Tinubu’s Revenue Remittance Order Signals Shift in Fiscal Policy

The South-South Governors Forum (SSGF) has formally endorsed President Bola Tinubu’s recent Executive Order mandating the direct remittance of all oil and gas revenues to the Federation Account, describing it as a landmark intervention in Nigeria’s petroleum sector.

The decision, which fundamentally alters the financial relationship between the Nigerian National Petroleum Company Limited (NNPCL) and the three tiers of government, is being viewed as a significant step toward restoring constitutional integrity to the nation’s revenue collection mechanisms.

In a statement issued on Wednesday, the Chairman of the SSGF and Governor of Bayelsa State, Senator Douye Diri, characterized the Executive Order as a comprehensive and unambiguous move toward transparency.

The core of the order strips the NNPCL of its previous authority to make “opaque and complex” deductions before funds reach the Federation Account. For decades, the practice of deducting operational costs and other levies “at source” has been a point of contention between the federal government and sub-national entities, who argued that such structures obscured the actual revenue generated from the country’s hydrocarbon resources.

A critical component of the President’s directive is the elimination of the 30 percent Frontier Exploration Fund. Under the previous arrangement, this fund intended to finance oil exploration in inland basins was frequently criticized by fiscal analysts and regional leaders for creating “large idle cash balances” that were shielded from the standard appropriation process.

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By dismantling this deduction, the federal government aims to increase the liquidity of the Federation Account, ensuring that more funds are available for monthly distribution among federal, state, and local governments.

The new mandate requires all operators and contractors working under Production Sharing Contracts (PSCs) to remit Royalty Oil, Tax Oil, and Profit Oil directly to the Federation Account.

This shift is expected to plug significant revenue leakages that have historically plagued the sector. By bypassing the NNPCL’s internal accounting for these specific revenue streams, the administration is attempting to create a more direct line of sight for the Budget Office and the Revenue Mobilization Allocation and Fiscal Commission (RMAFC) regarding oil receipts.

Beyond the immediate fiscal changes, the SSGF expressed strong support for the President’s intention to undertake a comprehensive review of the Petroleum Industry Act (PIA).

The governors argued that the extant Act, while a significant legislative milestone when passed in 2021, contains structural flaws that pose risks to regional stability.

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Specifically, the Forum pointed to the exclusion of state and local governments from the administration of the Host Communities Development Trust as a “recipe for crisis.”

Governor Diri noted that the South-South states have persistently advocated for a review of the PIA, arguing that the current framework bypasses sub-national authorities to deal directly with communities.

The governors contend that because states and local government councils are geographically and administratively closer to these communities, their exclusion from the oversight of community funds undermines local governance.

Furthermore, the SSGF is calling for a revisit of the percentage of oil revenue allocated to host communities. During the legislative process for the PIA, many regional stakeholders proposed a 10 percent allocation, which was ultimately reduced to 3 percent in the final law.

The Forum urged the President to consider an upward review of this figure to better reflect the environmental and social costs borne by oil-producing areas.

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The economic implications of these reforms are substantial. Nigeria’s oil and gas sector remains the primary source of foreign exchange and a major contributor to the Federation Account, despite efforts to diversify the economy.

By streamlining remittances, the federal government expects to bolster the funds available for critical infrastructure, healthcare, and education across all 36 states.

This increase in available revenue is particularly vital as the country manages high inflation and a significant debt-servicing burden.

The South-South governors maintain that these policy shifts represent a move toward “fiscal justice.” They argue that a more transparent accounting of oil proceeds will allow for more predictable budgeting at the state level, particularly for those in the Niger Delta who are tasked with managing the complex ecological challenges associated with oil extraction.

As the federal government prepares to engage with the National Assembly on the proposed amendments to the PIA, the focus remains on balancing the needs of international oil companies, host communities, and the various tiers of government.

The President’s Executive Order serves as an immediate administrative fix to revenue management, while the promised legislative review aims to address the long-term structural grievances of the oil-producing regions.