NIGERIA: FY 2010 PROHIBITION ON ASSISTANCE TO CENTRAL

UNCLAS ABUJA 000077

SIPDIS
PLEASE PASS TO EEB/IFD/OMA BRIANA SAUNDERS

E.O. 12958: N/A
TAGS: EAID ECON EFIN PREL NI
SUBJECT: NIGERIA: FY 2010 PROHIBITION ON ASSISTANCE TO CENTRAL
GOVERNMENTS WHOSE BUDGETS ARE NOT TRANSPARENT

REF: 10 STATE 1923; 09 ABUJA 626


1. (U) The following is Embassy Abuja's response to the questions
contained in Reftel A.




2. (U) SFOAA funding: The Government of Nigeria is expected to
receive U.S. foreign assistance, using FY 2010 funds, for the U.S.
President's Emergency Plan for AIDS Relief (PEPFAR),International
Military Education and Training (IMET),Foreign Military Financing
(FMF),and technical assistance and training through USG-funded
implementing partners.




3. (U) Public availability: The Nigerian federal budget is a
public document. The enacted federal budget is available in both
print and electronic form soon after it is approved by the National
Assembly and signed by the President. Hard copies can be obtained
from the Clerk's Office in both houses of the National Assembly.
Electronic versions can be obtained from two government websites:
www.budgetoffice.gov.ng and www.fmf.gov.ng. Formal public audits
of government accounts are conducted and end-of-year outcomes
reports are published, but with a lengthy lag. The first
end-of-year outcome report was published for FY 2004. The Debt
Management Office publishes debt, but not grants, received from
bilateral and multilateral sources.




4. (U) Incomes and expenditures: Incomes and expenditures are
included in the enacted federal budget. Expenditures are provided
in much more detail than incomes, but this is because the majority
of projected income is oil and gas income, which is based on a
projected average annual oil price and a projected average annual
production level. The President's annual budget speech provides
the assumptions behind the income and expenditure numbers. The
Ministry of Finance also publishes every month the distribution of
all revenues to the federal, state, and local levels of government.
This information is published in the local newspapers and posted on
the above-mentioned government websites.




5. (SBU) Post assessment: The federal budget is a plan, not an
actual statement of spending. There is a significant difference
between budgeted and actual expenditures, or under-spending, but
this is largely due to a lack of implementing capacity when it
comes to capital spending, rather than a lack of transparency.
Recurrent expenditures, which consist primarily of government
salaries, are fully spent. There is also a significant difference
between budgeted and actual incomes, due to fluctuations in
international oil prices and domestic oil production. The
combination of lower oil prices due to the global recession and
lower oil production due to the damage of pipelines and oil
terminals by militants contributed to a major reduction in oil
revenues in 2009. There was also a significant decline in non-oil
revenues. Lower oil and non-oil revenues led to drastic decline in
income.




6. (SBU) Since 2009. The National Assembly passed the Fiscal
Responsibility Act of 2007 to ensure transparency in the use of
government revenues. The Fiscal Responsibility Act provided for
the establishment of the Fiscal Responsibility Commission to
monitor government budgetary practices and consistency with the
Act. This Fiscal Responsibility Commission was in the process of
establishing itself in 2009. The new Chairman of the Commission
acted independently, published positive articles in the press, and
visited the World Bank in Washington in November/December 2009
seeking advice on how to manage the Committee. The Fiscal
Responsibility Act had been passed in 11 states and was at various
states of enactment in the remaining 25 states as of the end of

2009. The National Assembly also passed the Public Procurement Act
of 2007 to ensure transparency and value-for-money in government
procurement. The Public Procurement Act also had been passed in
some states as of the end of 2009. The World Bank, the African
Development Bank, USAID, and the U.K. Department for International
Development have agreed under the World Bank-led Country
Partnership Strategy II to continue efforts to build the capacity
of state governments to introduce fiscalQsponsibility legislation
and public procurement reform. The World Bank is leading a donor's
group to promote these reforms in collaboration with the Ministry
of Finance.



7. (SBU) The Federal Government resorted to increased use of the
Excess Crude Account, or "rainy day" fund, to make up for
shortfalls in budgeted non-oil revenues in 2009. These
expenditures were distributed between the federal, state, and local
levels of government and were not part of the financing plan that
was presented to the National Assembly, and not part of the checks
and balances represented by the federal, state, and local
governments, and the National Assembly.




8. (SBU) Government efforts. The National Assembly has continued
to step up its monitoring and oversight of the budget process since
the new set of law makers came into office in May 2007. The
proposed Petroleum Industry Bill (PIB) is expected to receive its
third and final reading in early 2010. The PIB seeks to increase
the GON's share of oil and gas revenues from mandated joint
ventures, unbundles the existing state-owned Nigerian National
Petroleum Corporation (NNPC),and creates three independent
regulators for the upstream, midstream and downstream industries.
These regulators would monitor revenues and the USG has been asked
for help to help establish these regulatory bodies. The revenues
would be monitored by the regulators and would go directly to the
Ministry of Finance, bypassing the NNPC and all other existing
intermediaries. This would be a major step forward in increasing
budget transparency because oil and gas revenues constitute an
estimated 85 percent of current central government revenues.




9. (SBU) Elsewhere, the National Assembly passed the Nigerian
Extractive Industry Transparency Initiative (NEITI) law in 2007.
NEITI released in 2009 its audit of Nigeria's 2005 oil and gas
revenues. This audit has been accepted by the Federal Executive
Council (or cabinet),presented by the President to the National
Assembly, and published. In addition, NEITI fully procured audits
for the years 2006-2008 and plans to release, present, and publish
these audits in the same manner. The GON has also agreed to have
an independent validator verify fulfillment of the agreed-upon
Extractive Industry Transparency Initiative (EITI) standards.




10. (SBU) USG/Post actions. The USG has supported effective
implementation of NEITI since the NEITI law was passed in 2007.
USAID resources supported effective oversight of the implementation
of NEITI in 2009. USAID participated in a UNDP-chaired donor group
in 2009 that worked with the Nigerian Governors Forum to improve
fiscal transparency among Nigeria's 36 states. Specifically, USAID
had a consultant working with the state governments on state fiscal
responsibility legislation. USAID will continue its assistance to
build the capacity of the Bauchi and Sokoto state governments to
introduce fiscal responsibility legislation and public procurement
reform through its new Leadership, Empowerment, and Advocacy and
Development (LEAD) project. USAID conducted an assessment to
identify states in the oil-producing Niger Delta that work with
donors and the GON as EITI lead-states. Bayelsa State, for
example, has adopted EITI at the state level (BEITI). Bayelsa
State has signed an MOU with the USG to finance USAID-managed
technical assistance to promote fiscal responsibility legislation
and public procurement reforms. However, Bayelsa State has not yet
provided the necessary financing to USAID. Introducing fiscal
responsibility legislation and public procurement reform in the
states is a major step forward because approximately 50 percent of
central government revenues are transferred to the state and local
governments and it is in this half of central government
"expenditures" where greater budget transparency is most needed.
SANDERS