President Bola Ahmed Tinubu's executive order mandating the direct remittance of oil and gas revenues to the federation account is being described by presidential insiders as a defining moment for Nigeria's fiscal federalism, with significant implications for states and local governments.
According to senior Aso Rock sources, the directive is more than an administrative adjustment; It is a structural reform designed to strengthen the revenue base shared monthly by the three levels of government.
A presidency official said, “This reform reinforces the principle that the oil wealth belongs to the federation as a whole.” “By ensuring that all eligible revenues first enter the Federation Account, the President has strengthened fiscal federalism.”
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Redirecting Revenue to Federation Account
The Executive Order requires that royalty oil, tax oil, profit oil, profit gas and other government entitlements under production sharing contracts (PSC), profit-sharing and risk service contracts be paid directly into the Federation account.
Under the implementation framework of the Petroleum Industry Act (PIA), earlier only 40 per cent of the PSC profit oil was remitted to the Federation account. The remaining 60 percent was retained by the Nigerian National Petroleum Company Limited (NNPC), divided between 30 percent Frontier Exploration Fund and 30 percent management fee.
Financial records submitted to the Federation Account Allocation Committee (FAAC) in 2025 show that the revenue streams affected by the new directive total about N14.57 trillion.
Presidency sources stressed that oil price fluctuations will affect the final results, but the structural change ensures that the federation account now reflects full revenue flows.
promotion of sub-national governments
For state and local governments, whose financial stability largely depends on FAAC allocations, the reform is expected to improve forecasting and financial planning.
“States have faced increasing pressure,” said a consultant at Esso Rock. “When revenues are reduced before reaching the Federation account, the allocation is reduced. This directive restores equity.”
Analysts in government circles say stronger remittance discipline could reduce reliance on overdrafts and short-term borrowing at the subnational level.
“With better flows, governors can plan better for infrastructure, health care, education and security,” said a financial official familiar with FAAC proceedings. “Predictability is the key to growth.”
correcting structural revenue divergence
Presidency officials argue that the post-PIA retention arrangement effectively diverted substantial revenue from the federation before distribution.
“When 60 per cent of a major revenue stream does not first enter the federation account, the three tiers of government lose transparency and control,” a senior source said. “The President has closed that loophole.”
The government's legal advisers say that Section 162 of the Constitution requires that revenue accruing to the federation be paid into the federation's account before any deductions are made.
“The executive order restores constitutional order,” a government source said. “Dispatch first. Allocation later.”
Frontier exploration and fiscal balance
The removal of the 30 percent Frontier Exploration Fund retention has attracted attention, particularly given its purpose of funding hydrocarbon exploration in basins such as Chad, Sokoto and Bida.
Sources in the Presidency stress that exploration is strategically important but that it should be funded transparently through budgetary processes rather than through automatic cuts.
“Nobody is giving up exploration,” one consultant explained. “But funding must be consistent with fiscal federalism principles and public finance laws.”
Government insiders suggest that future exploration initiatives will be integrated into the broader national development framework and subject to legislative oversight.
Eliminate automatic management fees
The directive also eliminates the automatic 30 per cent management charge already placed by NNPC on profit oil and profit gas.
FAAC records for 2025 show that management fees reflect marginal cuts, totaling about N906.91 billion.
Presidency officials argue that the removal of these deductions protects the federation's revenues while strengthening the commercial identity of the NNPC.
“NNPC is a commercial entity,” said an official. “But it cannot retain sovereign revenue before the federation gets its due.”
Increasing transparency, accountability
The executive order further states that gas flare fines collected by the Nigerian Upstream Petroleum Regulatory Commission will be paid directly into the federation account.
Additionally, expenditure from the Midstream and Downstream Gas Infrastructure Fund must strictly adhere to procurement and public finance rules.
“These measures eliminate overlapping funds and fragmented oversight,” a presidency source said. “Transparency strengthens fiscal federalism.”
Also read: Tinubu to amend PIA after Revenue Executive Order – Senate
A turning point in revenue administration
Presidency insiders describe the reform as being in line with Tinubu's broader governance philosophy.
A senior Aso Rock official said, “Oil and gas revenues must serve Nigerians first.” “This directive ensures that resources earmarked for national development are not trapped in complex retention structures.”
Implementation is reportedly underway, its impact is expected to be visible in the upcoming FAAC allocation. Financial analysts at the Ministry of Finance estimate that the increase in remittance inflows could ease fiscal stress across the federation.
“Subnational governments are likely to see improvements in their monthly shares,” said an official familiar with the revenue projections. “That sustainability will permeate local economies.”
Observers agree that implementing such reforms in a politically sensitive area requires determination.
A presidential official commented, “This decision was not taken lightly.” “But leadership demands action when structural weaknesses threaten national revenues.”
Tinubu has also announced plans for a comprehensive review of the PIA to address broader fiscal and structural concerns.
As the Implementation Committee begins its work, presidential officials are confident that this directive marks a new era of fiscal discipline.
A senior Aso Rock source concluded, “Nigeria can no longer afford revenue distortions in its primary income sector.” “By strengthening the Federation Account, the President has empowered the states, protected national assets and strengthened fiscal federalism.”
