Nigeria is overhauling its oil and gas revenue system, aiming to unlock an estimated ₦14.57 trillion (approximately $9.6 billion USD based on current exchange rates) for the Federation Account in 2025. The move, enacted through a recent executive order by President Bola Tinubu, fundamentally alters the financial relationship between the government and the Nigerian National Petroleum Company Limited (NNPC), and seeks to address longstanding issues of revenue diversion and opacity within the sector.
The executive order, issued in mid-February , mandates that all proceeds from oil and gas – including royalty oil, tax oil, profit oil, profit gas, and associated payments – be channeled directly into the Federation Account, bypassing the NNPC as a revenue collector. This represents a significant shift from the previous system, where the NNPC retained substantial portions of these revenues for various purposes, including exploration and management fees.
Addressing Shortcomings of the Petroleum Industry Act
The impetus for this reform stems from concerns regarding the implementation of the Petroleum Industry Act (PIA) of . According to the Tinubu administration, the PIA inadvertently created avenues for “excessive deductions, overlapping funds, and structural distortions” that reduced the amount of revenue ultimately available to the government. Specifically, the NNPC was permitted to retain 30% of revenues from certain contracts as management fees, in addition to holding 20% of its profits for future investments.
The government argues that these deductions were excessive, particularly given that the NNPC already possessed sufficient retained earnings to fund its operational and investment needs. The allocation of 30% of oil and gas profits to the Frontier Exploration Fund was criticized as potentially leading to the accumulation of “significant unused liquidity” while critical national priorities remained underfunded.
Under the new directive, the NNPC will no longer collect these funds and must remit the previously retained 30% of profits to the Federation Account. The company is also prohibited from collecting the 30% management fee on oil and gas revenues destined for the Federation Account. This change is projected to significantly increase the funds available to federal, state, and local governments.
Repositioning the NNPC and Centralizing Revenue Flows
Beyond the financial adjustments, the executive order aims to redefine the role of the NNPC. The administration intends to “reposition NNPC Limited strictly as a commercial entity, while preserving the interests of the Federation.” This suggests a move away from the NNPC’s previous dual role as both a commercial operator and a key player in revenue collection and distribution.
Operationally, all operators engaged in Production Sharing Contracts (PSCs) are now required to remit royalties, petroleum taxes, profit oil and gas, and any other applicable payments directly to the Federation Account. Penalties for gas flaring will also be directed to the Federation Account, enhancing transparency and reducing potential revenue leakage.
Boosting Investment and Economic Outlook
The reforms are part of a broader effort to revitalize Nigeria’s oil and gas sector, which remains crucial to the nation’s economy. Since , the government has introduced fiscal incentives, cost efficiency measures, and regulatory adjustments designed to attract investment. These efforts have reportedly yielded approximately $8 billion USD in final investment decisions for oil and gas projects in a single year, alongside a resurgence in drilling activity.
This move coincides with the commissioning of the Dangote mega-refinery, a significant development that is reshaping Nigeria’s petroleum landscape and reducing its reliance on fuel imports. The executive order adds a fiscal dimension to this broader reform agenda, impacting a sector that contributed approximately 5.5% to Nigeria’s GDP in .
The Central Bank of Nigeria forecasts a 6.6% growth in the oil and gas industry in , driven by an anticipated average production of 1.75 million barrels per day. President Tinubu stated, “The era of excessive deductions and structural distortions in our oil sector is over. These resources must serve Nigerians first.”
The government has also announced a comprehensive review of the Petroleum Industry Act, in consultation with stakeholders, to address identified fiscal and structural anomalies. This suggests that the restructuring of oil revenue management is an ongoing process, extending beyond the scope of this initial executive order.