The cash balance in Nigeria’s Excess Crude Account (ECA) has remained the same in more than six months despite the increase in global oil prices.
The Minister of Finance, Mrs Zainab Ahmed, during a National Economic Council Meeting in July last year said the ECA only held $72.41 million, which is the same balance as of March 16, 2021.
Since, early last year when the international oil prices plunged to a record low and oil revenue could not support the budget, withdrawals were made from the oil savings which saw it declined by as much as 77.7 percent from $324.54 million in November 2019.
The ECA is a stabilisation fund pioneered by former President Olusegun Obasanjo to hold proceeds of oil sales at prices above the oil benchmark price.
The oil price benchmark for Nigeria’s 2021 budget was pegged at $40 per barrel and foreign exchange of N379/$.
While the official foreign exchange has remained relatively stable, the oil prices have consistently been selling above $40 per barrel since the beginning of the year.
The lowest price of Brent Crude which Nigeria’s oil is benchmarked against was $52.09 per barrel on January 4, 2021 and it has reached a peak of $70 per barrel as of last week.
In February, the average price of Brent rose by 12.49 per cent to $62.06 per barrel from $55.17 per barrel in January. Oil prices maintained an increasing trend to close the month at $66.00 per barrel. This was driven by tight global supply, concerns due to the bad weather in the US, increased vaccine rollout and on the recovery in Asia’s fuel demand.
In March, oil prices continued to maintain the upward trend to $67.85 per barrel on March 5 following OPEC+ decision to extend its output cut (7.2mbpd) until April with some exceptions to Russia and Kazakhstan before rising to $70.44 per barrel on March 8.
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The increase in oil price was partly driven by a drone attack on Saudi Arabia’s oil facilities before losing by 4.15 per cent to $67.52pb on March 9 to close the review period at $69.21 per barrel.
What You Should Know About ECA
The ECA was created to cushion the effect of the economic headwinds. The excess oil proceeds are saved and managed in order to improve the stability of the economy when oil price plunge in the international market. It is a common practice in resource rich countries like Nigeria to have a natural resource fund to support budget deficit.
There is an ongoing debate as to legal status and the constitutional place of the Ministry of Finance in operating both the FAAC and the ECA.
In recent years, the Ministry of Finance has refused to make public the detailed withdrawals from and accruals to the ECA, making it difficult to track budget spending and periodic status of the nation’s treasury.
Mismanagement Of Oil Savings
The government has been in the practice of making withdrawals from the ECA especially during elections, which it has not accounted for. Between 2007 and 2014, there was an upward trend in withdrawals from the ECA.
Controversy continued to trail the $1 billion withrawn by President Muhammadu Buhari from the ECA in 2017, which he claimed was military spending to fight Boko Haram.
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Few days ago, the Rivers State Governor, Nyesom Wike, declared that Rivers State would contest Nigeria Governors’ Forum’s (NGF) endorsement of fresh withdrawal by the Federal Government from the Excess Crude Account (ECA).
The governor demanded to know what happened to the $1 billion withdrawn from the ECA in 2017 under the guise that it would be used to fund the fight against Boko Haram insurgents in the Northeast.
He stated that he would not support the plan for a fresh withdrawal except Rivers State is given its 13 per cent share from the account.
“Yesterday, I was told that the governors agreed that they will take money from the ECA to support the military. What of the one they took before, the $1billion that they gave to the military?
“Now again! This one, I will tell my Attorney General; you will have to prepare, we will go to court. I will not support that one except they will give us our 13 percent first from that ECA,” he said.
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