A Shrinking of the FAAC's Cake for Distribution


Friday, October 24, 2014 9:15 AM / FBN Capital Research

The gross revenues received in the federation account have steadily declined to N503bn in September from N602bn in August and N630bn in July. These revenues after the deduction of fixed collection and other costs become the net amount for distribution, on which the derivation principle is applied in favour of the oil-producing states before the three-way split according to the set formula.


The three tiers of government receive additional distributions from, inter alia, VAT receipts, the payment of arrears by the NNPC and the Subsidy Reinvestment and Empowerment Programme.


The Federation Accounts Allocation Committee (FAAC) meets each month to review the previous month’s receipts in the account and announce the amounts for distribution.


This week’s meeting does not appear to have been straightforward. Any decline in monies for distribution is unwelcome since all states with the exception of Lagos receive the greater part of their revenues from the FAAC. CBN data for 2012, the most recent available, show that internally generated revenues accounted for just 15% of total revenues on an aggregate basis.


The decline in September was attributed by the accountant-general of the federation to lower oil prices and production. He also noted a fall in non-mineral receipts because some prominent companies had paid their taxes the previous month (August).


The local media cited reports that a distribution from the excess crude account (ECA) of US$2.7bn had been approved. The federal minister of state for finance insisted that the balance in the ECA remained US$4.1bn.


The ECA balance is part of official reserves, which amounted to US$39.1bn as at 22 October. The fall of US$400m since the start of the month is to be expected since the CBN has upped its sales of fx in the retail Dutch auction system (RDAS). The background, as for the decline in revenues in the federation account, is principally lower oil receipts.


The FAAC generally meets in Abuja on the second Friday of the month, and the distribution of monies from the federation account to the three tiers of government takes place the following week. This timetable has slipped on this occasion, which may explain the decline in the total bid at the DMO’s monthly auction of FGN bonds last week to N116bn from N176bn in September.

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