The deductions from Nigeria’s Federation Account fell by N1.7tn in the first half of 2026, following the Federal Government’s move to stop certain oil revenue retentions by the Nigerian National Petroleum Company Limited and redirect gas-flaring penalties to the Federation Account.
The World Bank disclosed this in its Nigeria Development Update report analysed by our correspondent on Thursday, noting that total deductions declined from N10.1tn in the first half of 2025 to N8.4tn in the corresponding period of 2026.
The reduction represented a fall of N1.7tn, or 16.8 per cent, year-on-year. As a share of the nation’s Gross Domestic Product, deductions dropped from 4.6 per cent to 3.4 per cent, a decline of 1.2 percentage points.
The World Bank attributed the development partly to Executive Order 9 of 2026, signed by President Bola Tinubu on February 13, which ended the Nigerian National Petroleum Company Limited’s 30 per cent management-fee and Frontier Exploration Fund deductions from profit oil and profit gas under specified petroleum contracts.
The order also redirected proceeds from gas-flaring penalties to the Federation Account, rather than the Midstream and Downstream Gas Infrastructure Fund. The measures were designed to increase the revenue available for distribution among the Federal Government, states and local governments.
The World Bank said the reduction in deductions helped increase distributed Federation Account revenues from N7.6tn in the first half of 2025 to N10.5tn in the first half of 2026.
That represented an increase of N2.9tn, or 38.2 per cent, over the period.
In its assessment of Nigeria’s fiscal performance, the bank stated, “Total deductions fell from 4.6 per cent of GDP (N10.1tn) in H1 2025 to 3.4 per cent (N8.4tn) in H1 2026, partly supported by the February 2026 Executive Order eliminating Nigerian National Petroleum Company Limited management-fee and Frontier Exploration Fund deductions and redirecting gas-flare penalties to the Federation Account, alongside a sharp reduction in refunds to subnational governments.”
It added, “As deductions fell significantly, distributed revenues rose from 3.5 per cent of GDP (N7.6tn) to 4.2 per cent (N10.5tn).”
The development comes as state and local governments face mounting pressure to finance infrastructure, education, healthcare, security and other public services amid elevated borrowing costs and persistent expenditure demands.
Executive Order 9 was introduced due to concerns over the amount of petroleum revenue retained or channelled into funds before reaching the Federation Account.
Under the Petroleum Industry Act 2021, NNPCL was entitled to a 30 per cent management fee on profit oil and profit gas from specified production-sharing, profit-sharing and risk-service contracts. The framework also provided for a 30 per cent allocation of profit oil and profit gas to the Frontier Exploration Fund.
In addition, gas-flaring penalties were paid into the Midstream and Downstream Gas Infrastructure Fund to support gas infrastructure development.
The Tinubu administration argued that the arrangements reduced the revenue available to the Federation and created overlapping funding mechanisms. The executive order consequently directed that the specified petroleum revenues be remitted to the Federation Account, while gas-flaring penalties would no longer flow into the gas infrastructure fund.
The order also directed relevant petroleum contractors to make specified payments, including royalties, tax oil and profit oil, directly into the Federation Account.
The reform seeks to increase transparency in petroleum revenue collection and improve the funds available for distribution to the three tiers of government. Its implementation, however, also raises questions about how affected agencies and funds will finance their statutory responsibilities under the revised arrangements.
Despite the reduction in deductions, the World Bank reported that gross Federation Account revenues increased only modestly as a share of the economy.
Gross revenues rose from N17.7tn in the first half of 2025 to N18.9tn in the first half of 2026, an increase of N1.2tn, or about 6.8 per cent. However, the revenue-to-GDP ratio fell from 8.0 per cent to 7.6 per cent.