President Bola Ahmed Tinubu’s latest executive order on oil and gas revenue remittances is set to significantly strengthen allocations to federal, state and local governments, with presidency sources describing the move as “a fiscal liberation of the Federation Account.”
At the heart of the reform is a directive that royalty oil, tax oil, profit oil, profit gas and other government entitlements under Production Sharing Contracts (PSCs), profit-sharing and risk service contracts be paid directly into the Federation Account.
Financial records submitted to the Federation Account Allocation Committee (FAAC) indicate that the revenue streams affected by the order amounted to approximately N14.57 trillion in 2025 alone. While officials caution that actual inflows will depend on oil production levels and global prices, they describe the structural shift as transformative.
“This is about restoring predictability and fairness in how oil revenues are shared,” a senior Aso Rock source said. “For years, substantial sums were retained before they even reached the Federation Account. The President has ended that.”
Strengthening the Federation Account
Under the post-2021 framework introduced by the Petroleum Industry Act (PIA), only 40 per cent of PSC profit oil was remitted into the Federation Account. The remaining 60 per cent was split between a 30 per cent Frontier Exploration Fund (FEF) and a 30 per cent management fee retained by the Nigerian National Petroleum Company Limited (NNPC).
Presidency officials argue that this retention model significantly weakened the revenue pool shared monthly among the three tiers of government. “When only 40 per cent of a major revenue stream reaches the Federation Account, it inevitably constrains national development,” one official said.
“States struggle with salaries, infrastructure projects stall, and borrowing pressures increase. The executive order reverses that constraint.” With direct remittance now mandated, analysts within the Ministry of Finance expect allocations to become more robust, transparent and predictable.
Direct Payments to Boost Transparency
The order requires oil and gas operators under PSCs to remit royalty oil, tax oil, profit oil and profit gas directly into the Federation Account, bypassing prior retention mechanisms. Presidency sources say this eliminates opacity in lifting arrangements and ensures that revenues meant for the Federation are visible from the outset.
“For too long, revenues were caught in layers of deductions,” an Aso Rock insider explained. “Now, the money goes straight to where the Constitution says it belongs. Any subsequent allocation must follow lawful processes.”
Officials believe this approach will strengthen oversight by federal, state and local governments, as FAAC allocations will reflect fuller revenue inflows.
Ending the Frontier Exploration Retention
One of the most debated aspects of the order is the scrapping of the 30 per cent Frontier Exploration Fund retention. The FEF was created to finance exploration in frontier basins such as the Chad, Sokoto and Bida basins, as well as parts of the Benue Trough.
While acknowledging the importance of expanding Nigeria’s reserve base, presidency sources argue that automatic deductions before remittance were fiscally unsustainable.“No one disputes the need for exploration,” an official said. “But funding must not override constitutional revenue flows.
Exploration can still occur through budgetary appropriations, subject to oversight.” By redirecting the 30 per cent allocation into the Federation Account, officials say more resources will flow directly to states and local governments, where fiscal pressures remain acute.
Management Fees under scrutiny
The executive order also halted the 30 per cent management fee previously retained by NNPC on PSC profit oil and profit gas. According to FAAC records for 2025, management fee deductions mirrored frontier exploration deductions, each accounting for roughly N453 billion.
Presidency officials argue that while NNPC is expected to operate as a commercial entity, its funding model must not diminish Federation earnings.
“The President has made it clear that NNPC is a commercial enterprise,” a source said. “But it cannot operate in a way that structurally weakens its sole shareholder — the Federation.” The directive reinforces NNPC’s commercial mandate while separating operational funding from constitutionally mandated revenue entitlements.
Boost for Subnational governments
Governors and Local Government authorities are expected to feel the most immediate impact of the reform. Financial analysts within government circles project that enhanced remittance flows could reduce reliance on short-term borrowing and improve funding for education, healthcare, infrastructure and security.
“With stronger inflows, states can plan better,” an official familiar with FAAC deliberations noted. “Budget execution improves when allocations are predictable and transparent.” Presidency insiders say the reform aligns with the administration’s broader fiscal consolidation agenda.
Gas Flare Penalties and Constitutional Backing
The directive also mandates that gas flare penalties collected by the Nigerian Upstream Petroleum Regulatory Commission be remitted directly into the Federation Account. In addition, expenditures from the Midstream and Downstream Gas Infrastructure Fund must comply strictly with public procurement regulations.
“This ensures that infrastructure funding is transparent and accountable,” an official said. “It also prevents fragmentation of revenue streams.” Presidency sources stress that the executive order is anchored in Sections 44(3) and 162 of the 1999 Constitution, which vest mineral resource ownership in the Federation and require that all revenues accruing to the Federation be paid into the Federation Account.
“This is not about politics,” one senior aide stated. “It is about constitutional compliance. Revenue due to the Federation must first reach the Federation Account before any deductions.”
Toward long-term fiscal stability
Analysts within the Presidency argue that the reform corrects structural imbalances introduced during PIA implementation, particularly the dividend substitution model under which direct oil sale revenues were exchanged for projected dividend payments.
“The President has restored a more reliable revenue architecture,” an Aso Rock source explained. “You cannot base national budgeting on uncertain dividend promises.” An implementation committee has been constituted to oversee execution, with officials expecting the effects to be reflected in upcoming FAAC allocations.
