UNDERSTANDING ECA AND ITS NEED: WHY THE SENATE SHOULD HAVE A RETHINK?
UNDERSTANDING ECA AND ITS NEED: WHY THE SENATE SHOULD HAVE A RETHINK?
By:
Nurudeen Dauda
November 8, 2017
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The senate through a "Resolution" has scrapped the Excess Crude Account (ECA). As it were, the ECA has no legal back up, but in my humble opinion, instead of "scraping" ECA by the Senate through a "Resolution" it should have provided a legal back up to the account, in view of its rationale to the National Economy. We need a law that will recognize ECA which is a form of "compulsory savings" for the rainy days. The Senate should have sponsored a bill that will ensure a "compulsory savings" by the Executive at anytime crude is above $50 per barrel for rainy days.
Excess Crude Account (ECA) was established in 2004 and its objective is primarily to protect planned budgets against shortfalls due to volatile crude oil prices. ECA is an account aims at "saving" the difference between the actual selling price of crude oil at the international market and the budget benchmark. In my view, we need savings especially during boom era so as to be used for the crisis period. If the problem of ECA is lack of transparency let's introduce strict measures that will ensure safe keeping of our savings. If the problem of ECA is absence of legal back up let's provide it.
What saved the Nigerian Economy during the short lived 2008-2009 Global Financial Meltdown was the Excess Crude Revenue savings. Nigeria was one of the few countries in the world that did not seek assistance from international financial institutions at that time in order to cushion the impact of the global financial crisis on the economy. The Government of President Obasanjo established ECA and left about $25billion in the account by 2007. He also left $45 billion in external reserves. That was essentially why Nigeria felt little or no impact on the 2008- 2009 meltdown.
In 2004, the price of crude oil rose above $40, and then $50. A series of events led the price to exceed $60 by August 11, 2005, leading to a record- speed hike that reached $75 by the middle of 2006. Prices rose to $92/barrel by October 2007, and $99.29/barrel by December. Throughout the first half of 2008, oil regularly reached record high prices. Prices on June 27, 2008, touched $141.71/barrel, for August. The highest recorded price per barrel maximum of $147.02 was reached on July 11, 2008. By October 16, 2008 prices had fallen to below $70, and on November 6 oil closed below $60. From mid January to February 13, 2009 oil fell to near $35 a barrel.
Nigeria was said to have earned N96.212trillion in 58years of crude oil sales. Nigeria earned more than 50% of the amount in five years which was about N51trillion between 2009 - 2014. A breakdown of the earnings shows that between 1958 and 2007 (CBN Annual Report and Statement of Account, 2008), Nigeria earned N29.8 trillion from petroleum resources. And between 2008 and June 2016, the country generated N66.412 trillion. Said, Clifford Ndujihe, Deputy Political Editor, Sunday Vanguard, August 14, 2016.
We did not manage our economy properly, had we, we would not have felt the effect so badly as we are witnessing. It was true that some powerful Governors fought the Federal Government to the supreme court over the illegality of ECA. What the Government should have done was to sponsor an Executive Bill in order to legalize the account. It is my considered view that the Senate should legalize the account rather than to scrap it. Let's have a rethink on it.
May God bless Nigeria!