Oil Belongs To The Federation, Not The Operator

By Enam Obiosio

I have watched Nigeria’s oil story long enough to recognise a familiar pattern. Whenever production rises and prices cooperate, revenues somehow fail to follow. The explanation is rarely geology and almost never markets. It is usually accounting architecture. Money is earned nationally but retained institutionally.

So, when President Bola Tinubu signed an Executive Order suspending the Nigerian National Petroleum Company Limited’s management and frontier exploration fees and directing full remittance of oil and gas revenues into the Federation Account, I did not see a technical adjustment. I saw a confrontation with a structural habit.

Nigeria’s oil sector has always struggled less with earning money than with agreeing where the money lives.

For decades, the national debate revolved around production volumes, pipelines, theft and price cycles. Yet the more important issue sat quietly inside fiscal plumbing. The state owned the resource, but the operating structure behaved as if ownership and custody were negotiable concepts. The operator collected, deducted, netted and transferred. Each step was legal in isolation and distortive in combination.

The Executive Order attempts to collapse that ambiguity. The finance ministry explained that the directive aims to realign oil revenue flows with constitutional provisions and prevent deductions at source. In simple terms, the Federation must receive gross revenues first before anyone explains expenses.

That principle sounds obvious until one remembers Nigeria’s historical arrangement, where revenue arrived already interpreted. The state received what remained after internal calculations. The new order reverses the sequence. The government now receives first and debates costs later.

I consider this less a fiscal reform than a philosophical correction.

The 1999 Constitution is unambiguous. Mineral resources belong to the Federation, and revenues derived from them must enter the Federation Account. Over time, administrative practices evolved into parallel fiscal channels. Commercialisation of the national oil company under the Petroleum Industry Act deepened this separation. A company designed to operate commercially gradually became a fiscal gatekeeper.

The consequence was predictable. Production improved, markets strengthened, yet Federation inflows weakened. When outcomes contradict conditions, systems deserve scrutiny.

The finance ministry admitted as much, noting that declining inflows despite favourable production and prices constrained government capacity to fund education, healthcare and infrastructure. I find that sentence revealing. Nigeria’s fiscal problem was not merely insufficient earnings but insufficient transmission.

Oil revenue existed before the budget saw it.

Suspending management and frontier exploration fees therefore matters beyond accounting detail. Those deductions symbolised a broader doctrine, that the operator could determine what portion of national revenue was distributable. I have always believed this inversion created a quiet constitutional tension. A commercial entity was effectively performing pre-appropriation decisions.

The Executive Order reasserts a hierarchy. The federation owns the resource, receives the proceeds and then decides how costs are recognised.

Critics will say this weakens the commercial autonomy of the national oil company. They will argue that a company competing globally requires operational flexibility, cost recovery clarity and predictable funding streams. I understand that concern. A commercial entity cannot function as a ministry ledger.

But autonomy without fiscal clarity is not commercial discipline. It is discretionary accounting.

The numbers themselves justify intervention. The company generated N60.5 trillion in revenue in 2025, posted N5.76 trillion profit after tax and remitted N14.706 trillion in statutory payments. Those figures suggest profitability coexisted with persistent questions about net public benefit. The state was earning, yet still uncertain about earnings.

The order also halts payments of gas flare penalties into the Midstream Gas Infrastructure Fund and clarifies regulatory responsibilities between upstream and midstream authorities. I interpret these steps as an attempt to simplify a layered structure that accumulated too many fiscal pathways. Each pathway individually logical, collectively opaque.

Nigeria’s oil sector has rarely suffered from absence of law. It suffers from abundance of overlapping logic.

By establishing an inter-agency implementation committee chaired by the finance minister, the government acknowledges enforcement will be harder than announcement. Fiscal habits resist administrative correction. Institutions adapt faster than systems reform. I expect friction, because this directive challenges not only procedures but expectations built over years.

The most important element is the order’s interim status pending legislative amendment. That admission is crucial. Executive directives can correct behaviour temporarily, but durable fiscal credibility requires statutory certainty. Investors, subnational governments and citizens all need assurance that revenue rules do not depend on political tenure.

If the reform stops at executive instruction, uncertainty will persist. If it becomes law, Nigeria’s fiscal architecture changes fundamentally.

I believe the deeper issue is trust. Nigeria’s fiscal federalism depends on predictable inflows into the Federation Account. States plan budgets based on expected distributions. When revenues arrive after internal deductions, planning becomes speculation. The centre debates production while states debate solvency.

Direct remittance restores a common accounting reality. Everyone argues about the same number.

There is also a macroeconomic implication. Nigeria’s external stability and domestic investment climate both rely on confidence in public finance transparency. Investors tolerate policy risk more easily than accounting ambiguity. They can price taxes, royalties and exchange rates. They struggle to price uncertainty about where national revenue ultimately resides.

By asserting that revenues must enter the Federation Account before allocation, the government simplifies the sovereign balance sheet. Markets interpret clarity as discipline even before outcomes improve.

Still, I remain cautious. A reform that redirects flows without improving spending discipline only relocates the problem. Fiscal transparency must lead to fiscal responsibility. If revenues become clearer but expenditures remain inefficient, credibility gains evaporate quickly.

This order therefore creates opportunity rather than achievement. Nigeria can now measure its oil earnings accurately. What it does with that accuracy determines whether reform succeeds.

I also note the timing. The administration earlier introduced cost efficiency incentives for upstream operators. Now it tightens revenue remittance. One policy reduces production cost, the other protects public share. Together they suggest a broader strategy, encourage efficiency, then secure proceeds.

If implemented consistently, that sequence could rebuild fiscal trust domestically and externally.

But consistency is Nigeria’s historical challenge. Reforms often begin decisively and fade administratively. The oil sector in particular has survived decades of partial corrections. Each government addresses a symptom. Few address the accounting logic that generates the symptoms.

This Executive Order approaches that logic directly. It says the operator cannot decide distributable revenue before the owner receives revenue. That is a foundational change. I consider it overdue.

Nigeria’s oil has long financed government but rarely clarified governance. We debated volumes and theft while ignoring structure. We measured barrels more carefully than balance sheets. The result was a nation perpetually unsure whether abundance translated into benefit.

Direct remittance will not solve every fiscal problem. It will not eliminate waste, corruption or political pressure. But it removes a major ambiguity, the difference between revenue earned and revenue seen. A country cannot manage what it cannot clearly observe.

I therefore support the direction while reserving judgement on execution. The principle is sound. The durability depends on legislation, enforcement and spending discipline. Reform is not declared when an order is signed. Reform is proven when behaviour persists after attention fades.

Nigeria has corrected a pipeline in its fiscal architecture. Now it must prove the pipeline carries accountability as reliably as it carries oil.