Blog Details

• Stops NNPC from collecting, managing 30% exploration fund 

•Suspends payment of gas flare penalty to MDGIF

•Establishes implementation committee for effective execution  

•FG to undertake review of PIA

Deji Elumoye and Emmanuel Addeh in Abuja

President Bola Tinubu yesterday issued an executive order to safeguard and enhance oil and gas revenues for the Federation, curb wasteful spending, eliminate duplicative structures in the critical sector of the national economy, and redirect resources for the benefit of the Nigerian people.

The President, according to a release issued by his Adviser on Information and Strategy, Bayo Onanuga, signed the Order in pursuance of Section 5 of the Constitution of the Federal Republic of Nigeria (as amended).

Besides, the statement noted that the Order was based on the constitution, which vests ownership, control, and derivative rights in all minerals, mineral oils, and natural gas in, under, and upon any land in Nigeria, including its territorial waters and Exclusive Economic Zone (EEZ) in the federal government.

In the same vein, it stated that the directive seeks to restore the constitutional revenue entitlements of the federal, state, and local governments, which were taken away in 2021 by the Petroleum Industry Act (PIA), explaining that the PIA created structural and legal channels through which substantial federation revenues are lost through deductions, sundry charges, and fees.

Under the current PIA framework, NNPC retains 30 per cent of the Federation’s oil revenues as a management fee on profit oil and profit gas derived from Production Sharing Contracts (PSCs), profit sharing contracts, and Risk Service Contracts (RSCs).

In addition, the company retains 20 per cent of its profits to cover working capital and future investments.

Given the existing 20 per cent retention, the government stated that the additional 30 per cent management fee is considered unjustified, as the retained earnings are already sufficient to support the functions NNPC performs under these contracts.

NNPC Limited also retains another 30 per cent of its profit oil and profit gas under the production sharing, profit sharing, and risk service contracts, as the Frontier Exploration Fund (FEF) under sections 9(4) and (5) of the PIA.

A fund of this size, being devoted to speculative exploration, according to the release, risks accumulating large idle cash balances, which would encourage inefficient exploration spending, at a time when government resources are urgently needed for core national priorities, including security, education, healthcare, and energy transition investments.

For the Midstream and Downstream Gas Infrastructure Fund (MDGIF) under Section 52(7)(d) PIA, funded by the collection of gas flaring penalties provided under Section 104, it stated that the PIA has already established a dedicated Environmental Remediation Fund, administered by the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), specifically designed to fund the rehabilitation of communities negatively impacted by upstream petroleum operations, including gas flaring.

Furthermore, it argued that Section 103 already imposes a fee on lessees to contribute to this fund for precisely this purpose.

“All these deductions far exceed global norms and effectively divert more than two-thirds of potential remittances to the Federation Account. The continuing decline in net oil revenue inflows is largely attributable to these deductions and fragmented oversight under the current PIA architecture.

“The Executive Order aims to resolve, among others, the duplicative 30 per cent deduction for profit sharing arrangements by addressing overlapping and redundant provisions across all relevant laws and regulatory instruments under the PIA framework and NNPC Limited’s governing structure. The objective is to eliminate unjustified multiple layers of deductions that erode revenues that ought to accrue to the Federation Account, enabling the three tiers of government to pursue critical national priorities.

“The President has identified structural concerns regarding the continued role of NNPC Limited as a concessionaire under Production Sharing Contract arrangements. The existing framework, which allows the company to influence operating costs while simultaneously functioning as a commercial entity, creates potential competitive distortions and undermines its transition into a fully commercial operator as envisioned under the PIA.

“The Executive Order, therefore, introduces immediate measures to curb leakages, enhance transparency, eliminate duplicative structures, and reposition NNPC Limited strictly as a commercial enterprise, while safeguarding the Federation’s interests,” the statement explained.