Tinubu’s NNPC order cuts deductions to N8.4tn – W’Bank

Executive Order 9 changed where important petroleum revenues went before they could be shared. The order aimed to increase the money reaching the Federation Account, which is distributed among the Federal Government, states and local governments.

Before the order, NNPC Limited deducted a 30 per cent management fee and a 30 per cent Frontier Exploration Fund allocation from profit oil and profit gas under specified contracts. Gas-flaring penalties also went to the Midstream and Downstream Gas Infrastructure Fund. The order ended those NNPC deductions and redirected the penalties to the Federation Account.

The change helped reduce total deductions from N10.1tn in the first half of 2025 to N8.4tn in the same period of 2026. Distributed Federation Account revenue consequently increased from N7.6tn to N10.5tn. However, the reform raises questions about how affected funds and agencies will finance their statutory responsibilities.

Federation Account deductions are amounts taken from, retained within, or redirected away from petroleum revenues before those revenues are distributed. They matter because every naira deducted is not immediately available to the Federal Government, states and local governments through the Federation Account.

The article gives several examples. NNPC Limited previously deducted a 30 per cent management fee and a 30 per cent Frontier Exploration Fund allocation from profit oil and profit gas under specified contracts. Gas-flaring penalties also went to the Midstream and Downstream Gas Infrastructure Fund. These arrangements reduced the revenue entering the distributable pool.

In the first half of 2026, total deductions fell to N8.4tn, from N10.1tn a year earlier. The World Bank linked the reduction partly to Executive Order 9 and lower refunds to subnational governments. Distributed revenues then rose to N10.5tn, although gross revenues increased only modestly.

The reduction was substantial: total Federation Account deductions dropped from N10.1tn in the first half of 2025 to N8.4tn in the first half of 2026. That was a decrease of N1.7tn, equal to 16.8 per cent year-on-year. Deductions also fell from 4.6 per cent to 3.4 per cent of GDP.

At the same time, distributed Federation Account revenue increased from N7.6tn to N10.5tn. The gain was N2.9tn, or 38.2 per cent. Its share of GDP rose from 3.5 per cent to 4.2 per cent.

The figures show that distribution improved much faster than gross revenue. Gross Federation Account revenues rose only N1.2tn, from N17.7tn to N18.9tn. This contrast highlights how reducing deductions can significantly enlarge the distributable amount without a similar rise in total collections.

Gross Federation Account revenue is the money collected before deductions and other reductions. Distributed revenue is the amount left for allocation among the Federal Government, states and local governments. Therefore, distribution can rise sharply when deductions fall, even if total collections increase only slightly.

The article provides a clear example. Gross revenue rose from N17.7tn in the first half of 2025 to N18.9tn in the first half of 2026, a 6.8 per cent increase. But deductions fell from N10.1tn to N8.4tn. The N1.7tn reduction left more revenue available for sharing.

As a result, distributed revenue climbed from N7.6tn to N10.5tn, a 38.2 per cent increase. Executive Order 9 helped by ending specified NNPC deductions and redirecting gas-flaring penalties. The additional funds could support public services, though affected agencies may face funding questions.

Under the Petroleum Industry Act 2021, NNPC Limited was entitled to a 30 per cent management fee on profit oil and profit gas from specified production-sharing, profit-sharing and risk-service contracts. This deduction was intended to cover NNPC Limited’s management role under those petroleum arrangements.

The framework also provided a 30 per cent allocation of profit oil and profit gas to the Frontier Exploration Fund. That fund was meant to support frontier exploration, according to the purpose indicated by its name and the article’s description of the arrangement. Both claims reduced what reached the Federation Account.

Executive Order 9, signed on February 13, 2026, ended these specified deductions. The reform sought to increase transparency and improve the funds available to the three tiers of government. It also created a financing question: affected agencies and funds may need new ways to meet their statutory responsibilities.

Before Executive Order 9, gas-flaring penalties were paid into the Midstream and Downstream Gas Infrastructure Fund. The fund was intended to support gas infrastructure development. Because those penalties did not go directly into the Federation Account, they were unavailable for immediate distribution among the three tiers of government.

The order changed the destination. Gas-flaring penalties must now be redirected to the Federation Account, alongside the specified petroleum revenues previously subject to NNPC Limited deductions. This increases the pool that can be distributed to the Federal Government, states and local governments.

The trade-off is funding. The article says the reform raises questions about how affected agencies and funds will finance their statutory responsibilities under the new arrangements. In particular, the gas infrastructure fund may have less direct penalty revenue for development projects. The change therefore improves distributable revenue while creating pressure to clarify replacement funding.

The Federation Account is the central pool for revenue distributed among Nigeria’s Federal Government, states and local governments. The article identifies petroleum revenue as an important source and shows that the account also receives amounts such as redirected gas-flaring penalties and specified contractor payments. Its size affects the resources available to all three tiers.

Before distribution, some revenues were retained or sent elsewhere. NNPC Limited took specified deductions, while gas-flaring penalties went to a gas infrastructure fund. Executive Order 9 directed relevant petroleum contractors to pay royalties, tax oil and profit oil directly into the Federation Account, and moved the penalties there too.

This system means changes in collection and deductions affect every tier’s funding. Distributed revenue rose from N7.6tn to N10.5tn between the first halves of 2025 and 2026. The additional money could support infrastructure, education, healthcare and security, although funding responsibilities for affected agencies remain a concern.