REPORTS: Urgent need to amend the PIA to boost federation’s petroleum revenue

The implementation of Nigeria’s landmark petroleum law has translated to an odd situation: NNPCL is better off in terms of revenues while the Federation is significantly worse off. This needs to be urgently addressed.

On 16 August 2021, former President Muhammadu Buhari signed the Petroleum Industry Bill (PIB) into law. The bill thus became the Petroleum Industry Act (PIA) 2021. This effectively brought an end to a 21-year process to reform the petroleum sector in the country. The PIA was hailed both nationally and internationally as the missing link and a panacea for stemming Nigeria’s apparent manifestations of the natural resource curse.

In principle, the PIA was supposed to attract investment into the country’s petroleum sector; enhance the regulatory and business framework; and increase revenue accruing to the Federation. In reality, however, none of these aims have been achieved. For revenue, the Federation has not received more revenue, as petroleum revenue to the Federation has fallen drastically after implementation of the PIA, and this is not due to just fall in oil production or prices. On the regulatory and business environment front, confusion and conflicting signals have meant the maintenance of the difficult and stifling operating environment. On the investment front, there has been an exodus of international oil companies (IOCs)^[1].

The fact that the PIA went through such a long and arduous process, perhaps, led to so much jubilation at its passing and assent, and resulted in a misdirection of attention on the finer details of the Act and its implementation. President Bola Tinubu has been proactive in signing three Executive Orders to address the twin issues of attracting investment and enhancing the regulatory and business environment. Designed to make Nigeria’s petroleum sector globally competitive^[2], the three executive orders, which became effective from February 28, 2024, are:

1. Oil and Gas Companies (Tax Incentives, Exemption, Remission, etc.) Order, 2024;
2. Presidential Directive on Local Content Compliance Requirements, 2024;
3. Presidential Directive on Reduction of Petroleum Sector Contracting Costs and Timelines.

This policy note argues that there is a need to address the third issue: revenue. After two years of implementing the PIA, evidence shows that the Federation has received significantly lower revenues from the petroleum sector, compared to the period before the law. We focus on the interpretation of two aspects of the PIA where implementation has increased the share of petroleum revenue withheld by the NNPCL, thereby reducing the petroleum revenue accruing to the Federation.

On the first issue, with the implementation of the PIA, NNPCL took over ownership of the Federation’s equity holdings in Joint Venture (JV) assets. With NNPCLs interpretation of Sub-section 54 (1) of the PIA, NNPCL has acquired the Federation’s JV assets, and pays dividends to the Federation. The Federation has received lower revenue from these JV assets, as the dividends declared are very low, and there have been many months in which no dividends were paid.

For context, in 2021, the last full year before the implementation of the PIA, the Federation received $10.65 billion from sales of JV crude oil and $1.252 billion from sales of JV equity gas and feedstock, amounting to a total revenue of $11.902 billion from crude oil and gas sales from JV assets^[3]. By contrast, in 2023, the first full year of the PIA implementation, the Federation received $399,000 from sales of JV crude oil, $701.287 million from sales of JV equity gas, and $1.13 billion as dividends from NNPCL, a total revenue figure of $1.833 billion^[4]. This is a drastic revenue reduction which clearly shows that the Federation has not materially benefited from the new arrangement with its JV assets after the PIA.

For the second issue, with the implementation of the PIA, NNPCL has been deducting 60% of profit oil and gas from Production Sharing Contracts (PSCs). NNPCL’s interpretation of sub-sections 9 (4) and 64 (c) of the PIA has resulted in the company deducting 30% for management fee, and an additional 30% for the frontier exploration fund, while the Federation gets the balance of 40%. Again, similar to JV dividends, there were many months when the NNPCL did not remit the 40% balance. It is also questionable why the owner of an asset, the Federation, will receive only 40% of the profits from such assets, and even sometimes receive nothing.

Roles, Production Arrangements and Distorted Revenue Streams

The Nigerian Federation participates in the petroleum sector through the Nigerian National Petroleum Company (NNPC). Established by the NNPC Act 1977, NNPC is Nigeria’s national oil company (NOC). In line with the PIA, NNPC transformed from a government corporation into the NNPC Limited (NNPCL, a limited liability company). Implementation of the fiscal provisions of the PIA started in July 2022.

The Federation, through NNPC, has participated in the upstream petroleum sector largely through two types of arrangements: JVs and PSCs. While there are other arrangements (Table 1), these other arrangements account for a low proportion of oil production. JVs and PSCs account for over 80% of crude oil production in the country. JVs are arrangements between the NNPC and oil companies where the parties contribute to funding operations and sharing crude oil produced in the proportion of their JV equity holdings. JVs were the dominant form of participation in the petroleum sector until the early 2000s. However, persistent difficulties of NNPC in funding its part of JV operations led to the introduction of the PSC model. PSCs are arrangements where the oil companies are engaged as contractors for exploration and production. The companies bear all the costs of operations and recover the costs after production commences. If the exploratory activities are not successful, the affected company loses such expenditure. PSCs were introduced in 1993. JVs have historically accounted for the largest proportion of oil production, although PSCs have caught up in recent years (Figure 1). But JVs completely dominate gas production (Figure 2).

Table 1: Petroleum Production Contract Arrangements

Source: NEITI Oil and Gas Audit Report 2021

Source: NEITI Oil and Gas Audit Report 2022-2023 / Source: NEITI Oil and Gas Audit Report 2022-2023

Source: NEITI Oil and Gas Audit Report 2022-2023

The Federation had 23 revenue streams from the petroleum sector before the implementation of the PIA in 2021 (Table 2). In 2021, the NNPC accounted for eight revenue streams, which fetched $10.284 billion, or 44.63% of total Federation petroleum revenue of $23.046 billion^[5]. Thus, NNPC accounted for the largest proportion of petroleum revenue inflows to the Federation before the PIA. This has changed drastically after the PIA. Despite the increase in total number of revenue streams to 30, NNPCL’s contribution has reduced from eight to three streams. In 2023, NNPCL’s three revenue streams brought in $5.01 billion, or 16.23% of total Federation petroleum revenue of $30.862 billion^[6]. It is important to note that the reduction in revenue from NNPCL is as a result of NNPCL retaining most of the petroleum revenue, rather than lower gross petroleum revenue.

Table 2: Summary of Revenue Streams from the Oil and Gas Sector in 2021 & 2023

Source: NEITI Oil and Gas Audit Report 2021 & 2022-2023
** Note: Italics represent unilateral disclosures

The fiscal framework of the PIA was expected to increase revenue to the Federation from oil and gas. As set out in Chapter 4, Sub-section 258 (1) of the PIA, the objectives of the Petroleum Industry Fiscal Framework are to:

However, in reality, the Federation has received less oil and gas revenue after the PIA. The two situations highlighted above arising from the implementation of the PIA have affected government revenue from both JVs and PSCs, and have, on one hand, reduced government revenue from the petroleum sector, while on the other hand, increased revenue to the NNPCL. Specifically, the revenue streams affected are crude oil and gas sales through the NNPCL. In 2021, before the PIA, the total value of the Federation’s entitlement from crude oil sales^[7] through NNPC was $11.308 billion, or 74.43% of the total sales value of $15.192 billion^[8] (Figure 3). In 2023, after the PIA, the total value of the Federation’s entitlement from crude oil sales^[9] through the NNPCL was $2.328 billion, or 14.14% of the total sales value of $16.467 billion^[10] (Figure 3). Following the implementation of the PIA, in 2023, the largest entitlement of crude oil sales of $11.348 billion (68.91%) went to NNPCL (Figure 3). Thus, despite the fact that the value of crude oil sold by NNPCL in 2023 ($16.467 billion) was 8.39% higher than the value of crude oil sold in 2021 ($15.192 billion), the Federation’s entitlement in 2023 ($2.328 billion) fell by 79% from its entitlement in 2021 ($11.308 billion).

This paper’s main argument is that since the largest proportion of petroleum revenue inflows to the Federation come through the NNPCL, the Federation cannot afford to have NNPCL retain most of the revenue it collects, which is what has happened after implementation of the PIA. Thus, it is imperative that the PIA is revisited and necessary actions taken to address these issues and increase the flow of petroleum revenue to the Federation.

Source: NEITI Oil and Gas Audit Report 2022-2023
** Note: this does not include the value of revenue from gas sales

Issues with the Transfer of Federation Joint Venture Assets to NNPCL

Upon implementation of the PIA and the change from NNPC to NNPCL, the national oil company took over ownership of Federation JV assets. This is an interpretation of Sub-section 54 (1) of the PIA:

This interpretation of the PIA suggests that because the Joint Operating Agreements (JV partnerships) were signed between NNPC and IOCs, then, NNPC owned the assets. Two years after taking ownership of these assets, NNPCL has been left better off, while the Federation has been left worse off, as revenue from JV assets to the Federation has plummeted. Considering that a key objective of the PIA was to increase the fiscal position of the Federation, it is clear that implementation of this aspect of the PIA has not achieved this key objective. There are a number of reasons why this transfer of JV assets to NNPCL needs to be revisited.

First, the petroleum assets belong to the Federation by virtue of Section 44 (3) of the 1999 Constitution and Section 1 of the Petroleum Act 1969. Essentially, the NNPCL is merely acting as an operational agent on behalf of the Federation. Even though JOAs are signed between NNPC and IOCs, the JV assets cannot be interpreted as belonging to NNPC. Given this, it is curious why the JV assets were deemed transferrable to NNPCL.

Second, it could be argued that NNPCL is managing the assets for the Federation, hence the payment of dividends. This is in line with sub-sections 53 (7) and 63 (1) (r) of the PIA:

However, the dividends paid by NNPCL are grossly inferior to the revenue generated by these assets. In 2023, NNPCL paid dividends totalling $1.13 billion. It is not clear how the amount for these dividends was arrived at. In addition, these dividends are tiny when compared to revenue previously accruing to the Federation from the totality of the JV assets. 45 JV assets are in production (Table 3). Production from the JV assets is quite substantial, with the Federation’s share averaging about 180 million barrels per year between 2017 and 2019 (Figure 4). Even though production subsequently fell, the Federation’s share of JV production was still high at 158 million barrels in 2020 and averaged about 130 million barrels in 2021 and 2022, before rising to about 150 million barrels in 2023 (Figure 4). Federation’s share of JV gas production is also substantial. For each year between 2018 and 2020, the Federation was entitled to about 1.2 billion standard cubic feet. While the Federation’s share fell to about 0.86 billion standard cubic feet in 2021 (Figure 5), it increased above 0.9 billion standard cubic feet in 2022 and 2023 (Figure 5).

With the high production of crude oil and gas from the JV assets, it follows that revenue from them will also be high. After the PIA, Federation revenue from JVs have fallen drastically. In 2021, Federation financial receipts from JV crude oil and gas sales were $11.902 billion (Figure 6). After the PIA in 2023, Federation financial receipts from JV crude oil and gas sales were $1.833 billion (Figure 6). This drastic fall in Federation revenue from JV assets indicates that this arrangement where NNPCL takes ownership of the JV assets is not beneficial to the Federation, and should be revisited.

It should be noted that this fall in Federation financial receipts from JV assets is not as a result of the oft-touted drop in oil production, or shift in production from JVs to PSCs. This is underscored by the analysis below:

1. Total oil production from JVs increased from 225.2 million barrels in 2021 to 257 million barrels in 2023 (Figure 7). In addition, oil prices increased from a yearly average of $69.89 per barrel in 2021 to a yearly average of $82.95 per barrel in 2023 (Figure 7). After accounting for the sharing of crude oil between the Federation and oil companies, it would be expected that total revenue from JVs would have increased between 2021 and 2023. The drastic fall in Federation financial receipts from JVs cannot thus be explained by lower crude oil production from JVs;
2. For the 10-year period between 2014 and 2023, oil production from PSCs surpassed JVs in only three years (2016, 2019, 2021) (Figure 7). However, oil production from JVs were higher than from PSCs in seven years (Figure 7). Of particular note is that in 2021, oil production was 225.2 million barrels from JVs and 242.9 million barrels from PSCs; however, in 2023, JV production was 257 million barrels and PSC production was 207.2 million barrels. Thus, JV production was higher than PSC production in 2023, and the drastic fall in Federation financial receipts can also not be explained by lower JV production compared to PSCs.

Table 3: NNPCL Upstream Joint Venture Contracts That Are Producing

Source: NNPCL Financial Statement for the Year Ended 31 December 2023

Source: NEITI Oil and Gas Audit Reports, various issues

Source: NEITI Oil and Gas Audit Reports, various issues

Source: NEITI Oil and Gas Audit Report 2022-2023
** Note: The figures are total of JV Crude Oil Export + JV Crude Oil Domestic + JV Equity Gas + JV Feedstock

Source: NEITI Oil and Gas Audit Report 2022-2023
** Note: The oil price is the OPEC Reference Basket

Third, it could be argued that NNPCL acquiring the JV assets and managing them would ensure enhanced revenue from the efficiencies of a private company. This has not been the case. The Federation is not deriving maximum benefits from the company, unlike other revenue-collecting agencies. Despite NNPCL’s transformation through the PIA to a limited liability company, standard corporate governance dictates that any company must provide maximum benefits to its shareholders. This would be in line with Sub-section 53 (7) of the PIA:

This has not been the case, as the NNPCL has consistently remitted lower amounts to the Federation than other revenue collecting agencies (Figure 8). In the 25 months from June 2022 to June 2024, NNPCL did not actually deposit any funds into the Federation in 13 months (Figure 8). When it finally started remitting funds to the Federation, its remittances constituted only a small fraction of total inflows into the CBN. Between October 2023 and June 2024, NNPCL’s payments into CBN never exceeded 14% of total payments by revenue agencies (Figure 9). In May and June 2024, NNPCL contributed less than 1% to total payments by revenue agencies. Considering NNPCL’s remittances to the Federation has been grossly inferior to remittances by other revenue collection agencies, there can be no justification for the transfer of Federation JV assets to NNPCL and the subsequent loss of Federation revenue, which now accrues to NNPCL.

Sources: (1) Office of the Accountant General of the Federation Presentations to FAAC
(2) Office of the Accountant General of the Federation Fiscal Performance of the Federation
(3) National Bureau of Statistics FAAC Disbursement Reports

Sources: Office of the Accountant General of the Federation Presentations to FAAC

Fourth, it is particularly strange that NNPCL automatically took ownership of Government Priority Projects (GPP), as part of the assets of NNPC. The GPPs have been a contentious issue at FAAC for many years. Deductions by NNPC for GPPs started in 1999 and were stopped in 2002. However, deductions started again in 2018. NNPCL claimed that the president approved the new template which allowed it to utilise revenue due to other agencies to fund GPPs. FAAC has repeatedly asked for evidence that such an approval was given, but NNPCL has not produced any. While this practice started in 2018 prior to the PIA, NNPCL continued these withholdings even after the PIA, even though they are no longer tied to GPPs. It has been raised at FAAC that 13% derivation to oil producing states should be deducted before NNPCL withholds any funds for GPPs^[11]. FAAC had repeatedly asked for quarterly updates from NNPCL about these projects to ascertain their precise number, locations and to track progress with implementation. NNPCL reported the number of projects to be 10 in 2022, and then reported them to be 15 in 2023. However, it has largely failed to provide quarterly reports to monitor and track these projects. FAAC has repeatedly asked to visit these project sites, but NNPCL has not made such visits possible. Thus, FAAC has not been able to identify the location of these projects. Between 1999 and July 2022, a total of N1.096 trillion was withheld for GPPs (Figure 10). Thus, it is important that NNPCL provides information on these GPPs. After the PIA, NNPCL has said it will acquire and keep on funding GPPs from the Federation’s assets it has acquired. After the Federation has cumulatively spent over N1 trillion on priority projects, it is strange that NNCPL will just take over ownership of such projects.

Source: FAAC Post-Mortem Sub-Committee Report

The Incongruity of NNPCL Deducting 60% from Federation’s Share of PSC Profit Oil

Sub-section 64 (c) of the PIA assigns NNPCL responsibility for lifting and selling oil and gas from PSCs on behalf of the Federation, and grants it power to deduct 30% as management fee and Frontier Exploration Fund (FEF):

This suggests that NNPCL should deduct 30% of profit oil as its combined fees for management and FEF. However, confusion arises from Sub-section 9 (4) which mandates NNPCL to deduct 30% of profit oil and gas for the FEF:

NNPCL has interpreted these two sub-sections to mean that it is entitled to deduct 30% as management fees, and another 30% for FEF. Thus, NNPCL has been deducting and retaining 60% of profit oil and gas since it started implementing the PIA in August 2022.

There is confusion concerning where the 30% FEF should be deducted from. The clause in Sub-section 9 (4) that relates to the FEF refers to “30% of NNPC Limited’s profit oil and profit gas”. This clause is ambiguous and can be interpreted in two ways:

1. It could mean that 30% should be deducted from the total profit oil and gas for FEF. In this case, 30% will be deducted for management fee, and another 30% would be deducted for FEF. This is NNPCL’s interpretation, hence, the deduction of 60% from profit oil and gas. Then, the balance going to the Federation Account will be 40%;
2. It could mean that the Federation owns all the profit oil and gas. Then, since NNPCL gets 30% of profit oil and gas as management fees, then the 30% for FEF should be deducted from this percentage. In this case, the deduction for FEF would come from the 30% deducted for management fees. This implies that NNPCL would only deduct 30% from profit oil and gas as management fees, and then 30% of its 30% would be deducted for FEF. Then, the balance going to the Federation Account will be 60%.

This confusion has been expressed by stakeholders, including the Nigeria Extractive Industries Transparency Initiative (NEITI) in its 2021 oil and gas report where it sought for clarification on what percentage should go for FEF and management fee:

Such “clarification” seems to have been provided in supplementary regulations to the PIA issued by the Nigerian Upstream Petroleum Regulatory Commission (NUPRC).

This regulation supports NNPCL’s practice of deducting 60% of profit oil and gas for management fee and FEF. This practice is detrimental to Federation revenue, and it is strange for the owner of an asset to only get 40% from profits. This does not appear right, and there a number of reasons why this needs to be revisited.

First, the NNPCL is merely acting as a collection agent for the Federation. Thus, 30% is rather excessive as management fee. Other revenue collection agencies of the Federation receive either 4% (FIRS and NUPRC) or 7% (NCS) as cost of collection. These percentages have been contentious at FAAC for many years, as there is no clear law mandating the percentages to be retained. It therefore appears excessive for NNPCL to retain 30% of PSC profit oil and gas as management fee, which is essentially a cost of collection fee.

Second, while NNPCL retained 60% of profit oil and gas from August 2022, the Federation did not receive any remittances until May 2023 (Table 4). The amounts deducted and retained by NNPCL since August 2022 are substantial. Between August 2022 and June 2024^[12], a total of N388.76 billion was deducted as 30% management fee and the same amount was deducted as 30% for FEF. This gives a grand total of N777.52 billion deducted and retained by NNPCL (Table 4). In principle, the balance of 40% should have been remitted into the Federation account. However, between August 2022 and April 2023, this balance was supposedly sequestered by NNPCL for subsidy payments, with remittances to the Federation Account starting in May 2023. Thus, remittances of the 40% share only started in May 2023.

Third, beyond the arguments about how the deductions for FEF should be made, there are contentious issues about explorations in frontier basins. The next section addresses these issues.

Table 4: NNPCL’s Deductions for 30% Management Fee and 30% FEF from PSCs Profit Oil and Gas (N millions), August 2022 – June 2024 

Sources: (1) FAAC Post-Mortem Sub-Committee Report
(2) Nigerian National Petroleum Company Limited Presentations to FAAC
**Note: Figures for March 2024 are excluded due to unavailable data

The Curious Case of the Frontier Exploration Fund

The deduction of 30% from PSC profit oil and gas for the Frontier Exploration Fund (FEF) is a contentious issue. There were agitations even before the Petroleum Industry Bill was passed by the National Assembly on why such a large percentage of petroleum revenue should be diverted for oil exploration in other areas.

The frontier basins, which essentially imply areas where oil has not been found, were identified by Section 318 of the PIA and defined as:

The recent intensification of explorations in the frontier basins is often traced to the directive from President Buhari in 2018. The former president reiterated his desire for exploration in the frontier basins in 2019 when flagging off drilling activities at Kolmani-II Oil Well, Gongola Basin, Upper Benue Trough, at Barambu town in Alkaleri Local Government Area of Bauchi State. At this ceremony, the former president stated that: “our next level is to ensure that exploration is extended to Chad Basin, Gongola Basin, Anambra Basin, Sokoto Basin, Dahomey Basin, Bida Basin and Benue Trough, for more prosperous Nigeria”^[13].

On its part, NNPCL has justified the explorations in the frontier basins and subsequent setting up and funding of the FEF on the fact that the country needs to increase its crude oil reserves from 37 billion barrels to 50 billion barrels, and increase crude oil production to three million barrels per day^[14]. NNPCL identified the frontier basins as the avenue for the actualisation of these goals. Recently, NNPCL has expressed strong commitment to continue exploration in the frontier basins in the north^[15]. The NNPCL statement was emphatic in stating that the company would not suspend its inland basins oil and gas exploration activities. Its Chief Corporate Communications Officer touted the discovery of hydrocarbon deposits in the Kolmani River II Well on the Upper Benue Trough, Gongola Basin, in the north eastern part of the country. This discovery served as the catalyst for further explorations in the north. Two specific active drilling projects were identified^[16]:

1. Wadi-2 Appraisal/Exploratory Well in OPL 732: This well is in Borno State, within the Chad Basin;
2. Ebenyi-1 Exploration Well in OPL 826: This well is situated in Nasarawa State, within the Middle Benue Trough.

Apart from the fact that the issue of the FEFs has stoked north-south tensions, there are a number of practical considerations that need to be examined, and which make it difficult to understand the justification for deducting funds from profit oil and gas and depositing in the FEF.

First, the Federation moved from JVs to PSCs because of difficulties in funding the huge capital outlays involved with oil exploration. The PSCs have freed the Federation from such capital expenditure and ensured that revenue goes to funding other critical budgetary items. Embarking on explorations in the frontier basins reverses the gains made with PSCs. History and experience have shown that IOCs are better suited and equipped to fund exploration activities. A corollary to this is to ask why IOCs seem to be disinterested in explorations in the frontier basins. It would therefore be better for the government to exit such exploration activities, and instead offer favourable terms to IOCs using PSCs. Nigeria’s history of exploration shows that success has featured private investment and involvement. There is no reason to believe that this strategy should also not be continued with frontier basins.

Second, it is not clear how the figure of 30% of profit oil and gas was arrived at as the amount of deductions for FEF. With the current arrangement, the Federation is receiving only 40% from PSCs profit oil and gas. It would have been expected that the owner of an asset would derive maximum benefits from profits. 30% of profits is surely a significant cut from profits, and there is the need to re-examine the justification for this steep percentage.

Third, and perhaps the most perplexing point, is that there are grey areas in the implementation of the FEF which could potentially result in conflicts between the NNPCL and NUPRC. The PIA assigns joint responsibility to the NUPRC and NNPCL for development of the frontier basins. For the NUPRC, these guidelines are in sub-section 7(c)(ii) and sub-sections 9 (1 – 2), while for the NNPCL, the guidelines are in sub-sections 9 (2 – 5), and Sub-section 64 (c).

Thus, from the PIA, it appears that both the NUPRC and NNPCL are charged with exploration and development of frontier basins. There are operational grey areas regarding management and utilisation of the funds. While the PIA seems to suggest that the NNPCL will utilise the Funds for exploration, the same PIA lists the exploration of frontier basins as one of the functions of the NUPRC. This could lead to a scenario where both NNPC and NUPRC feel entitled to utilise the funds in the FEF, leading to possible conflict.

While the PIA did not explicitly state how the Fund would be managed, NUPRC’s post-PIA regulations have indicated it will be managing the Fund. In 2022, NUPRC released the draft Frontier Exploration Fund Administration Regulations; and in 2023, it released the Frontier Basins Exploration Administration Regulations.

By the draft Frontier Exploration Fund Administration Regulations, the NUPRC established the Frontier Exploration Fund Escrow Account and Sub-section 3 (1) states that the NUPRC would ensure that NNPCL makes contributions into the account.

This is a likely source of conflict. There have been disputes between NNPCL and NUPRC on the practice of NNPC withholding royalties due to it. NUPRC has estimated cumulative receivable royalties from JVs and PSCs withheld by NNPCL between October 2022 to June 2024 to be N3.442 trillion (Figure 11). As NUPRC has been unable to make NNPCL remit its liftings of royalties, it is likely it will be able to make NNPCL make contributions into this escrow account for frontier explorations.

Source: Nigerian Upstream Petroleum Regulatory Commission Presentations to FAAC

Private Company or Public Entity: The Convenient Dual Identities of NNPCL

Since the signing of the PIA, the NNPCL has been quick to announce that it has transitioned from a public entity to a private company. It has promptly applied all aspects of the PIA that grant it assets and additional revenue. However, it has conveniently ignored other aspects of the PIA that stipulate responsible corporate governance; it has withheld revenue due to other agencies; and it has continued to rely on presidential waivers to extricate itself from financial obligations to the Federation. Sub-sections 53 (7), 53 (8) and 64 (a) of the PIA stipulate that the NNPCL and its subsidiaries should operate on a commercial basis, like other private companies.

In reality, NNPCL has been operating with a dual identity: it operates like a public corporation to enjoy special privileges unavailable to private companies; and then operates like a private company to take ownership of assets and be free from oversight. We highlight four examples of these manifestations of NNPCL as a hybrid public-private entity.

First, NNPC has historically deducted its operating expenses from the petroleum revenue it collects on behalf of the Federation, and remitted the balance to the Federation Account. Thus, essentially, funds deposited into the Federation have been residuals after NNPC’s cost of operations. This had been a controversial issue at FAAC, where it had been argued that revenue should first be remitted to the Federation Account, after which cost of operations could be collected. NNPC had justified its practice by citing Sub-section 4 (b) of the NNPC Act 1977:

This practice enabled NNPC, as a public entity, to operate with a “blank cheque” as far as its costs of operations were involved. Unlike other public entities that submit their budgets and utilise their cost of collections to fund their operations, NNPC consistently failed to submit its budgets, side-stepping Sub-section 5 of the NNPC Act 1977, and loaded all its costs of operations on the Federation.

It would have been expected that after becoming a private company, NNPCL would utilise its cost of collections or its management fees and retained profits to fund its operations. However, this has not been the case. After the PIA, NNPCL has calculated dividends payable to the Federation after deducting all operational costs from revenue to arrive at profits. Thus, even after transitioning to a private company, NNPCL still operates like a public entity by utilising collected revenue to fund operational costs, and from the residual, a sum is paid as dividends to the Federation.

Second, the PIA has endowed NNPCL with very generous benefits from the Federation’s petroleum assets, which a private company would not ordinarily enjoy. A back of the envelope estimation of the financial benefits that various sub-sections of the PIA confer on NNPCL reveal the following:

1. 30% of PSC profit oil and gas: N347.95 billion^[17]
2. Petroleum revenue from crude oil sales^[18]: $11.348 billion^[19]
3. 20% of NLNG dividends: N38.626 billion^[20]

The size and generosity of these financial receipts can clearly not be achieved by a private company, but are possible because of NNPCL’s status as the national oil company.

Third, the Nigerian Petroleum Development Company (NPDC), a subsidiary of NNPCL, having acquired Forcados Assets OML 119, OMLs 60-63, OML 11, OML 24 and OML 98, was indebted to NUPRC to the tune of $2,226,998,165.02. Following various reconciliation meetings amongst the parties, the final reconciliation meeting (3 and 4 March 2022) agreed that the indebtedness was reduced to $599,813,170.02. This happened following cash payments of $58,646,860.00 and utilisation of the sum of $1,568,538,135.00, being value of crude oil lifted by the Atlantic Energy Group on Strategic Alliance Agreements (SAAs).   NNPC claimed it obtained approval from the National Economic Council (2^nd July 2021) to utilise this sum of $1,568,538,135.00 from the Atlantic Energy Group on Strategic Alliance Agreements (SAAs).

It was therefore agreed that NPDC should pay the balance of $599,813,170.02 within nine months starting from May 2022, with monthly instalments of $66,645,907.78. NPDC did not keep to these payments, and as at 30 June 2024, there was still an outstanding sum of $18,233,325.02. Payments were quite erratic, and there were many months when no payments were made (Figure 12). Thus, after two years (May 2022 – June 2024), NPDC (now NNPC E&P Limited, NEPL) has still not finished making the payments that were supposed to have been completed after nine months (January 2023). If NNPCL and NEPL were operating strictly as private companies, they should have incurred interest payments and penalties on their failure to keep up with the payment schedule. However, this has not happened, as they have been treated like a public corporation.

Source: Nigerian Upstream Petroleum Regulatory Commission Presentations to FAAC

Fourth, NNPCL has not been paying taxes and royalties on crude oil liftings after the JV assets were transferred to it from the Federation. Oil companies are required to pay royalties on oil lifted to NUPRC, and pay taxes to FIRS. However, NNPCL’s failure to pay both royalties and taxes on oil lifted is not in line with Sub-section 53 (8) of the PIA. This means that, effectively and when it suits it, NNPCL is still behaving like a public entity.

Conclusion and Recommendations

This paper has conducted an analysis of revenue accruing to the Federation after the commencement of the implementation of the Petroleum Industry Act 2021. Evidence shows that contrary to a key objective of the PIA, the Federation has received lower revenue from the petroleum sector. This is attributable to the implementation of the PIA where interpretation of certain sections of the Act have given the NNPCL a larger share of oil and gas revenue at the expense of the Federation. Thus, post-PIA, the Federation is not deriving maximum benefits from the petroleum sector.

We identified two areas of the PIA that need to be revisited to increase Federation revenue:

1. The interpretation of Sub-section 54 (1) which led to NNPCL acquiring Federation JV assets;
2. The interpretation of sub-sections 9 (4) and 64 (c) which led to NNPCL withholding 30% from profit oil and gas for management fee, and 30% from profit oil and gas for frontier exploration fund.

We make the following recommendations to address these issues and increase Federation’s revenue from the petroleum sector:

1. Revisit the Transfer of JV assets to the NNPCL: it is clear that the Federation is not getting maximum benefits from the post-PIA arrangement where JV assets are deemed owned by NNPCL. Sub-section 54 (1) of the PIA should be revisited to ensure the JV assets are returned to the Federation;
2. Reduce the PSC management fee for NNPCL from 30% to between 4% and 7%: in line with the collection fees of other revenue-generating agencies, sub-section 64 (c) of the PIA should be revisited to reduce the management or collection fee of NNPCL from PSCs from 30% to between 4% and 7%;
3. Revisit the Need for Committing Huge Resources to Frontier Basins Exploration: President Tinubu, in his role as the Minister of Petroleum Resources, should revisit the huge capital expenditure on frontier basins exploration, and decide if explorations in the frontier basins are a priority for the country at the moment;
4. Revisit Sub-sections 64 (c) 9 (4) of the PIA, Frontier Exploration Fund Administration Regulations 2022, the Frontier Basins Exploration Administration Regulations 2023: following from the last recommendation, there will be the need to amend, revise, or completely overhaul these laws relating to the Frontier Exploration Fund;
5. Revisit the Private or Public Status of NNPCL: there is the argument that an entity such as the NNPCL that manages Federation’s assets should be subject to appropriate oversight by relevant Federation entities. Converting NNPCL to a private company has created confusion at FAAC where oversight of NNPCL has become extremely difficult. NNPC had a history of opaqueness and secrecy, which has only been compounded by the change to a private company, and the illusion that NNPCL is not answerable to questions about its operations.

Our central argument is that the PIA should enhance maximum financial benefits to the Federation. After two years of implementation of the law, evidence suggests that the Federation is not deriving maximum benefits from its petroleum assets. Thus, it is essential that relevant sections of the PIA be re-examined and appropriate revisions made to channel more petroleum revenue to the Federation. Only then can the government realise the extra revenue urgently needed for critical expenditure needs.

 *Fowowe, a professor of Economics, is a senior fellow with Agora Policy.