So, one quick question… Why are states not paid their share of the oil and gas earnings in United States Dollars?
The crude oil in Nigeria is owned by the Federation i.e. the Federal State and Local Governments. Its shared as follows; First 13% is deducted and paid to the oil and gas producing states, then the Federal Government gets 52.68%, The States get 26.72% and he Local Governments get 20.60%.
So the oil is sold, the proceeds of the sale in USD is paid to the NNPC/CBN/JPMorgan Account in the USA. The Oil and Gas taxes eg Petroleum Profit Taxes are also charged in USD are collected by the Federal Inland Revenue Service and paid to the CBN, same for Royalty onus collected by Department of Petroleum Resources and paid to CBN.
The CBN and Ministry of Finance then fund Federal Agencies like NEXIM and FAAC in Naira, even the 13% is paid in Naira. The CBN retains the USD, and Stets and LGA gets Naira. The CBN thus becomes the biggest player in the fx markets, with fx “earned” from the Federation… Why? Is it their money?
Why not simply give for instance Abia its share of oil sales in USD? So that Abia state can decide to sell it when it desires on the foreign exchange market? Why is CBN deciding what exchange to use in giving state their share of forex earned?
Abia could sell its dollars to banks, or BDCs, Or Abia can simply retain its FAAC in fx, just like the CBN. Ultimately the states as part of the Federation get to choose what to do with their fx earnings, if CBN wants Forex, let them also bid for forex from the states, it’s the states cash according to the constitution.
The reality is Nigeria is a federation on paper, but it’s a unitary state in practice, the Federal Government may receive 56% of the share of fiscal revenues but it collects above 95% of the major fiscal taxes on behalf of the states including the VAT. This leaves the states as mere appendages of the federal government, running back and forth for bailouts, unable to build railroads to export, unable to build power plants and sell power, unable to mine solid minerals in their states, or even issue driving license without the consent of the federal government…
Nigeria has no business with 35 states, if those states are mere spenders of FAAC, unable to generate wealth. we keep saying this, but the States must hold a nonpolitical summit and confront the Federal Government, and pass a constitutional amendment to force devolution of powers.
The SNL Metals and Mining posted a research on minerals in Africa, the top three selling mineral deposit from Africa are Copper, Gold and Iron Ore…there is gold ore and iron ore sprinkled across Nigeria, yet states cant touch it…why? Its federal property.
If states owned those assets, It would be reasonable to assume they would protect them, but gold mining goes on illegally across the nation because, the Federal government owns the assets on the land but the states own the land without the assets, a mismatch of revenues and responsibilities.
All states are broke, APC, APGA, and PDP states are broke, the states should sponsors and pass laws to allow devolve power eg allow states own mineral deposit in their states and retain income of 65% via derivation, states use your powers, top begging for bailouts.
In summary, we need to devolve, we need to empower the states, then hold them accountable, as we diversify the economy it’s also important we devolve power to the states
It’s our problem, we can fix it.
Kalu Aja is an advocate of limited government and a fiscal conservative. In his day job he is a financial adviser. 
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