Salient issues arising from Executive Order 7

The President, Major General Muhammmadu Buhari(retd.), in 2019 signed Executive Order 007 on the Road Infrastructure Development and Refurbishment Investment Tax Credit Scheme. This has the central goal of facilitating public-private partnerships in road construction and rehabilitation. The order empowers the private sector to intervene as financiers of road projects and ease the financial burden of the Federal Government, whilst they will be rewarded with fiscal incentives. The private sector companies funding the road project will get tax credits to the extent of the total amount spent on the roads and a non-taxable benefit set at the extant Central Bank of Nigeria monetary policy rate and an additional two per cent of the total project cost. The companies get tax credits to offset their yearly annual Companies Income Tax obligations to the Federal Government through the Federal Inland Revenue Service.

This discourse appreciates the idea behind the Executive Order vis, the dilapidated state of federal roads and the need to raise sufficient resources to address what evidently appears to be an intractable challenge. But it reviews the implementation of this order especially, in the light of participation in the scheme by the Nigeria National Petroleum Company Ltd, the quantum of funds so far invested and salient legal issues.

The first poser for this discourse is whether Nigerian National Petroleum Company Ltd is a private company or private capital that entitles it to participate in the financing scheme and benefits of this order. Is NNPC Ltd a private company in the sense of its ownership and funding coming from private capital? The poser is not about the technical definition of a private or public company in the legal parlance of technical company law. NNPC Ltd is the former NNPC before the Petroleum Industry Act changed its nomenclature. Whether in its former or new transformation, it is a company whose profits or proceeds of its investments are owned and shared by the three tiers of government in an arrangement known to all educated Nigerians. So, considering the divide between private or non-state ownership and entitlement to profits, NNPC Ltd is by all known categorisation, a company fully owned by the three tiers of government in Nigeria.

Even though the Federal Government has approved NNPC’s participation in the scheme, it is submitted that careful and meticulous consideration of the jurisprudential foundations of the order did not anticipate that a company owned by the three tiers of government will become a core source of funding for implementing the scheme. NNPC Ltd participating in this federal road funding scheme as a company funded and owned by the three tiers of government cannot stand the test of legalism. If there are three owners of a company, why should just one of the owners, even if he is a principal shareholder, decide what happens to the divisible profits of the company? Why are state and local government roads excluded from the construction and rehabilitation proposed by the order? The rational expectation would have been for roads proposed to be funded by the order as eligible roads, to cut across the roads managed by the three tiers of government, in the ratio of the sharing arrangements and entitlement to the divisible profits of NNPC Ltd. For the Federal Government to be the sole beneficiary of this order is an abuse of its convening and preeminent position. One had expected the states to mount a legal challenge to this abuse at the Supreme Court but the states are silent.

The second challenge is that beyond excluding states and local government roads, this order reduces the corporate income tax available for sharing between the three tiers of government. After getting the benefit of having its roads constructed or reconstructed, the Federal Government also lines up as a participant in whatever is left and brought to the Federation Account table. The benefits derived by the Federal Government before the outstanding is brought for sharing are not discounted before everyone still gets what is due based on the sharing formula. This is the proverbial double portion which equity leans against. And the states are still silent!

The third challenge is whether a federal executive order can re-arrange a legal revenue-sharing arrangement. Without stating that it has re-ordered it, Executive Order 7 actually grants more benefits from corporate income tax to the Federal Government. More benefits than anticipated in the revenue-sharing formula, and this is to the detriment of states and local governments. This point needs to be presented to an impartial tribunal to determine its constitutionality and legality. Again, should Buhari be making an executive order which commits the Federal Government beyond his tenure so as to bind future executives? The 10-year timeline of Executive Order 7 appears inappropriate.

During the outgone week, the Federal Executive Council approved N1.9tn for NNPC to reconstruct 44 federal roads. In 2021, the Federal Government and NNPC Ltd agreed to the rehabilitation of federal roads worth N621bn.

This brings the total investment of NNPC Ltd in the order to N2.521tn. This figure is more than eight years of actual expenditure on federal roads. This sum does not include the figures invested by the real private sector operatives such as Dangote Industries; MTN, the telecommunications giant, etc. This development raises another fundamental challenge. Available information from the 2023 federal budget and previous budgets do not indicate that this funding arrangement is brought for the approval of the National Assembly which has the legislative powers of appropriation of federal public funds. If this quantum of public funds has been spent without legislative approval, why is the National Assembly silent?

It appears that the appropriate way forward would be for the Federal Government and the states to agree on a restructuring of Executive Order 7 to include state roads as eligible roads; and for the federal, state, and local governments to benefit from the tax relief in accordance with their legitimate share of the revenue when brought to the table for sharing. Furthermore, public expenditure, under whatever guise or form, should be subject to appropriation through the legislative powers of federal and state legislatures. Finally, Executive Order 7 should not extend beyond the Buhari regime. The N1.9tn recent approval for the NNPC, less than four months to the end of the administration, should be put on hold.


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