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The Minister of
Finance, Olusegun Aganga, yesterday explained why the Federal
Government plans to abolish the excess crude account (ECA) established
by the Olusegun Obasanjo administration.

The account,
opened in 2004 following a fiscal policy decision to check the negative
impact of the swings of crude oil prices at the international oil
market on government expenditure, was to help create savings from
excess crude earnings for the country.

Under the
arrangement, all revenue earnings above a stipulated crude oil
benchmark price set by government in the annual budget were to be
transferred into the account as savings, to provide succour in times of
declining prices at the international market.

But, Mr. Aganga,
told NEXT in an interview in Abuja that the government resolved to
abolish the account not only because its existence was illegal and
unconstitutional, but also that management of the ECA has in recent
times been subjected to abuses that tend to defeat the objective for
which it was established.

A better arrangement

Mr. Aganga said
there was need to replace the ECA with a more functional structure that
would facilitate the effective utilization of the excess crude revenue
to meet the country’s developmental needs, particularly in the
provision of critical infrastructure as well as stabilization for the
country’s economy.

“The ECA is just an
account not backed by law. The process for accessing the ECA is not as
transparent and clear to the Nigerian people, therefore there is a
general perception that there is some level of mismanagement.

“The Sovereign
Wealth Fund (SWF) is being proposed not just because the ECA is
illegal, but because there is need to have a strong fiscal framework
that would ensure that future generations of Nigerians are provided for
with the earnings from excess crude. It is important for the country to
have a savings culture, since the country is relying entirely on a
depleting asset as the only source of revenue.

“As a developing
nation, it does not make sense keeping money somewhere and looking at
it, without any interest paid on it. With the SWF, such monies would be
put to work. The proposed structure would serve three purposes – to
provide for future generation to be interested in equities and fixed
income securities; provide economic stabilization by helping government
augment its annual budget when there is sustained fall in oil prices,
and facilitating the provision of critical infrastructure,” Mr. Aganga
said.

According to him,
since 2008, when oil prices began to decline, the federal government
has been drawing from the ECA to augment its annual budget deficit,
pointing out that until the government successfully diversifies the
economy, the country will continue to be at a risk.

With the SWF, he
said, there would be clear prudential guidelines on how and when to
access the account. There will be more transparency about the rules on
the management of the money,” adding that unlike the ECA being managed
by government, the SWF will be managed by the private sector, through
the Nigerian Sovereign Investment Authority (NSIA) made up of people
with proven track record of risk management portfolios.

“No government
official will be on the Board of NSIA that would manage the SWF. So, it
will be free from all political interferences.

“Members will come
for the private sector. There is no room for misinterpretation or the
kind of flexibility that would lead to mismanagement.

“The SWF management
will have two structures – the day-to-day management and the Governing
Council, made up of all the shareholders, including the three tiers of
government, civil society groups, which will meet once or twice a
year,” he explained.

Some stakeholders,
including the Revenue Mobilization, Allocation and Fiscal Commission
(RMAFC) as well as states governments that make up the Federation
Accounts Allocation Committee (FAAC) recently reiterated the call for
the abolition of the ECA, claiming it was existing in breach of the
provisions of the constitution requiring all revenues to be paid into
the Federation Accounts and shared periodically among the component
units of the federation.