Tinubu’s oil revenue directive set to deepen fiscal federalism, empower states

President Bola Ahmed Tinubu’s executive order mandating direct remittance of oil and gas revenues into the Federation Account is being described by presidency insiders as a defining moment for Nigeria’s fiscal federalism, with significant implications for states and local governments.

According to senior Aso Rock sources, the directive is more than an administrative adjustment; it is a structural correction designed to strengthen the revenue base shared monthly by the three tiers of government.

“This reform reinforces the principle that oil wealth belongs to the Federation as a whole,” a presidency official said. “By ensuring that all eligible revenues first enter the Federation Account, the President has strengthened fiscal federalism.”

Read also: Tinubu’s executive order and the test of fiscal transparency

Redirecting revenue to the federation account

The executive order requires 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.

Under the implementation framework of the Petroleum Industry Act (PIA), only 40 percent of PSC profit oil was previously remitted into the Federation Account. The remaining 60 percent was retained by the Nigerian National Petroleum Company Limited (NNPC), split between a 30 percent Frontier Exploration Fund and a 30 percent management fee.

Financial records submitted to the Federation Account Allocation Committee (FAAC) in 2025 show that revenue streams affected by the new directive total approximately N14.57 trillion.

Presidency sources stress that while oil price fluctuations will influence final outcomes, the structural change ensures that the Federation Account now reflects fuller revenue inflows.

Boost for subnational governments

For state and local governments, whose fiscal stability depends heavily on FAAC allocations, the reform is expected to improve predictability and financial planning.

“States have faced mounting pressures,” an Aso Rock adviser noted. “When revenues are reduced before reaching the Federation Account, allocations shrink. This directive restores equity.”

Analysts within government circles say stronger remittance discipline could reduce reliance on overdrafts and short-term borrowing at the subnational level.

“With improved inflows, governors can better plan for infrastructure, healthcare, education and security,” a financial official familiar with FAAC proceedings explained. “Predictability is key to development.”

Correcting structural revenue diversion

Presidency officials argue that the post-PIA retention regime effectively diverted substantial revenue away from the Federation before distribution.

“When 60 percent of a major revenue stream does not first enter the Federation Account, the three tiers of government lose transparency and control,” one senior source said. “The President has closed that loophole.”

Legal advisers within government maintain that Section 162 of the Constitution requires revenues due to the Federation to be paid into the Federation Account before any deductions.

“The executive order restores constitutional sequencing,” a presidency source stated. “Remittance first. Allocation later.”

Frontier exploration and fiscal balance

The removal of the 30 percent Frontier Exploration Fund retention has attracted attention, particularly given its aim of financing hydrocarbon exploration in basins such as Chad, Sokoto and Bida.

Presidency sources emphasize that exploration remains strategically important but should be funded transparently through budgetary processes rather than automatic deductions.

“No one is abandoning exploration,” an adviser clarified. “But funding must align with fiscal federalism principles and public finance laws.”

Government insiders suggest future exploration initiatives will be integrated into broader national development frameworks and subject to legislative oversight.

Ending automatic management fees

The directive also eliminates the automatic 30 percent management fee previously retained by NNPC on profit oil and profit gas.

FAAC records for 2025 show that management fees mirrored frontier deductions, together amounting to roughly N906.91 billion.

Presidency officials argue that removing these deductions protects Federation revenue while reinforcing NNPC’s commercial identity.

“NNPC is a commercial entity,” one official said. “But it cannot retain sovereign revenue before the Federation receives its entitlement.”

Enhancing transparency, accountability

The executive order further mandates that gas flare penalties collected by the Nigerian Upstream Petroleum Regulatory Commission be paid directly into the Federation Account.

Additionally, expenditures from the Midstream and Downstream Gas Infrastructure Fund must comply strictly with procurement and public finance regulations.

“These measures eliminate overlapping funds and fragmented oversight,” a presidency source explained. “Transparency strengthens fiscal federalism.”

Read also: Tinubu to amend PIA after revenue Executive Order – Senate

A turning point in revenue governance

Presidency insiders describe the reform as consistent with Tinubu’s broader governance philosophy.

“Oil and gas revenues must serve Nigerians first,” a senior Aso Rock official said. “This directive ensures that resources meant for national development are not trapped in complex retention structures.”

With implementation reportedly underway, the impact is expected to be reflected in upcoming FAAC allocations. Financial analysts within the Ministry of Finance project that enhanced remittance flows could ease fiscal strain across the federation.

“Subnational governments are likely to see improvements in their monthly shares,” an official familiar with revenue projections noted. “That stability will ripple across local economies.”

Observers acknowledge that implementing such reforms in a politically sensitive sector requires resolve.

“This decision was not taken lightly,” a presidency official remarked. “But leadership demands action when structural weaknesses threaten national revenue.”

Tinubu has also announced plans for a comprehensive review of the PIA to address broader fiscal and structural concerns.

As the implementation committee begins its work, presidency officials remain confident the directive marks a new era of fiscal discipline.

“Nigeria can no longer afford revenue distortions in its primary income sector,” a senior Aso Rock source concluded. “By strengthening the Federation Account, the President has empowered states, protected national wealth, and reinforced fiscal federalism.”

With years of experience in Nigerian journalism, Iniobong Iwok has built a reputation for deep political insight, compelling storytelling, and consistent, fact-driven reporting.

Over the years, he has gained extensive experience reporting and writing incisive political analysis. Iniobong has interviewed key political figures across Nigeria and covered major national events, including the 2019 and 2023 general elections.

A versatile journalist, he also has strong experience in education reporting and sector analysis. His work reflects a deep commitment to good governance and public accountability.

Iniobong holds a B.Sc. in Sociology from the University of Ilorin and an M.Sc. in Sociology (Development Specialisation) from Lagos State University.

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