Subsidy palliative: Nigerians to share $747m, logistics gulp $53m
13 April 2023 |
4:35 am
The Federal Ministry of Finance, Budget and National Planning is expected to spend $53 million on hiring staffers, office administration, committee overheads and other logistics such as training and workshops out of the $800 million the Federal Government has secured from the World Bank...
• FG to set up new implementation structures, offices
• Funding partner sets guidelines for personnel recruitment, project execution
• Implementation process handed down by lender
• ‘Engage labour, others before subsidy removal’
The Federal Ministry of Finance, Budget and National Planning is expected to spend $53 million on hiring staffers, office administration, committee overheads and other logistics such as training and workshops out of the $800 million the Federal Government has secured from the World Bank to mitigate the effects of petrol subsidy removal on vulnerable Nigerians.
The agreement between the Ministry of Finance, Budget and National Planning and the International Development Association (IDA), the concessional lending arm of the World Bank Group, seen by The Guardian yesterday, spells out how the money will be expended to execute activities that would make the project implementation seamless.
Nigeria’s special drawing rights (SDR) with the International Monetary Fund (IMF) totals 565.3 million, an amount deposited as collateral at the IDA to access the concessional facility of $800 to fund the subsidy removal palliatives as well. This implies that for every unit of SDR entitled to, the country gets approximately $1.415 in loan.
In line with the executed document, $747 million or 93.4 per cent of the total sum will be disbursed to beneficiaries while the balance will go into federal and state bureaucracies and logistics to be set up to the satisfaction of the IDA.
The agreement says the Federal Government will establish a National Social Safety Nets Coordinating Office (NASSCO), which means doing away with officials of the Federal Ministry of Humanitarian Affairs already trained to carry out such tasks. The Minister of Humanitarian Affairs presides over NASSCO national management team.
The document also details terms of the loans, interest rate and repayment schedules, which will spread till 2051. Apart from NASSCO, the National Steering Committee (NSC) is expected to “have been duly established” to ensure the effectiveness of the project, as stipulated in the agreement.
The loan conditionality leans heavily on logistics in the implementation phase with a National Cash Transfer Office (NCTO) in place throughout the implementation “with functions and resources satisfactory to the Association (lender), and with staff in adequate numbers plus terms of reference, qualifications, integrity and experience satisfactory to the Association.
“The NCTO shall be responsible for, inter alia, managing the implementation of parts one and two of the project in collaboration with the participating states,” it adds.
There shall also be a state steering committee (SSC) with responsibilities for budget planning, with active involvement of the Commissioners for Finance, Health, Education, Agriculture and Water Resources in the state execution planning.
According to the signed agreement, participating states would also set up a state operations coordination unit (SOCU) with “functions and resources satisfactory to the Association (lender).” Staff of SOCU are expected to be in adequate number, experiences, qualifications and integrity to meet the threshold of the lender.
As in the case of federal, participating states are also mandated to maintain state cash transfer units (SCTU) to coordinate cash transfer at local government areas (LGAs), such as preparing lists of beneficiaries eligible for cash transfer payments, coordinating behaviour change communication training of the project and sundry responsibilities.
The Federal Government also agreed that participating states would keep open communication with the funder on the progress of the scheme, sharing views on critical behavioural changes throughout the implementation. In the course of the project, an implementation manual is to be produced and shared with the funding partner for review.
Nigeria will, by the agreement, pay 0.5 per cent as a yearly maximum commitment charge rate on un-withdrawn financing balance with the Association, while 0.75 per cent share will be paid as a service charge on all withdrawn credit balances yearly.
The concessional facility attracts an interest of 1.25 per cent yearly on the withdrawn credit balance on the loan valued with January 15 and July 15 serving as payment dates each year.
The total value of the Association’s facility designated as special drawing rights (SDR) is 565.3 million (equivalent to $800 million). According to the document, the spending is aimed at expanding and strengthening “safety nets delivery systems through increased integration and the use of digital technologies.”
With the contract signed on August 16, 2022, the project is deemed to have taken effect. According to the agreement, the effective date is 120 days after the signature date, which pins the effective date on December 13, 2022.
The agreement, which was executed on August 16, 2022 by the Minister of Finance, Budget and National Planning, Zainab Ahmed and Nigeria’s Country Director of the World Bank, Shubham Chaudhuri, with section 1.2 sub-section (a) partly reading: “The recipient shall maintain, throughout the implementation of the project, a National Social Safety Nets Coordinating Office (NASSCO) in FMHADMSD with functions and resources satisfactory to the Association, and with staff in adequate numbers and with terms of reference, qualifications, integrity and experience satisfactory to the Association.”
On the conditional cash transfer disbarment, section 1.3 sub-section (a) is categorical that a National Cash Transfer Office be established for this singular purpose must be established.
“The Recipient shall maintain, throughout the implementation of the Project, a National Cash Transfer Office (NCTO) in FMHADMSD, with functions and resources satisfactory to the Association, and with staff in adequate numbers and with terms of reference, qualifications, integrity and experience satisfactory to the Association.”
On trainings, seminars on the processes expected for the disbursement, section 34 of the agreement states: “Training and workshops” expenditures associated with project related study tours, training courses, seminars, workshops and other training activities, not included under service providers’ contracts, following the annual work plans and budgets and approved by the Association, including costs of training materials, space and equipment rental, travel, accommodation and per diem costs of trainees and trainers, trainers’ fees, and other training-related miscellaneous costs.”
With the ‘consultancy’ and ‘logistics’ consuming a large chunk of loans and facilities Nigeria obtains, experts have called on the Federal Government to follow Zambia by banning all sorts of consultancy going forward.
An energy expert, Henry Adigun, said while loans are good and necessary, the Federal Government must ensure judicious usage.
“The key is judicious use of the funds. What must be demanded is that the beneficiaries are well documented with clear traceability. Cash transfers are not peculiar to Nigeria. Government can take the loan and not spend it. It might be in advance for the next government. It can also be an incentive for corruption. But it can also be an avenue for supporting the very vulnerable. What is key is management and disclosure.”
Adigun contended that the current poverty levels are a factor of poor implementation of policies, saying: “The levels of inconsistency and lack of policy coordination across board is exemplified by the badly designed Naira redesign policy. It makes the impact of social security programs less. The problem is not social investment but supporting policies.” He also argued that Nigerians can afford higher petrol prices.
“Increasing tariffs in electricity has not killed Nigerians but brought about better habits. Most are conscious of power now and energy management. Petrol must be treated as all other products that change regularly. We must develop better habits and choices in consuming petrol. We also need local refining. Subsidized petrol prices will hamper this,” he stated.
He decried the level of lack of details and alleged official stealing that is going on under the present government. He added: “Nothing really shocks me under this current leadership. It seems a significant number of people need to extract rent from the system. This is not standard practice. Perhaps we can ask how those fees were earned, the level of effort and all. That is why many do not trust the subsidy removal process. What it looks like to many is an opportunity to drain resources. We must remove the subsidy. We can transparently do that. We can effect a reform without creating loopholes for corruption.
There are many examples we can learn from. Our challenge is that we want to profit from all issues. Even when we manage pain, we create pain.” Citing the Indonesia example, which spent considerable efforts on public engagement and had been able to capture the real vulnerable members of its society and use cash transfer to cushion the effect on the very poor, he noted that Nigeria is lacking in these aspects.
“Indonesia, Egypt and Malawi spent considerable efforts on public engagements. Indonesia particularly can capture vulnerable people. It used cash transfers to cushion the effects on the very poor and then made commitments to use the savings to support infrastructure development. There was plenty of consultation and then it cut down subsidies. All activities were undertaken with transparency with deep stakeholder engagements. An inclusive evaluation team was set up with effective monitoring. This is a success story that Nigeria can replicate,” Adigun said.
On his part, the Chief Executive Officer of Dairy Hill Limited, Kelvin Emmanuel, said the agreement is a violation of Sections 22(1) (2) of the Fiscal Responsibility Act of 2007 that says all government loans shall be for use in either capital expenditure or human capacity development.
He explained: “The fact that the Government is incurring $23.3m consulting facilitation fee, as well as administrative fees despite the seemingly (in) competent staffs at both the Ministry of Finance and Humanitarian Affairs, is proof that profligacy has become an institutional practice in Nigerian Governance.
“Considering that Nigeria was allocated 3.3bn shares as Special Drawing Rights (or the equivalent of $4.3billion) by the International Monetary Fund (IMF) and this withdrawal of 565 million SDR, which is equivalent to $800m, has reduced its SDR allocation by 17.1 per cent is proof that this outgoing government has misplaced priorities, and lacks competence on how to allocate scarce resources towards critical capital projects that will either return monies on investment or improve the per capita income of Nigerians.”
He maintained that what he described as a ‘palliative misadventure’ is heightened by the fact that the fund will not be appropriated by the National Assembly in a budget, and is therefore exempted from oversight reporting and disclosures.
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