is reluctant to punish.  

“Rather than ensure that all revenue is centrally transferred from the Consolidated Revenue Fund to the Federation Account which is the distributable pool, the 1st defendant through her agency, the Nigerian National Petroleum Corporation (NNPC), deducts without approval the so-called fuel subsidy from source as if same is a first line charge,” the 36 states alleged in the suit.

They prayed the apex court to declare that “the act of the Federal Government of Nigeria in charging on the Federation Account deductions and expenses incurred by it on or to service the activities and or functions of its agencies or bodies exempted by Section 162 of the Constitution of the Federal Republic of Nigeria 1999 before distributing the revenue among the federal and state government and local government councils in each state is inconsistent with Section 162 of the Constitution of Federal Republic of Nigeria 1999 (as amended),  illegal, unconstitutional, unlawful, null and void.”

The plaintiffs want the Supreme Court to declare that the federal government does not have the power to make deductions from revenues accruing to the nation as a whole, without paying such revenue first  into the Federation Account “for appropriate sharing among the three tiers of government (federal, state and local government) and any deduction so made in the guise of fuel subsidy deduction by the Federal Government of Nigeria or any of her agencies such as the Nigerian National Petroleum Corporation from such revenue between the year 2007 till date before being paid into the Federation Account is illegal, unconstitutional, null and void.”

The states also seek a restitutory order of the Supreme Court directing the federal government to repay the states their 24 per cent share the deducted funds.

The latest suit represents yet another battle in a seeming oil war that has raged between the federal government and the federating units since the former appropriated the fundamental powers of the latter by military fiat, in contravention of the basic principles upon which the Nigerian federalism was built.

Classical federalism describes a system of government in which sovereignty is shared between the central government and the constituent units. There are two distinguishable extremes of federalism: the one with a strong central authority in which the constituent parts act more or less as local governments, and the one with a weak central government and strong constituent units. Nigeria, understandably, opted for the former at independence in 1960. And it worked tremendously, ushering in development through a healthy competition among the federating units – until the historical accident of January 15, 1966.

The military coup of 1966 upset the applecart for a progressive Nigeria. It rendered the federating units redundant and encouraged indolence and unfruitfulness among the political elite, as industry and agriculture, the mainstay of the regional economies, were slowly and steadily killed. This left the federal government with a near absolute capacity to distribute sustenance handouts to the states from an unstable mono-product oil economy. The federal government amassed too much power and resources to manage the affairs of the states – a situation that necessarily breeds arbitrariness.  Protest against the perceived abuses has become a defining character of the relationship between the states and the federal government in recent times, all at the expense of public service.

In May last year, the federal government officially set up sovereign wealth funds for the country with the establishment of the Nigerian Sovereign Investment Authority to manage the funds. It made initial cash injection of $1 billion to the fund in October last year. But the fund that should ordinarily be celebrated as a means of turning around what has seemed to be Nigeria’s petroleum resource curse became immersed in litigation. Governors of the 36 states challenged the legality of the federal government’s decision to transfer money from the (now defunct) Excess Crude Account to the newly-established NSIA’s three sub-funds.

The state governors insisted that what they agreed on the sovereign wealth fund was not what came out at the end of the day. They seem to have a good case. Many believe that with or without the consent of the governors, it is arrogant of the federal government to make laws to spend revenues due to the constituent units without corresponding legislations by the states Houses of Assembly.

Things like this, according to Joen Ezean of The Fletcher School of Law and Diplomacy’s Sovereign Wealth Fund Initiative, as quoted by the online Institutional Investor Magazine, “reinforce the narrative that Nigeria practises neither true federalism nor true democracy.”
While the federal and state governments were still trying to resolve the sovereign wealth fund controversy out of court – at the request of the federal government – there came another outbreak of litigation, this time over subsidy funds.

The truth of the matter is that the present Nigerian federal system is fraught with fundamental negations of the concept of federalism. Resistance to these contradictions has manifested in the form of the various confrontations between the states and the federal government over access to the oil revenues. The solution lies in a return to true federalism, to allow the states considerable sovereign authority to control their economic and political affairs.  

But this is not the sort of thing that many among the political class want to hear, given the voices at their elbows warning them never to contemplate such change or face a ruinous lack of access to effortless wealth. The reality that the current structure is a serious hindrance to creativity, productivity, and development persists, nonetheless. It would not go away. And it is the ordinary people that lack access to the oil money that bear the brunt. But the National Assembly can use the opportunity of the ongoing constitution review exercise to address the basic contradictions of the country’s federal structure that lie beneath frictions between the federal and state governments, like the latest one before the Supreme Court over subsidy funding.

Tags: Politics, Nigeria, Featured, Subsidy Funding

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