VZCZCXRO4328
PP RUEHMA RUEHPA
DE RUEHUJA #1191/01 1721347
ZNR UUUUU ZZH
P 201347Z JUN 08
FM AMEMBASSY ABUJA
TO RUEHC/SECSTATE WASHDC PRIORITY 3180
INFO RUEHOS/AMCONSUL LAGOS 9479
RUEHZK/ECOWAS COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RHEBAAA/DEPT OF ENERGY WASHDC

UNCLAS SECTION 01 OF 02 ABUJA 001191 
 
SENSITIVE 
 
SIPDIS 
 
DEPT PASS TO USTR-AGAMA 
TREASURY FOR PETERS AND HALL 
DOC FOR 3317/ITA/OA/KBURRESS, 3130/USFC/OIO/ANESA/DHARRIS 
DOE FOR GPERSON, HAYLOCK 
 
E.O. 12958:  N/A 
TAGS: ECON ENRG EFIN PGOV NI
SUBJECT: NIGERIA: REPORTED DISBURSEMENT OF USD 10 BILLION FROM 
EXCESS CRUDE ACCOUNT 
 
¶1. (U) Summary.  The National Economic Council (NEC), comprising 
both federal and state authorities, reportedly approved taking 
approximately $10 billion from the Excess Crude Account for 
disbursement to power projects and state and local governments.  The 
operation of the Excess Crude Account (ECA), which some have 
referred to as a sovereign wealth fund, operating on an oil-price 
based fiscal rule, has continued to generate attention among various 
interest groups in the nation.  While some Nigerians argue that 
saving money in this account makes good economic sense, others, 
particularly from the Niger Delta argue that the region is being 
shortchanged through the implementation of the ECA.  The situation 
is made more confusing as Section 162 of the Constitution makes it 
illegal to save any accruals coming into the Federation Account as 
all the funds must be shared to ensure a zero balance after every 
month's sharing.  However, the three tiers of government have 
continued to maintain the account, sharing part of its proceeds at 
intervals.  There are ongoing plans to fund infrastructure projects 
from the account.  Some members of the National Assembly, however, 
insist that the ECA is illegal and must be scrapped.  End summary. 
. 
----------------------------- 
LATEST DISBURSEMENTS FROM ECA 
----------------------------- 
. 
¶2. (U) On June 19, the National Economic Council (NEC) comprising 
the 36 State Governors, with the Vice President as Chairman, 
approved the release of USD 10.24 billion from the Excess Crude 
Account to fund projects in the power sector and sharing by the 
states and local governments.  Specifically, USD 5.37 billion would 
be invested in the power sector, while USD 4.87 billion would be 
shared by states and local governments.  The balance in the account 
was reported to be about USD 18 billion as at May 2008 and with this 
reported planned disbursement may drop to just under USD 7 billion. 
 
¶3. (SBU) EconOff spoke with Waqar Haider, Senior Energy Specialist 
at the World Bank (WB) regarding the recent release of ECA funds to 
the States and LGAs.  He reported that he had seen the same media 
reports and was unclear how the USD 5.37 billion figure for the 
power sector was calculated and what it would fund.  He suspects 
that because many of the National Independent Power Projects (NIPPs) 
have been stalled for lack of funding that the allocation will go to 
them.  However, he had no information on which projects may be 
funded.  Haider commented that the new committee setup within the 
Vice President's office to oversee the USD 5.37 billion 
implementation added another forum to a crowded list of committees 
that so far have failed to improve on the crucial issue of 
implementation."  A contact at the Power Ministry told Econcouns 
June 20 that no concrete plans had been agreed to on the use of the 
reported disbursements. 
. 
------------------------------------ 
The Excess Crude Account: Background 
------------------------------------ 
. 
¶4. (U) The ECA was established in 2003 via an agreement between the 
three tiers of government during the Obasanjo administration to save 
revenues accruing to the Federation Account above the budget 
benchmark price for crude oil resulting from the implementation of 
the Oil Price Based Fiscal Rule.  The ECA is made up of proceeds 
from the Federation's export of crude oil; excess Petroleum Profit 
Tax (PPT); and excess royalty. 
 
¶5. (U) The aim of maintaining the ECA was to cushion the economy 
from the negative effects of oil price volatility as well as 
financing infrastructural projects.  Consultations and negotiations 
were held between the various tiers of government with the results 
of the discussions finally captured in the Fiscal Responsibility Act 
which directed the saving of a portion of revenues accruing to the 
Federation Account from the implementation of the Commodities Price 
Based Fiscal Rule. 
 
¶6. (U) The ECA has been very useful in augmenting federal budget 
revenues whenever there are shut-ins in oil production resulting 
from militant activities in the Niger Delta.  The ECA was also the 
source of funding for Nigeria's Paris Club debt exit, likewise the 
National Integrated Power Projects (NIPP) initiated by the Obasanjo 
administration. 
. 
------------------ 
Federation Account 
------------------ 
 
ABUJA 00001191  002 OF 002 
 
 
. 
¶7. (U) The Federation Account is recognized by Section 16 of the 
Nigerian 1999 Constitution, which notes that all revenues collected 
by the Government of the Federation are paid into the Federation 
Account, except the proceeds from the personal income tax of the 
personnel of the armed forces of the Federation, the Nigeria Police 
Force, the Ministry of Foreign Affairs, and the residents of the 
Federal Capital Territory, Abuja. 
 
¶8. (U) The beneficiaries of the Federation Account are the federal, 
state, and local government councils of the Federation, and the 
funds in the account are distributed every month in accordance with 
the revenue allocation formula approved by the National Assembly. 
Section 162 of the Constitution stipulates that all accruals to the 
account must be shared in such a manner that after each month's 
sharing the account must have a nil balance.  Therefore, many 
legislators and certainly many state governors and local government 
chairmen see savings such as the ECA as unconstitutional. 
. 
------------ 
The Quagmire 
------------ 
. 
¶9. (SBU) Bright Okogu, Director General of the Budget Office of the 
Federation, informed EconOff June 19 that the three tiers of 
government have agreed to maintain the ECA despite its 
unconstitutionality.  "The ECA should continue in principle and it 
is hoped that it does continue.  Notwithstanding the provisions of 
Section 16 of the constitution, oil prices won't remain high 
forever, and it is only prudent that we continue to save for the 
rainy day and have funds to build critical infrastructure needed for 
development." 
 
¶10. (SBU) Okogu said he is disturbed that some legislators and other 
members of the public continue to talk about the legality of the ECA 
proposing that the funds be shared and the ECA scrapped, while in 
his view people should be thinking of how to ensure more 
transparency in its operations and be concerned more with the merits 
of maintaining the ECA.  "People should speak out that the saving be 
continued". 
. 
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Comment 
------- 
. 
¶11. (SBU) The Oil Price Based Fiscal Rule of sterilizing excess 
crude oil proceeds resulted in macroeconomic stability during the 
last administration which was inherited by the Yar'Adua 
administration.  However, the sharing of its proceeds since the 
beginning of the current administration have continued to exert 
pressures on macroeconomic stability with observers expressing 
concerns that Nigeria could relapse into its old prodigal nature. 
Notwithstanding the issue of its legality, the current road map is 
the ECA being maintained but its funds will be shared at intervals 
among the tiers of government.  It will also be the source of 
funding for infrastructure projects.  It is important to ensure 
transparency in its operations and the state governors should 
understand that though there are 36 states in the federation, there 
is only one economy.  Therefore if the states continue to agitate 
for and ensure that ECA accruals are continuously shared, 
macroeconomic gains of the last four years could be in jeopardy. 
End comment. 
 
SANDERS