Kehinde Fajobi
The World Bank has raised concerns over inconsistencies in the Nigerian National Petroleum Company Limited’s (NNPCL) reporting to the Federation Account Allocation Committee (FAAC), questioning the transparency of NNPCL’s operations and its impact on federal revenue.
In its “Accelerating Resource Mobilisation Reforms (ARMOR)” report, dated May 17, 2024, the World Bank stated, “Non-transparent reporting to the Federal Ministry of Finance (FMF) and the Federation Account Allocation Committee (FAAC) makes it difficult for the authorities to oversee NNPCL’s performance, calculate anticipated oil and gas revenues, and determine the difference between revenues received by the Federation and NNPCL’s total revenue.”
The bank outlined that NNPCL’s reports lacked essential information, including revenue pledges, the tradeable value of crude oil, actual payments, and receipts from global trade.
The report also highlighted quasi-fiscal activities, such as in-kind revenues from crude oil, which it claimed obscure the financial flow to the Federation Account.
An example cited was NNPCL’s pledge of 35,000 barrels of crude oil per day to the owners of the Dangote Refinery in exchange for a 20% equity stake.
While the estimated contractual investment value reached $5.8 billion at the end of 2022, NNPCL reportedly fell short of expectations in its declared revenues from this arrangement.
The World Bank emphasised that Nigeria’s reliance on oil and gas revenues has made it financially vulnerable, noting, “Despite a 116% increase in international oil prices between 2020 and 2022-2023, net oil and gas fiscal revenues transferred to the Federation fell, largely due to production drops and fiscal transfers covering the gasoline subsidy.”
Meanwhile, the Federal Government is seeking a $750 million loan as part of a larger $2.25 billion package from the World Bank to strengthen Nigeria’s economy and support its most vulnerable citizens. The loan agreement was signed by Nigeria’s Ministry of Finance, and funding will be contingent on the progress of reforms in areas such as VAT collection, excise taxes on health and environmental products, and corporate tax compliance.
According to the World Bank, recent reforms, including VAT rate increases and digitalisation improvements, helped boost non-oil tax revenue from 2.3% of GDP in 2020 to 3.7% in 2023. However, Nigeria’s tax revenue remains “very low compared to peers.”
The bank pointed out that VAT revenues were just 1.2% of GDP, well below the African average, and called for modernisation of tax and customs administrations to boost collections and address evasion.