US embassy cable - 02ABUJA1807

C O N F I D E N T I A L SECTION 01 OF 02 ABUJA 001807 
 
SIPDIS 
 
 
DEPT PASS TO USTR FOR WHITAKER AND COLEMAN 
 
 
E.O. 12958: DECL: 06/17/2012 
TAGS: ECON, PGOV, EINV, NI 
SUBJECT: NIGERIA:  2002 BUDGET DEBATE 
 
 
REF: ABUJA 1194 
 
 
 
 
1. (C) Summary and background.  The Financial Year 2002 
Budget entered the political spotlight last week as President 
Obasanjo met legislators and the Nigerian Federal Executive 
Council debated the subject.  Obasanjo's original budget for 
USD $7.10 billion (848 billion Naira) went to the legislature 
last November. The National Assembly nearly doubled capital 
expenditures, passing a budget totaling USD $8.83 billion 
(1.06 trillion Naira) this March.  In April, the Supreme 
Court decision on the allocation of oil revenue pronounced 
many of the revenue allocation mechanisms unconstitutional. 
In response to the Supreme Court decision on revenues, the 
GON set up two special committees: one to handle technical 
changes mandated by the decision; and a second to reach a 
political compromise to alleviate losses that oil-producing 
states will experience with their loss of 13% of off-shore 
oil revenues.  Technical fixes are taking longer than 
expected and the latter committee is reportedly deadlocked 
because states without oil and other elements in the GON do 
not want to restore the losses to the oil-producing in this 
zero-sum exercise. 
 
 
2. (C) Summary continued.  On the expenditure side, Obasanjo 
has maintained a steady public campaign of refusing to spend 
all of the monies budgeted by the National Assembly.  For 
their part, legislators protest the executive's 
"unconstitutional" refusal to execute the budget.  A motion 
to impeach Obasanjo has been filed in the Senate.  In the 
meantime, as contractors curtail operation, politicians 
within Obasanjo's own government want to open the spigot, 
particularly from the capital projects budget. They have 
formed a committee within the Federal Executive Council (GON 
Cabinet equivalent) purportedly to pressure the president to 
spend more.  End Summary. 
 
 
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The FEC Budget Review Panel 
--------------------------- 
 
 
3. (U) The 2002 budget was the subject of discussion at the 
weekly FEC on June 5.  The group set up seven-person Budget 
Review Panel headed by the Minister of State for Finance, 
Jubril Martins-Kuye.  Ostensibly, the panel would review 
shortfalls in revenue earnings that might affect budget 
implementation.  The GON has been disappointed by the lack of 
privatization of government parastatals like the Nigerian 
Telecommunications Limited (NITEL) and the National Electric 
Power Authority (NEPA), where the GON had budgeted receipts 
of USD 1.7 billion.  With the NITEL sale going sour and NEPA 
not ready to be placed on the auction block, the actual 
revenue will be a far cry from the budget projection. 
 
 
4. (C) Other less charitable sources claim the Ministers are 
frustrated by the impasse with the legislature because they 
have been unable to spend as much as they would like, 
particularly during this election year.  GON and donor 
sources estimate FY02 Naira 100 billion is available for 
capital projects but remains unspent, with Naira 25 billion 
still for projects from 2001.  While some ministries have 
projects waiting for funding, others appear so frustrated by 
the time consuming process of gaining due process approval, a 
warrant from the Accountant General of the Federation (AGF), 
and finally confirmation from the Central Bank that funds are 
available in their account that they have been unable to 
spend the money that is waiting there for them.  As reported 
Ref (A), this new process helps to reduce the manner of and 
spending on questionable capital projects.  It has the 
additional effect of slowing down the pace expenditures.  A 
moderate reduction in velocity of spending or capital project 
may have a salutary effect, but too much of a slowdown 
encourages perception of inefficiency, may cause a reduction 
in social services and economic activity, thus engendering a 
degree of political anxiety. 
 
 
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Let Us Find A Common Ground -- Sounds Good 
------------------------------------------- 
 
 
5. (U) On June 4, President Obasanjo held a meeting with the 
leadership of the National Assembly to resolve differences on 
the 2002 budget.  President Obasanjo explained to the 
legislators that inadequate revenue made implementing the 
budget impossible.  Obasanjo asked both parties to prioritize 
the budget, dropping some items that could be agreed upon 
mutually. 
 
 
6.  (U)  Media reports the leadership of the National 
Assembly and President Obasanjo were not able to agree on 
these priority areas.  While President Obasanjo wanted to 
focus on Energy and Water Resources, the legislators insisted 
on Agriculture and the Federal Capital Territory (FCT). 
Though both parties were unable to agree on areas of 
priority, they agreed to continue meeting. 
 
 
7.  (C) Sources within the GON contend the legislators are 
less interested in increasing spending on federal capital 
projects than in winning control of special constituency 
funds for each member to spend in his or her district.  Such 
funds -- or a variation of them -- have been proposed by the 
legislature continually since the National Assembly first 
began meeting in the summer of 1999.  As in the past, the 
President reportedly opposed this fund. 
 
 
------------------------------- 
Implement As Agreed - or else? 
------------------------------- 
 
 
8. (C)  On June 6, several disgruntled senators proposed 
formal investigation of budget implementation from May 29, 
1999 to the present.  Senator Idris Abubakar said that the 
Senate would first ascertain whether the constitutional 
budget process has been violated, and whether or not 
President Obasanjo could be impeached because of such 
violations.  Hearings on the motion have been fixed for 
Wednesday, June 12. (Comment: This is the latest of many 
impeachment "scares" Obasanjo has had to face during his 
tenure.  Most likely this will fail like the others. 
However, a new development this time around is the apparent 
support Senate President Anyim has lent the proceedings. 
Anyim, who has been a staunch Obasanjo loyalist is apparently 
bitter that Obasanjo is not fully supporting Anyim,s bid to 
run for governor (Ebonyi) of his home state in 2003, instead 
Obasanjo seems to be backing the incumbent. End comment.) 
 
 
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Comment 
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9.  (C) No experienced political practitioner or observer 
expects the 2002 budget to be implemented as passed by the 
National Assembly.  As in years past, the actual expenditure 
will most likely reflect the President,s aims.  At the same 
time, most observers are surprised by how parsimonious the 
president has been, having expected him to loosen the purse 
strings more than he has to date. (We are hearing that 
government contracts are drying up and construction firms 
whose livelihood is government projects are preparing to 
lay-off workers and downsize.) 
 
 
10. (C) Last week's public and private debates on the budget 
was the first such discussion since the Supreme Court 
Resource Allocation Decision in April.   The results confirm 
the previous balance of power regarding implementation of the 
budget.  President Obasanjo is in the driver seat and the 
National Assembly is the loquacious back seater.  For the 
time being, Obasanjo has decided to hold tight the reins of 
spending, for commendable as well as baser political reasons. 
 Capital projects show less expenditure compared to this time 
last year, while the unexpectedly high price of oil has 
brought in more funds.  Thus, the short-term outlook for 
containing inflation and stabilizing expenditures has 
improved.  However, pressure to spend will be unrelenting and 
there always exists the possibility that Obasanjo will give 
in when he believes the time is right politically.  End 
Comment. 
ANDREWS