The Overdue Corrective Measures on the PIA

Postscript by Waziri Adio

President Bola Tinubu deserves all the accolades he is getting for starting the process of curing some of the defects of the Petroleum Industry Act (PIA) of 2021. The omnibus petroleum law remains a landmark piece of legislation and a major legacy of the President Muhammadu Buhari administration. But the PIA has gaps which should not be unexpected for a law that took more than 20 years to get over the line and for a bulky legislation with 319 sections and eight schedules. However, some of these gaps are too significant to be glossed over. The president has earned his stripes for having the stomach to go ahead with the corrective measures outlined in the executive order unveiled last week. He should stay the course and even go farther.

It is a miracle that some of the defects of the PIA were allowed to stand for this long: they are at odds with the constitution, the highest law of the land, and they unduly favour the national oil company, NNPC Limited, at the expense of its owner, the Federation. Pre-PIA, the relationship between the Federation and its oil corporation was bedevilled by a pronounced principal-agent problem. The agent could easily be mistaken for the principal. For all its strengths, the PIA did little to address this problem. Rather, the law further complicated the challenge by handing massive material advantage to the agent.  Post-PIA, the agent effectively upstaged the principal.

NNPC Limited was envisioned as a business that would run on purely commercial principles and make money for the Federation, which currently owns 100% of the company. Among others, two critical measures were put in place to facilitate the transition of the corporation to a viable commercial entity. One, the joint venture assets belonging to the Federation were transferred to the company for it to use as its working capital and, in return, pay 80% of its profit as dividend to the Federation while retaining 20%. This means that the company would have covered all its costs (as profit is total revenue minus total cost), and it would still be allowed to keep a fifth of the profit.

A second provision was layered unto the first. NNPC Limited was granted 30% of the profit oil from the Production Sharing Contracts (PSCs) as its management fee. This 30% is just for serving as the concessionaire, a fancy name for overseeing the contractors operating the PSCs. This should not be confused with the fee for operating the PSCs. This 30% management fee is the most egregious thing ever, without parallel or antecedent, and totally untenable. But it is important that we do not get ahead of ourselves. Another 30% of the PSC profit oil would be set aside for the Frontier Exploration Fund (FEF) to be managed by the upstream regulator but available for NNPC Limited to use for exploration in frontier basins. Shortly, we will look at the actual numbers for 2025 and the constitutionality of the combined 60% for management fee and frontier exploration. But suffice to say that by this curious arrangement only 40% of PSC profit oil gets to the Federation Account, the holding account to which all revenue belonging to the Federation should, according to the constitution, be paid into.

These two provisions introduced by the PIA fundamentally altered the fiscal relationship between the Federation and the entity overseeing its interests in the oil and gas sector. Pre-PIA, the Federation received its full share of the profit oil and gas from PSCs. Post-PIA, the Federation’s share of PSC profit oil diminished to 40%. Pre-PIA, the Federation used to pay for its share of the costs of the operation of the Joint Ventures (JVs) through annual cash calls in return for a commensurate share of oil and gas produced from the JVs. This was called Federation oil and gas from JVs, which would then be divided into Federation Export and Domestic Crude Allocation (DCA). Even with all the games that the previous NNPC used to play with covering its costs and deductions for sundry purposes, the net revenue from the sale of crude oil and gas used to be the highest revenue stream to the Federation from NNPC. Post-PIA, revenue to the Federation from the sale of crude oil and gas virtually disappeared. It was meant to be replaced with dividend paid by NNPC Limited to the Federation.

There is a strong suspicion that NNPC sponsored the final version of the Petroleum Industry Bill (PIB) that was passed and that gave it the cover to take good care of its interests. It is also possible the dividend model was sold as a better alternative for the Federation. It could have been argued that the national oil company would save the Federation the stress of looking for how to pay cash calls and would still make much more money for the Federation. It is possible that the examples of Saudi ARAMCO and other well-run national oil companies were thrown in to make the argument more persuasive. But the logical thing would have been to ask for them to run the numbers to be sure and to also try to find out if there would be an initial shortfall and if so, for how long. I am not sure such questions were asked or that even any arguments were made. If that were the case, this would be another reason to stop making policies on a whim. It is possible though that everyone was just fatigued and just wanted the jinx around the PIB to be broken, and some smart people managed to cash in on the occasion.

But the combined effect of the dividend arrangement and the management fee is the gouging of Federation revenue from the sector. NNPC Limited and others would like to point to oil theft and diminished oil production as the sole reasons why oil revenue practically dried up post-2021, even with the boon of high oil prices from the Russia-Ukraine War. Oil theft and low oil production definitely have played a part. But the real culprit is the PIA-authorised expropriation of Federation’s oil and gas revenue by the national oil company. That dividend arrangement, which even many senior government officials are yet to catch up on, is the main vehicle for expropriation and is deeply implicated in the historic underperformance of the oil and gas sector in terms of share of government revenue and forex inflow. Anyone with scant familiarity with the DNA of the national oil corporation/company would know that such an arrangement could only end in tears and for only one party—the Federation.

It did not take long before this anomaly started becoming evident. In October 2024, Agora Policy called for a review of the dividend policy in a Policy Memo titled “Urgent Need to Amend the PIA to Boost Federation’s Petroleum Revenue” (the paper can be accessed here: https://agorapolicy.org/research/policy-note/193-urgent-need-to-amend-the-pia-to-boost-federations-petroleum-revenue.html). Written by Babajide Fowowe, a professor of economics who was my technical adviser when I was the head of NEITI, the paper showed that the Federation received about 85% less revenue from the sale of crude oil and gas in 2023 than in 2021. It should be noted that the Federation revenue for 2023 included dividend that replaced revenue from sale of oil and gas and that the drastic fall in Federation revenue was despite a marginal increase in overall oil and gas revenue in 2023 over 2021. What happened was a direct transfer of value from the Federation to the national oil company. It is also worth noting that 2021 and 2023 were used for the analysis because they represent the full years before and after the implantation of the PIA.

It could not have been otherwise. As a corporation, NNPC was bloated, and the group was dominated by loss-making subsidiaries, including refineries that could not boast of any activity in the past decade. This bloated structure was carried intact into the post-PIA era. One of the compromises written into the PIA was that no single worker would lose their job. Even with change in logos and names, the organisation is still the same, the addition of limited to its name notwithstanding. While NNPC the corporation could cover its hollowness with cleverly-disguised costs, dodgy divestments to NPDC (its upstream arm) and questionable deductions from the allocation for domestic consumption, the net revenue from Federation Export was protected from its machinations, which would hit the Federation Account, and additionally boost forex inflow. The net revenue from domestic crude allocation (after deductions for security, pipeline repairs and maintenance, oil theft and petrol subsidy) also managed to make it to the Federation Account. Basically, the corporation had a limited even if not-well-policed room for its routine magic. But NNPC the company (the successor to the corporation) was practically handed a carte blanche through the dividend policy of the PIA. It boggles the mind that anyone could agree to a dividend policy with an organisation with the history of NNPC without having iron-cast guardrails in place.

Recent data underscores the wrongheadedness of that policy. In 2025, NNPC Limited pledged to pay N271 billion monthly as interim dividend to the Federation, amounting to N3.25 trillion for the year. I doubt this is commensurate with what the Federation would have received as net revenue from the sale of crude oil and gas. But that is not the point. The point is that NNPC Limited did not pay a shining shishi to the Federation as dividend in 2025. Let me restate that: out of the expected N3.25 trillion, no amount was paid, and no explanation was made by the national oil company. The Federation bartered revenue from the sale of crude oil and gas, its highest revenue source from the sector in many years, for the promise of something presumably better and got absolutely nothing in 2025. Is that not amazing?

Post-PIA, two revenue streams are recorded for NNPC Limited in the documents of the Federation Account Allocation Committee (FAAC): dividend and 40% of PSC profit oil and gas. This point needs to be stressed because NNPC Limited amuses itself with a monthly report of humongous contributions it is making, a publication that is a sorry shadow of the comprehensive and disaggregated monthly operational and financial report that the same organisation used to publish when it was a corporation. You already know that dividend came in as a fat zero in 2025. The total for PSC profit oil in 2025 was N1.51 trillion. Out of this, only N604 billion or 40% hit the Federation Account while NNPC Limited retained N453 billion as its 30% management fee and another N453 billion was kept for FEF. This means that a total of N907 billion or 60% did not make it to the Federation Account.

There are many things wrong here. One, there is absolutely no justification for giving the oil company any management fee after allowing it to cover its full costs and retain 20% of its profit. Two is the outrageousness of 30% as a fee for overseeing the PSC contractors. NNPCL received a cool N453 billion in one year just for doing that. And three is the constitutional breach of not remitting revenue accruing to the Federation to the Federation Account. This is a clear contravention of sections 44 and 162 of the 1999 Constitution of the Federal Republic of Nigeria (as amended). Assuming that NNPC Limited were entitled to any fee or commission, the full revenue should have been remitted first to the Federation Account from where the deduction can be made at FAAC as done for revenue-collection agencies and others with earmarks. Also, request for frontier exploration should be made to FAAC where the allocation can be made as for other expenses to be borne by the Federation. For me, it is a surprise that the states did not challenge the legality of these practices all this while. Maybe they are bidding their time or they are just picking their battles. But it is a no-brainer that these breaches could be successfully challenged at the Supreme Court.

Remarkably, the president has also ordered that all in-kind payments from PSCs and related production arrangements should be made directly by the operators to the Federation. Taxes and royalties from PSCs are paid with oil. So, tax oil should be due to the Nigeria Revenue Service (NRS, former FIRS) and royalty oil to the Nigerian Upstream Petroleum Regulatory Commission (NUPRC). But both NRS and NUPRC have no business with converting oil to money. So, NNPC Limited used to lift and sell the oil on their behalf, for a fee, and ordinarily should remit the amounts due to their designated sub-accounts with the Central Bank of Nigeria (CBN). But as with everything else with the national oil company, there were always stories, including claims of using the oil for other purposes such as paying for petrol subsidy or pledging barrels belonging to others for loans. This practice predated the PIA, and it remains problematic. So, the president’s directive has to go beyond directing the payment of tax oil, royalty oil and profit oil directly to the Federation. This takes you back to keeping your yam with the NNPC goat. The Federation cannot sell oil by itself. The neat way to deal with this is to stop all in-kind payments. Taxes and royalties for JVs are paid in dollars. The president should direct the same for PSCs and similar arrangements. In-kind payment for PSCs is not a universal thing.

There are many other things to do, including ensuring that NNPC Limited does not devise a smart way of re-routing the untenable management fee as part of its costs or pledging future revenue for loans. It is gratifying that the president has promised a comprehensive review of the PIA as well as restricting the national oil company to its commercial mandate. Allowing the company to posture as Nigeria’s saviour and the go-to source for off-budget expenditures enables all sorts of malfeasance. Anyone who understands the political economy of oil revenue in Nigeria and the place of the national oil company in it would not but marvel that Tinubu would take this necessary but bold step a year to a general election. On this issue, he and his technical team have my commendation. I think it is also strategic that he went for an executive order as the first step. With the amount at play, no one should be under any illusion of what would have become of a straight move to amend the PIA even in the most pliant of parliaments. Now that the president has shown his hand and made his case and used the safest option available to him, the rest is likely to be easier.  He should not stop at half measures.