The Nigerian National Petroleum Company (NNPC) Limited has significantly increased its share of crude oil and gas profits, slashing the dividends paid to Nigeria’s federation account from $11.9 billion to $1.83 billion since the full implementation of the Petroleum Industry Act (PIA). This steep decline in revenue is highlighted in the latest Agora Policy Report, which analyzed the impact of the PIA from its inception in 2021 through 2023.
The report, titled “Urgent Need to Amend the PIA to Boost Federation’s Petroleum Revenue,” calls for a review of the Act, arguing that it reduces government income while granting NNPC a much larger portion of the profits from oil and gas sales.
NNPC Retains Majority of Oil and Gas Profits
The PIA gives NNPC significant control over the country’s joint venture (JV) oil and gas assets. Section 54 (1) of the Act not only places NNPC in charge of managing these assets but also gives it sole ownership. The report emphasizes that NNPC now retains 60% of the profits from Production Sharing Contracts (PSCs), deducting 30% for management fees and another 30% for the frontier exploration fund. This leaves the Federation with just 40%, and in some cases, no remittance at all.
The report questions why the Federation, as the asset owner, is left with such a small share, while NNPC’s portion has increased significantly under the PIA.
Revenue from Oil Sales Declines Sharply
The PIA has also contributed to a sharp drop in oil and gas revenue remitted to the federal government. According to the report, crude oil and gas sales through NNPC have seen significant declines since the Act’s implementation. In 2021, before the PIA, Nigeria’s share of oil sales through NNPC stood at $11.308 billion, representing 74.43% of the total $15.192 billion sales value. By 2023, this dropped to $2.328 billion, or just 14.14% of the total $16.467 billion sales.
In contrast, NNPC’s share grew substantially, reaching $11.348 billion, or 68.91% of total sales in 2023. This increase occurred despite an 8.39% rise in the value of crude oil sold by NNPC between 2021 and 2023. The report underscores the stark reality: while NNPC’s revenue rose, the Federation’s entitlement plummeted by 79% over the same period.
The Agora Policy Report highlights key flaws in the PIA and calls for urgent reforms. It argues that instead of increasing the Federation’s share of petroleum revenue, the Act has had the opposite effect, cutting into government earnings. The report recommends amending the interpretation of certain sections of the PIA that have allowed NNPC to dominate revenue sharing, including:
– Revising Section 54 (1), which gives NNPC control over the Federation’s JV assets.
– Addressing Sections 9 (4) and 64 (c), which permit NNPC to retain 60% of profits, significantly reducing the Federation’s earnings.
