THE OKIGBO REPORT RELEVANT TO THE GULF OIL WINDFALL AND DEDICATED ACCOUNTS
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TERMS OF REFERENCE OF THE OKIGBO PANEL
"Okigbo Report"
Panel on Reorganization and Reform of the Central Bank of Nigeria
The actual terms of reference of the Okigbo Panel were to probe the activities of the Central Bank of Nigeria (CBN) as follows:
1. To examine the legal framework guiding the operations of Central Bank with particular reference to the relationship of the bank with the Federal Government.
2. Re-appraise the structures for the co-ordination and harmonisation of fiscal and monetary policies for the purpose of achieving the objective of macro-economic policy;
3. Review the process of formulation and implementation of monetary policy with specific reference to the control of money supply, interest rates management and attainment of price stability.
4. Re-examine the design and implementation of external sector policies with particular regard to the operations of the foreign exchange market, exchange rate management, external reserve management, external debt management and the dedication account operated by the Central Bank.
5. Review the growth and management of domestic debt, especially the granting of ways and means of advances of the Federal Government and Central Bank credit to the government generally.
6. Assess the adequacy or otherwise of the regulatory framework for the financial system, with specific reference to the establishment of financial institutions, prudential requirements and the bank's ability to deal with financial insolvency.
7. Identify the various factors, which constrain the effective conduct of monetary and banking policies and propose appropriate remedies.
8. Undertake a comprehensive review of the administrative, managerial and structural requirements for the improved performance and autonomy of the Central Bank
Executive Summary of the Main Report
1994
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Dedication and Other Special Accounts
0.38 In 1988, the President authorised the dedication of crude oil of 65,000
barrels per day for the finance of special priority projects including Ajaokuta
Iron & Steel, Itakpe Iron Mining, and Shiroro Hydro-electric projects. The
account was also to he used for external debt buy-back and the build-up of
reserves. The quantity was subsequently increased to 105,000 barrels per day
and in early 1994, to 150,000 barrels per day. In addition, a stabilisation
account to receive the windfall of oil proceeds of the Gulf War and a special
account for Mining Rights and Signature Bonus were opened. Altogether,
$12.4 billion was received into these accounts from 1988 to June 1994, all of
which have been spent leaving a balance of $206 million as at the 30th June,
1994. The problem with these accounts is that even when the revenues were
shown globally as in the case of the dedication account, the expenditures were
not included in the Federal Budget.
0.39 Apart from the projects for which the accounts were established, their
use was extended to a wide variety of projects many of which could not be
classified as priority. The details of receipts and disbursements on these
accounts were, however, carefully maintained and all payments were duly
authorised by the President. If only the funds had been regarded as part of
the external reserves and had been counted as such, the impact on the
exchange rate in the year under review would have been so significant that the
Naira would have been stronger in 1994, in relation to the dollar, than it was
in 1985.
0.40 The Panel recommends that the dedication and special accounts be
discontinued and any existing balances be taken into the external reserves of
the Central Bank.
-- materials deleted
SECTION IV
THE OPERATION OF DEDICATION
AND OTHER SPECIAL ACCOUNTS
7.120 Dedication accounts refer to resources dedicated or hypothecated
from general or specific revenues to specific expenditure groups or items.
They form part of the general resources and are fully reflected in the revenue
budget. Similarly, the expenditure groups or items are reflected in the
revenue budget. For example, receipts from toll gate fees or fuel taxes may
be hypothecated, in full or in part, to the maintenance of highways, or the
receipts from fuel taxes may be hypothecated to the improvement of the
environment of the oil producing areas. The form of dedication is illustrated
in the allocation of a percentage of the Federation Account given to Oil
Producing Areas Development Commission (OMPADEC) for the rehabilitation
of the oil producing areas.
7.121 To a government, there arc arguably two basic, but broad merits
in setting up special funds. First, they guarantee the effective funding of
projects of the highest priority and with critical impact on the technological
and industrial development of the country. Where the payments are to be
made in foreign currency and these accounts arc maintained in foreign
currency, it becomes much easier to procure the offshore inputs of the project
and to pay the contractors involved in these projects. Secondly, the creation
and judicious use of such special funds, not directly utilised on projects, could
provide an effective means of sterilizing unanticipated revenues and the
careful and gradual injection of such funds into the economy in such a manner
as to avoid inflation through the control of money supply.
7.122 There are other types of dedication accounts in the Nigerian fiscal
operations of which neither the resources nor the expenditure items are
reflected in the Government budget:
7.123 Central Bank Dedication Account: A quantity of crude oil was
dedicated to the prosecution of certain priority projects. The
proceeds of the sale of the crude were not shown in the revenue
side nor were the expenditures reflected in the expenditure side of
the budget. The budget contains information on the quantity of
crude dedicated, but not the revenue therefrom nor time expected
disbursements from this account. The account was kept outside
of the consolidated revenue account so that apart from a few
members of the Government, no one else has any information on
the size of the account or of the size and manner of the
disbursements. It represented, in reality, a second but
undisclosed budget operated only by the President and the
Governor of the Central Bank.
The origin of this type of account goes back to September 1988
when the President approved a proposal to hypothecate 65,000
barrels of crude oil per day for certain priority projects,
particularly the Ajaokuta Steel and Itakpe Iron Mining projects
and the completion of the Shiroro Hydroelectric project. The
quantity was increased to 105,000 bpd in October 1989 to finance
such NNPC projects as the LNG and the commitment to the Joint
Venture Partners of the NNPC. The quantity was further
increased to 150,000 bpd early in 1994.
7.125 The funds are kept with the Bank for International Settlement,
Basle. From Tables 7.5 and 7.6 it can be seen that total receipts
and payments in respect of the dedication account from inception
in September, 1988 to 30th June, 1994 were US$6.195 billion and
US$6.109 billion respectively, leaving a balance of US$85.943
million as at the end of the period.
7.126 Apart from the Dedication Account into which these proceeds
from hypothecated crude oil sales are to be placed, there are other
special accounts that arose subsequently and were operated in the
same manner.
7.127 NNPC Sales of Mining Rights Account: The NNPC Sale of
Mining Rights Account was opened in October 1989 with proceeds
of sale of 20% mining rights in the NNPC/Shell Joint Venture -
(10% to Shell, 5% to Agip and 5% to ELF). The total amount
realized from the sale was US$2.06 billion. Out of this the sum
of US$1.5 billion was transferred to the CBN for utilisation in
accordance with the Government s directives. The remaining
US$560 million was retained by the Nigeria National Petroleum
Corporation (NNPC). The funds transferred to the Bank were
invested in fixed deposits with the Bank for International
Settlements, Basic. Payments to contractors handling priority
projects totalled about US$359 million in 1990 and US$395 million
in 1991. Payments in 1992 to the tune of US$937 million were
effected on priority projects as well as in settlement of the
country s indebtedness to the London Club group of creditors.
Like the Dedication Account, the payments are made on the
authority of the Head of State and Commander-in-Chief. The
balance of this account as at 30th June, 1994 was US$1.663
million.
7.128 Stabilisation Account: A Stabilisation Account was created in
October 1990 to receive revenue from crude oil sales in excess of
the budgeted provision during the Gulf War. The aim was to
effectively separate it from the Federation Account and to sterilise
it pending instructions for further utilisation. Between October,
1990 and June, 1994 funds totalling US$4.398 billion were
transferred to the Bank to manage. The funds are held with the
Bank for International Settlements, Basle in Switzerland. Funds
were periodically bought by the Central Bank of Nigeria who
credited the Naira equivalent to the Federal Government s
Stabilisation Account. As the funds were being managed, the bulk
of the money was progressively applied to settle obligations
outstanding to contractors handling priority projects and in
financing the debt buy-back operation.
7.129 After the conclusion of the London Club deal in January, 1992
another sum of US$1.21 billion representing the proceeds of debt
held by the CBN was received back into the Account. The money
represented a flow-back of funds earlier paid out for the debt
reduction operation. In effect, the disbursement from the Account
for debt buy back was merely an advance to be retired when the
proceeds of the debt were recovered. There was, therefore, no net
disbursement on account of debt buy back. The balance on the
US Dollar account as at 30th June, 1994 was US$117.360 million
while that on the stabilisation account held in Naira was Nil. No
payment was made out of this account since the end of the
Babangida administration
7.130 The Signature Bonus Account: The NNPC had entered into some
exploration contracts and made some up-front payments.
Proceeds in respect of Signature Bonus amounting to US$100
million were received and applied in the settlement of some project
bills. A total sum of US$99 million has so far been paid out of
this, leaving a balance of US$1.069 million (inclusive of interest
earned) as at 30th June, 1994.
7.131 GHQ Special Fund Account: The GHQ Special Fund Account
was opened at the Central Bank on 5th March, 1986 for the
purpose of providing naira cover for military related projects
approved by the Vice President of the country. The account was
opened with the sum of N50.0 million transferred from NNPC
Special Account, while subsequent credits to the account were
from transfers from the Accountant-General of the Federation s
office as well as a portion of the operating surplus paid to
Government by the Central Bank.
7.132 A great deal of the funds from that account was spent on civilian
related projects, a situation that gained prominence from 1989
onwards. Among such civilian projects are:
a) special payment to the Niger State Government for wheat
production and for the Kontagora Water Supply project;
b) refurbishing of the Nigerian High Commission office in
London, and purchase of vehicles in connection with the
President s visit to the UK; and
c) payment to construction companies including Julius Berger,
Dantata & Sawoe as well as the financing of certain projects
at Abuja.
7.133 Disbursements from the account rose from N132.5 million in 1987
to N334.7 million in 1989. It, thereafter, rose significantly from
1990 onwards. For instance, the amount disbursed each year
from 1990 to December, 1993 stood at N1.975 billion, N3.166
billion, N506 billion, N4.554 billion respectively and in the half
year January-June, 1994 N0.889 billion.
Candidate List of Priority Projects
7.134 Originally created for projects classified aa priority by the
President, the Account was used to finance other projects that entered the
candidate list due to pressure from Ministers and other interests. There was
no documentation on the initial selection of projects, but it was known that the
President was concerned about the delay in completing the Ajaokuta and
Itakpe Iron and Steel projects and the Shiroro Hydroelectric Scheme. So
much had been spent already on these projects that the President concluded
that they warranted the extra expenditure to take them to the point of
commissioning. In the original letter seeking approval for the creation of the
Account in 1988, the Governor had recommended that the funds be applied
to some military expenditures, external debt buy-back and the build up of
external reserves.
7.135 The extension of the scope and widening of the application of the
funds began in 1989 with the inclusion of several building projects and
complexes in Abuja including the Airport, the dualisation of the road from the
Airport to town, the National Assembly, Conference Centre, etc. Similarly,
the Aluminum Smelter project in Ikot Abasi, the completion of the JSgl)iIl
Power Station and road projects in Gboko-Yandev, Abuja-Kaduna-Kano and
water projects in Gusau and Kafin Zaki Dam were included in the list. There
is no evidence as to how and on what criteria these, rather than other
projects, were selected.
7.136 In due course, pressures mounted on the President to utilise these
funds for an amorphous assortment of expenditures which can hardly be
classified as priority. These included expenses by diplomatic missions abroad,
official travels of the President and his wife and even the welfare needs of the
President s staff.
7.137 A broad classification of the disbursements is shown in Table 7.7.
The aggregate disbursements to the various projects over the period 1938 to
June, 1994 are also shown in Table 7.8. As the funds swelled from the
inclusion of oilier sources o( revenue - sale of mining rights, stabilisation
account, signature bonus, and GHQ account - the care with which the
expenditure items and classes were selected declined so much that the funds
were applied to such items as medical treatment abroad of favoured patients,
donations to institutions like the Bar Association, procurement of ceremonial
uniforms, tours of athletes for the Commonwealth handball competition,
contribution to the Government of Liberia, purchase of TV sets for the
Presidency, a documentary film on Nigeria, production of a book on the
President, etc. The diversity of the classes of expenditures made from these
accounts violates the original intention of creating the accounts mainly for
priority projects. For it is difficult to justify the inclusion of such projects
in the list of priority items for expenditure. Nor were the Accounts utilised
for the other purposes - debt buy back (except for an advance payment made
for debt buy back, which was refunded later) and the build-up of reserves -
as approved initially by the President.
THE OPERATION OF THE ACCOUNTS
7.139 The accounts were opened on the instruction of the President who
was expected to issue the directive that should lay down the way and manner
the accounts were to be operated. The Panel was unable to trace any
document in which the President directed the manner in which the account
was to be operated.
7.140 The disbursements from, and the method of operating these
accounts fall into three categories:
7.141 Security and Defence Expenditures: These were expenditures
requested, and approved, for the security agencies for their covert
operations and for equipment. These requests were usually
channelled by the Director-General, National Intelligence Agency
or the National Security Adviser to the President or occasionally
to the Governor. In the latter case, the Governor might authorise
the disbursement and simultaneously send a memorandum to the
President for his approval. In other cases, the approval was
handed down to the Governor by the President. Occasionally, the
National Security Adviser or Director-General, National
Intelligence Agency, had gone directly to the Director, Foreign
Operations but such direct interventions were referred to the
Governor. In either case, the Governor then instructed the
Director, Foreign Operations, directly, to pay and he also
indicated the account to be debited.
7.142 On the part of the Director and his immediate Manager in charge
of Operations, once they were satisfied that the authorisation was
genuine, the payment was made. In each case, the Bank did not
demand nor did it obtain any documentary evidence of the
services or equipment being paid for, because the documents were
regarded as classified.
7.143 Contractors: From time to time, certificates of performance by
contractors engaged in contracts and projects in the candidate list
of priority projects under the Dedication and Special Accounts
were lodged with the Central Bank by the appropriate Ministry.
In no case was the original contract document or copy thereof
lodged with the Bank. The desk officer in the office of the
Director of Foreign Operations tabulated the certificates received
on behalf of each contractor and each project, updated the
computer records and forwarded these to the Governor as a
matter of routine. It had not been possible for the Bank to check
the requests for payment against the total commitment on the
contract to guard against double payment or inaccurate claims.
At intervals, the Governor reviewed the material and either
authorised payments to contractors in amounts specified and
simultaneously addressed the President for covering approval or
first obtained the approval before authorising payments.
Practically, in each case, the initiative was taken by the Governor.
7.144 Presidential Fleet & Other Payments: Instructions for payments
for maintenance or build up of the Presidential Fleet of aircraft
always came from the President. But with regard to payment for
other requirements or services unconnected with the fleet, the
Governor might first approve, in case of urgency, and
subsequently obtain the President s covering approval.
7.145 What stands out is that the Governor played a vital role in the
management of the Dedication and other Special Accounts not only as fund
manager and banker; but also as an initiator of the timing of payments and,
in a very substantial manner, the beneficiaries of these payments. It is,
significant that apart from the few occasions of recoverable advances from the
Accounts for Debt Buy-Back operations, the Governor had not once sought
approval to utilise these resources for the build up of external reserves. That
lapse is all the more inexplicable in the light of the secular deterioration in the
external reserves position which, as at the time of this Report, offers less than
five weeks import cover.
7.146 The Central Bank claimed that as a banker to the Government it
only dealt with instructions in respect of payments from the Dedication
Accounts. It did not get involved in the physical receipt of goods or physical
assessment of projects executed. Whenever an instruction was given by the
Governor to effect payment, the Bank officials carrying out the instruction
presumed that the President or the relevant Government agency had processed
all the documents in respect of the claim and had found the claim to be
justified, before authorising the payment. Hence as a banker, the Central
Bank proceeded to make the payment rather than undertake to verify tile
authenticity of any claim. In effect, so long as the signatures were confirmed
to be genuine, the Central Bank had no business but to effect payment. It was
only with respect to payment to contractors that performance certificates
accompanied requests for payment.
7.147 From the foregoing, it is clear that the instructions relating to the
operation of these accounts ran between the President and the Governor and
between the Governor and the Director, Foreign Operations. Tile Panel was
informed that each time the Governor received an authority from the
President to effect a payment, a Minute was sent to the Director, Foreign
Operations, through the Deputy Governor, International Operations. The
dedication accounts were not operated whenever the Governor happened to be
away. The Deputy Governor; International Operations and the Director,
Foreign Operations, had no discretion with regard to the operation of the
dedication accounts. They acted only on the authority of the Governor.
APPRAISAL OF THE OPERATION OF THE ACCOUNTS
7.148 Scope of expenditure: The Panel observed that the use. of
Dedication Account had been stretched far beyond its original scope. Further,
the utilisation of the stabilisation account had completely undermined its fiscal
objectives. The list of projects to be serviced from the Dedication and other
Special Accounts which had been referred to earlier, did indeed contain some
projects of importance to the rest of the economy. However, there were many
large projects of doubtful viability and many more of clearly misplaced priority.
In addition to these, the Dedication and Special Accounts had become a parallel
budget for the Presidency. Tile decision as to what expenditure items to be
financed out of these dedicated accounts was made by the President alone,
depending on the pressures brought to bear on him by the sponsors of the items.
For example, the accounts had been utilised to defray aim assortment of expenses
that could not in any way be described as priority such as:
.........................................................................................($m)
Documentary Film on Nigeria...........................................2.92
Purchase or TV/Video for the Presidency......................18.30
Ceremonial Uniform for the Army.....................................3.85
Staff Welfare at Dodan Barracks/Aso Rock...................23.98
Travels of the First Lady abroad.........................................99
President s Travels abroad..............................................8.95
Medical (Clinic at Aso Rock)..........................................27.25
Gifts: Liberia....................................................................1.00
Gifts: Ghana.......................................................................50
Nigerian Embassy: London...........................................18.12
Nigerian Embassy: Riyadh............................................14.99
Nigerian Embassy: Teheran...........................................2.76
Nigerian Embassy: Niamey.............................................3.80
Nigerian Embassy: Pakistan...........................................3.80
Nigerian Embassy: Israel..............................................13.07
TV Equipment for ABU..................................................17.90
Ministry of Defence.....................................................323.35
Security.........................................................................59.72
Defence Attaches..........................................................25.49
GHQ...............................................................................1.04
7.149 Neither the Dedication Account nor the Stabilisation Account was
applied for the purpose it was originally designed to serve. Thus, the Dedication
Account was used for many non-priority projects and the Stabilisation Account
was not, in practice, used to sterilise revenues in excess of projected earnings.
Instead, after a short delay, the monies in the accounts were spent virtually as
fast as they accumulated. As can be seen from the figures presented, by June
1994, almost all the money in the Dedication and Special Accounts had been
spent.
7.150 Transparency: In addition, even at the Federal Government level,
the operation of such accounts was not subject to the normal budgetary processes,
and therefore lacked transparency. By limiting the authorisation process for its
operation to the approval of the President or Head of State, which was
communicated directly amid only to the CBN Governor, it created considerable
room for abuse of procedures, abuse of application and reduced accountability.
7.151 Parallel Foreign Exchange Budget: Each financial year the
Federal Ministry of Finance announced the budget. The approved budget for
the Federation showed the expected receipts in foreign exchange and the
expected disbursements. The receipts into the Dedication and other Special
Accounts were not reflected in these figures. There had been considerable
criticism of the establishment and operation of Dedication and Special
accounts in Nigeria. The most strident criticisms had been made by the World
Bank and the IMF. They knew of the existence of these accounts, the sums
held therein and the disbursements therefrom. They were hot, therefore, well
disposed to assist Nigeria to plead with her foreign creditors for concessionary
terms on the external debt service. The main point of domestic criticism was
that these resources could have been applied to back up the FEM operations
and second, that the balances kept in these accounts were not included in the
Federation Account, a practice which violated the fundamental precepts of the
federal fiscal relations in Nigeria. By excluding these incomes from the
Federation Account, the respective shares of the State and Local Governments
had been more or less confiscated by the Federal Government, thereby
unilaterally violating the revenue allocation formula.
7.152 Anomalies: Some anomalies had been observed in the method of
operation of these accounts:
a) Several payments indicated in the Reconciliation Statements had
not been backed-up by the President s approval. On the other
hand, there were some approvals for which no equivalent
payments had been listed;
b) in many cases, there had been very long delays between the time
payments were effected to relevant contractors/firms/suppliers and
the time of request for or receipt of, ex-post Presidential approval;
c) in a number of cases, there were significant variations between the
amounts approved for payment and the actual disbursements
made, without any further explanation from the documents
supplied;
d) in a large number of cases, there were no indications, in the
letters written to the Head of State seeking approval to make
payments or seeking ex-post approval, as to which dedication
account was to be charged - either Dedication, Sale of Mining
Rights, Signature Bonus, or Stabilisation Accounts. In such cases,
it would be impossible to ascertain, on the basis of the information
available, whether or not the approvals were in respect of any of
these special accounts. And yet it was the Governor who
instructed as to which particular account was to be debited; and
e) the Central Bank was never able to establish that payments on
behalf of the Ministry of Defence and the National intelligence
Agency were based on genuine and well established contracts or
transactions. This was because the relevant documents were never
made available to the Bank, as such documents were regarded as
classified items.
7.153 Significance for the Macroeconomy: The funds accruing to these
accounts had been applied mainly to payments for services of contractors, and
for the purchase of military equipment and services. The gross takings on
these accounts from their inception in 1988 to June 1994 totalled $12.4billion.
These had been held totally outside the country s external reserves. Indeed,
if the funds had been counted as part of the external reserves and had been
held as such, the impact on the exchange rate in time years under review would
have been so significant that the Naira would have been stronger in 1994, in
relation to the dollar, than it was in 1985 when it stood at Ni to $i.004. It
should be evident, therefore, that the burden of external debt to the Paris and
London Clubs and the pressure on the exchange rate would have been
substantially mitigated if not completely eliminated. It is this fact that calls
to question the wisdom and prudence not in the creation of these accounts but
in its disbursements.
7.154 Recommendation
The Dedication Account and other Special Accounts be discontinued in
the following manner:
i) all further disbursements from these accounts he
immediately stopped;
ii) the balance in the existing Dedication and other Special
Accounts should immediately be taken into the external
reserves of the Central Bank;
iii) receipts from sales of dedicated crude oil be paid into that
account up to the end of the 1994 fiscal year;
iv) thereafter, with effect from January, 1995, there should be
no further dedication of crude oil. But if for any reason
there is to be a dedication account, there should he a total
and full disclosure of both the expected revenue and the
item/s of expenditure in the Budget; and
v) the GHQ Special Account should be transferred to the
normal Budget of the Government.
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Posted by Robot| 16.09.2006 09:48