President Bola Tinubu signed an executive order aimed at increasing oil and gas inflows to Nigeria’s Federation Account by cutting down deductions permitted under the Petroleum Industry Act.
Presidential spokesman Bayo Onanuga stated that the order relies on Section 44(3) of the Constitution, which places ownership, control, and derivative rights over all minerals, oil, and natural gas found on land, in territorial waters, and within the Exclusive Economic Zone under the authority of the Federal Government.
The directive aims to restore the share of revenue that federal, state, and local governments are supposed to receive, which was reduced after the 2021 petroleum reform law created new rules for deductions, charges, and fees that take away money from the Federation.
The statement explained that under the current framework, NNPC Limited keeps 30 percent of Federation oil earnings as a management fee on profit oil and gas generated from production sharing, profit sharing, and risk service contracts.
It also noted that the company already retains 20 percent of its profits for working capital and future investments, making the additional 30 percent management fee unnecessary in the government’s view, since the retained profits should adequately cover its operational responsibilities under those contracts.
In addition, NNPC Limited allocates another 30 percent of profit oil and gas to the Frontier Exploration Fund under the law, a move the government considers risky because such a large pool for speculative exploration could lead to idle funds and inefficient spending at a time when resources are needed for security, education, healthcare, and energy transition.
The statement further referenced the Midstream and Downstream Gas Infrastructure Fund, financed through gas flaring penalties, which is intended to support environmental remediation and relief for host communities affected by flaring.
However, it argued that the law already created a separate Environmental Remediation Fund managed by the Nigerian Upstream Petroleum Regulatory Commission to rehabilitate communities impacted by upstream operations, with mandatory contributions from license holders, making the additional funding structure appear redundant.
Overall, the government believes these multiple deductions exceed global standards and divert more than two-thirds of potential remittances to the Federation Account, contributing to declining net oil revenue and fragmented oversight under the present legal structure.
The Executive Order therefore targets the overlapping 30 percent deductions tied to profit-sharing arrangements by harmonizing and removing redundant provisions across relevant laws, regulations, and NNPC’s governance framework.
Its core goal is to eliminate layered and unjustified deductions that reduce funds meant for the Federation Account, thereby enabling all three tiers of government to better fund national priorities.
The President also raised concerns about NNPC Limited’s ongoing role as a concessionaire in production sharing contracts, noting that its influence over operating costs while acting as a commercial entity could create distortions and hinder its transition into a fully commercial company as envisioned by the reform law.
Through the order, the administration introduces immediate steps to reduce revenue leakages, strengthen transparency, remove duplicative systems, and reposition NNPC Limited strictly as a commercial operator while protecting national interests.
Finally, the President stressed that these reforms are urgent because of their direct impact on budgeting, debt sustainability, economic stability, and the broader welfare of Nigerians.
source:
African Energy Council