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Dividends from the Nigerian National Petroleum Company Limited to the federation account have significantly decreased from $11.9 billion to $1.83 billion after the full implementation of the Petroleum Industry Act.
This substantial decline is emphasised in the latest Agora Policy Report, which analyses the PIA's effect on the federation's revenue from 2021, the year the act was enacted, to 2023.
The report underscores concerns regarding the effectiveness of the PIA in bolstering the nation’s oil and gas revenue amidst ongoing industry challenges.
The report, titled, 'Urgent Need to Amend the PIA to Boost Federation’s Petroleum Revenue,' argues for a review of the widely acclaimed Industry Act, highlighting that it now reduces government revenue while allowing the NNPC to take the largest share.
The publication highlights that Sub-section 54 (1) of the PIA enhances the Nigerian National Petroleum Company’s (NNPC) managerial authority over the country’s joint venture (JV) oil and gas assets, granting it sole ownership of these assets.
The report indicates that with the implementation of the PIA, NNPC has been deducting 60% of profit of oil and gas from Production Sharing Contracts.
According to the publication, NNPC’s interpretation of Sub-sections 9 (4) and 64 (c) of the PIA has resulted in a 30% deduction for a management fee and an additional 30% for the frontier exploration fund, leaving the federation with only 40% of the profits.
The report further highlights that similar to joint venture dividends, there have been several months where NNPCL did not remit the remaining 40%.
It questions why the federation, as the asset owner, receives only 40% of the profits, and in some cases, nothing at all, raising concerns about the transparency and fairness of revenue distribution under the new framework.
The report notes that in addition to the dividends from the sale of crude oil and gas through joint venture (JV) assets, overall revenue remitted to the federal government has significantly declined due to the stipulations of the Petroleum Industry Act (PIA).
The publication reveals that crude oil and gas sales through the NNPC are among the key revenue streams adversely affected by these changes, further exacerbating concerns about the Act’s impact on national revenue generation.
The report indicates that in 2021, before the implementation of the Petroleum Industry Act (PIA), the federation’s share from crude oil sales through the NNPC totaled $11.308 billion, accounting for 74.43% of the total sales value of $15.192 billion.
However, by 2023, this share had dramatically decreased to $2.328 billion, representing just 14.14% of the total sales value of $16.467 billion.
The publication highlights that in 2023, the largest portion of crude oil sales—$11.348 billion, or 68.91%—was allocated to NNPC, underscoring significant shifts in revenue distribution following the PIA’s implementation.
The analysis emphasises that this shift in revenue distribution occurred despite an 8.39% increase in the value of crude oil sold by NNPC in 2023, which totaled $16.467 billion compared to $15.192 billion in 2021.
This paradoxical situation resulted in a staggering 79% decline in the federation’s entitlement, dropping from $11.308 billion in 2021 to just $2.328 billion in 2023.
The publication highlights critical flaws in the Petroleum Industry Act (PIA), revealing an unexpected outcome: rather than increasing the federation’s revenue from the petroleum sector, the Act has resulted in a significant decline.
This downturn is primarily attributed to the interpretation of certain sections of the PIA, which has allowed NNPCL to claim a larger share of the oil and gas revenue, consequently reducing the federation’s portion.
