Major Fiscal Reform in Nigeria’s Oil and Gas Sector
President Bola Ahmed Tinubu has taken a significant step in reforming Nigeria’s oil and gas sector by signing an Executive Order that directly remits oil and gas revenues into the Federation Account. This move is aimed at addressing long-standing issues of revenue leakages, eliminating redundant deductions, and ensuring that more funds are available to support the federal, state, and local governments.
The order, which has been gazetted, was signed in accordance with Section 5 of the 1999 Constitution (as amended) and is anchored on Section 44(3), which states that the Government of the Federation owns and controls mineral resources. The directive seeks to safeguard and enhance oil and gas revenues while curbing wasteful spending and reducing overlapping structures in the sector.
Key Provisions of the Executive Order
One of the main objectives of the Executive Order is to restore the constitutional revenue entitlements of the three tiers of government. These entitlements were reportedly removed in 2021 by the Petroleum Industry Act (PIA). The PIA created structural and legal channels through which substantial Federation revenues were lost due to deductions, sundry charges, and fees.
Under the current PIA framework, the Nigerian National Petroleum Corporation (NNPC) Limited retained 30 per cent of the Federation’s oil revenues as a management fee on Profit Oil and Profit Gas derived from various contracts. In addition, the national oil company retained 20 per cent of its profits for working capital and future investments. The Federal Government described this 30 per cent management fee as unjustified, arguing that the existing 20 per cent retained earnings were sufficient to support NNPC’s operations.
Another concern raised by the Presidency is the retention of 30 per cent of profit oil and gas under the same contract arrangements, earmarked for the Frontier Exploration Fund. This fund, established under sections 9(4) and (5) of the PIA, was criticized for potentially accumulating large idle cash balances and encouraging inefficient spending during a time when government resources are urgently needed for national priorities such as security, education, healthcare, and energy transition investments.
Direct Remittance to the Federation Account
The Executive Order also suspends payments of the Gas Flare Penalty into the Midstream and Downstream Gas Infrastructure Fund (MDGIF). Instead, proceeds from all gas flaring penalties will be paid directly into the Federation Account. While the MDGIF was intended to support environmental remediation and relief for host communities impacted by gas flaring, the PIA already established a dedicated Environmental Remediation Fund administered by the Nigerian Upstream Petroleum Regulatory Commission (NUPRC).
“All these deductions far exceed global norms and effectively divert more than two-thirds of potential remittances to the Federation Account,” the statement said, adding that the continuing decline in net oil revenue inflows was largely attributable to the deductions and fragmented oversight under the current PIA architecture.
Structural Reforms and Oversight
The President also identified structural concerns regarding NNPC Limited’s continued role as a concessionaire under Production Sharing Contract arrangements. The framework allows the company to influence operating costs while functioning as a commercial entity, creating potential distortions and undermining its transition into a fully commercial operator as envisioned under the PIA.
As part of the reforms, NNPC Limited will no longer collect and manage the 30 per cent Frontier Exploration Fund. The company must ensure that the 30 per cent profit from oil and gas currently earmarked for the fund under production sharing, profit sharing, and risk service contracts is transferred to the Federation Account. Additionally, NNPC Limited will no longer be entitled to the 30 per cent management fee on Profit Oil and Profit Gas revenues meant for the Federation Account.
From February 13, 2026, all operators/contractors of oil and gas assets held under a production sharing contract will pay Royalty Oil, Tax Oil, Profit Oil, Profit Gas, and any other interest howsoever described which is due to the government of the federation directly to the Federation Account.
Implementation and Oversight Committees
To ensure effective implementation, the President approved the establishment of an Implementation Committee comprising key stakeholders. The committee includes the Minister of Finance and Coordinating Minister of the Economy; the Attorney-General of the Federation and Minister of Justice; the Minister of Budget and National Planning; and the Minister of State, Petroleum Resources (Oil). Other members include the Chairman of the Nigeria Revenue Service; a representative of the Ministry of Justice; the Special Adviser to the President on Energy; and the Director-General of the Budget Office of the Federation, who will serve as secretary to the committee.
Long-Term Vision and Review
The President affirmed that the reforms are of urgent national importance, given their implications for national budgeting, debt sustainability, economic stability, and the overall well-being of Nigerians. He also announced that his administration would undertake a comprehensive review of the Petroleum Industry Act in consultation with stakeholders to address identified fiscal and structural anomalies.
