Follow Us on Google
A professor of Economics and senior fellow with Agora Policy, Prof. Babajide Fowowe, has that the implementation of Nigeria’s Petroleum Industry Act (PIA) has resulted in an unexpected predicament, which is that while the Nigerian National Petroleum Company Limited (NNPCL) has seen a surge in revenues, the federation has faced a stark decline.
He said the disparity demands urgent reforms to realign revenue streams and bolster the federation’s financial standing.
He recalled that on August 16, 2021, former President Muhammadu Buhari enacted the PIA, marking the culmination of a protracted 21-year effort to reform the nation’s petroleum sector.
“Initially celebrated as a potential remedy to Nigeria’s struggle with the resource curse, the PIA was anticipated to attract significant investment, improve the regulatory landscape, and enhance revenue for the federation.
“However, the reality has fallen short of expectations. In practice, the federation has experienced a dramatic drop in revenue from petroleum, not merely due to fluctuations in oil production or pricing.
“Confusion and conflicting regulatory signals have stifled the operating environment, leading to a troubling exodus of international oil companies (IOCs),” he said.
The don added that despite the legislative triumph, the intricacies of the PIA’s implementation were overshadowed by initial euphoria.
He noted that President Bola Tinubu has recognised the urgency of the situation, signing three Executive Orders aimed at rejuvenating investment and improving the regulatory framework.
“Effective from February 28, 2024, these orders are designed to enhance Nigeria’s competitiveness in the global petroleum marke. However, the pressing issue of declining revenue must also be addressed. Evidence from the first two years of the PIA’s implementation reveals a staggering decrease in Federation revenue, particularly from Joint Ventures (JVs) and Production Sharing Contracts (PSCs),” he said.
“Under the current arrangement, the NNPCL has taken ownership of the Federation’s equity holdings in JV assets, resulting in significantly lower dividends—down from $11.9 billion in 2021 to just $1.83 billion in 2023. The NNPCL’s interpretation of the PIA has also led to the deduction of 60% of profit oil and gas from PSCs, further constraining the Federation’s earnings.
Fowowe noted that the current framework presents a challenging paradox: while the NNPCL has reaped substantial profits, the Federation, as the rightful owner of these assets, is left with a mere fraction of the benefits.
The inequitable distribution, he added, raises questions about the sustainability and fairness of the existing arrangements.
In light of these challenges, he said it is imperative for stakeholders to reevaluate the PIA and explore amendments that will restore balance to the revenue-sharing model.
“Such reforms are crucial not only for enhancing the Federation’s financial health but also for ensuring a more equitable distribution of Nigeria’s vast petroleum wealth. The time for action is now; with decisive reforms, Nigeria can harness its resources effectively and secure a prosperous future for all its citizens”, he added.
