The dividends from Nigerian National Petroleum Company (NNPC) Limited to the federation account, derived from crude oil and gas sales through joint venture assets, dropped sharply from $11.9 billion to $1.83 billion after the full implementation of the Petroleum Industry Act (PIA).
This is detailed in a recent publication of the Agora Policy Report, which analyzes the impact of the Petroleum Industry Act (PIA) on the federation’s revenue from 2021, the year the PIA was enacted, to 2023.
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 not only grants the NNPC a greater managerial role over the country’s JV oil and gas assets but also gives it sole ownership of these assets.
NNPC Retains 60% of Oil and Gas Profits
The report highlights that with the implementation of the PIA, NNPC has been deducting 60% of profit oil and gas from Production Sharing Contracts (PSCs).
- According to the publication, NNPC’s interpretation of Sub-sections 9 (4) and 64 (c) of the PIA has led to deductions of 30% for a management fee and another 30% for the frontier exploration fund, leaving the Federation with the remaining 40%.
- The report further notes that, like JV dividends, there were several months when NNPCL did not remit the 40% balance.
- The publication also questions why the Federation, as the asset owner, receives only 40% of the profits, and in some instances, nothing at all.
Oil and Gas Revenue Declines Following PIA Implementation
The report notes that, beyond the dividends from the sale of crude oil and gas through JV assets to the federation account, the revenue from oil and gas remitted to the federal government has significantly declined due to the stipulations of the PIA.
The publication reveals that crude oil and gas sales through the NNPC are among the affected revenue streams.
- The report indicates that in 2021, prior to the PIA, the Federation’s share from crude oil sales through NNPC totalled $11.308 billion, representing 74.43% of the total sales value of $15.192 billion. The finding further notes that by 2023, after the PIA’s implementation, the Federation’s share from crude oil sales through NNPC dropped to $2.328 billion, or 14.14% of the total sales value of $16.467 billion. The publication highlights that in 2023, the largest share of crude oil sales—$11.348 billion, or 68.91%—went to NNPC.
- The analysis emphasizes that this shift occurred despite an 8.39% increase in the value of crude oil sold by NNPC in 2023 ($16.467 billion) compared to 2021 ($15.192 billion), leading to a 79% decline in the Federation’s entitlement, from $11.308 billion in 2021 to $2.328 billion in 2023.
Recommendations
Lastly, the publication shines a spotlight on key flaws in the PIA, highlighting a surprising outcome: instead of boosting the Federation’s revenue from the petroleum sector, the Act has led to a significant decline.
This downturn is mainly due to how certain sections of the PIA have been interpreted, giving NNPCL a larger slice of the oil and gas revenue pie, and leaving the Federation with a smaller share.
As a result, the promise of greater benefits from the petroleum sector has fallen short. To turn this around, the publication suggests revisiting two critical aspects of the PIA:
- Revising the interpretation of Sub-section 54 (1), which allowed NNPCL to take control of the Federation’s JV assets.
- Addressing the interpretation of Sub-sections 9 (4) and 64 (c), which has enabled NNPCL to retain 30% of profit oil and gas for management fees and another 30% for the frontier exploration fund, effectively cutting into the Federation’s earnings.
