Quasi-fiscal expenditures: Nigeria

NEITI audits have over the years provided insights to how the state-owned enterprise (SOE) has funded fuel subsidies, paid military expenses and built infrastructure.

Quasi-fiscal expenditures by SOEs include arrangements whereby SOEs are required to undertake public social expenditure such as payments for social services, public infrastructure, fuel subsidies, national debt servicing, etc. without explicit budget support. NEITI audits have revealed that the Nigeria National Petroleum Corporation (NNPC) makes extensive quasifiscal expenditures. For example, the 2009-2011 NEITI audit documents subsidy payments claimed by NNPC from 2006-2011 amounting to USD 10 million. While subsidies are normally claimed from the Petroleum Support Fund (PSF), the report revealed that NNPC deducts these subsidy payments from its domestic crude sales proceeds before it transfers the balance to the Federation Account. Moreover, subsidy payments claimed by NNPC increased by 186% between 2009 and 2011 alone.

The NEITI audit also identifies several types of other quasi-fiscal spending. According to the report, NNPC spent USD 1.73 billion from the cash-call account on non-cash call items such as security payments (USD 600 million), overhead payments (USD 486 million) and the expansion of the Escravos Lagos pipeline (USD 646 million). This means that NNPC is using funds that are earmarked for joint venture cash calls to cover other expenses. This spending has reduced the amount available for funding joint venture operations, with the possible implication of NNPC having to seek alternative revenue to fund cash-call shortfalls.

Given this finding, the 2009-2011 NEITI audit recommended that the Federal Government should review the deduction of subsidy claims from the proceeds of domestic crude by NNPC to align them with the procedures applicable to other marketers who draw their subsidy claims from the Petroleum Support Fund. With regards to the non-cash call items, the audit recommended that “This practice should be discouraged. NNPC should apply funds meant for cash calls strictly for JV cash call operations”.

Following up on this, the Inter- Ministerial Task Team (IMTT), which has the mandate to consider and implement NEITI recommendations, has requested NNPC to provide the formal approval to deduct subsidy claims. NNPC has not yet been able to provide any documents from the National Assembly authorizing such deductions. According to NEITI, the practice of deduction continues pending the resolution of the Petroleum Products Pricing Regulatory Agency Act and the NNPC Act.