…Agbakoba, others point the way
Nigeria’s latest executive order mandating the direct remittance of oil and gas revenues into the Federation Account has reignited a long-running debate over fiscal sovereignty, who truly controls the nation’s most important economic resource, and who ultimately benefits from it.
For decades, Africa’s largest oil producer has struggled with a paradox: vast petroleum wealth, yet chronic fiscal shortfalls, rising public debt, and persistent revenue leakages.
President Bola Ahmed Tinubu’s directive, hailed by legal and policy advocates as a decisive intervention, has opened a wider conversation about how Nigeria can reclaim full control over its oil revenues, not just administratively, but structurally.
At the heart of that conversation lies a fundamental question: can executive action alone restore fiscal sovereignty, or must Nigeria undertake deeper institutional and legal reforms?
Read also: Tinubu’s executive order and the test of fiscal transparency
The constitutional foundation of fiscal sovereignty
Fiscal sovereignty, in Nigeria’s context, begins with the Constitution. Section 162 of the 1999 Constitution mandates that all revenues collected by the federation, including oil and gas income, must be paid into the Federation Account and shared among the federal, state, and local governments.
Yet, over time, statutory mechanisms, contractual arrangements, and institutional practices have diluted this constitutional principle.
Olisa Agbakoba, senior advocate of Nigeria and former Nigerian Bar Association president, argues that the executive order marks a critical turning point in reversing that erosion.
In a submission to the implementation committee chaired by Wale Edun, finance minister, Agbakoba described the order as a “decisive step toward restoring the constitutional revenue entitlements of the federal, state, and local governments.”
He said Nigeria’s fiscal sovereignty had been “effectively abdicated” through layers of deductions and contractual arrangements that diverted revenues before they reached the Federation Account.
The NNPC dilemma: commercial entity or fiscal gatekeeper?
Central to the fiscal sovereignty debate is the role of the Nigerian National Petroleum Company Limited, which historically operated both as a commercial oil company and a quasi-governmental revenue manager.
Under the Petroleum Industry Act (PIA), NNPCL retained significant portions of oil revenues through management fees, retained earnings, and special-purpose funds such as the Frontier Exploration Fund.
Agbakoba argues that this dual role created structural conflicts that weakened Nigeria’s fiscal position.
“NNPC should simply be an oil company with no statutory functions,” he said, recommending its privatisation and a complete withdrawal of government from direct commercial participation in oil and gas operations.
This view aligns with longstanding recommendations from multilateral institutions such as the World Bank and the International Monetary Fund, which have repeatedly urged Nigeria to separate regulatory, fiscal, and commercial roles in the petroleum sector.
“The NNPCL by this executive order have now been given the marching orders: go and be that commercial entity that the PIA says you are. Stop breastfeeding from your mother’s milk. You are now an adult. Go and do it for yourself,” Nick Agule, an energy expert, during recent appearances on Arise News.
The problem with production sharing and joint venture structures
Beyond institutional reform, experts say Nigeria must confront the structural economics of its oil contracts.
Production Sharing Contracts (PSCs) and Joint Venture (JV) arrangements with international oil companies (IOCs) were originally designed to attract foreign investment and technical expertise. But critics argue that these agreements often favour foreign operators, allowing extensive cost recovery before government revenue is calculated.
Agbakoba said redirecting payments to the Federation Account, while important, does not address the deeper issue.
“The fundamental problem is not simply where payments are made, but the underlying contractual frameworks that determine how much is paid,” he noted.
Under PSC arrangements, oil companies recover exploration and production costs first, reducing the net revenue available to the government.
The executive order’s most immediate impact lies in mandating direct remittance of oil revenues to the Federation Account, eliminating intermediary deductions and special-purpose funds.
This shift could significantly improve government liquidity, reduce borrowing pressures, and enhance fiscal planning.
Nigeria currently spends a substantial portion of its revenue on debt servicing, leaving limited fiscal space for infrastructure, healthcare, and education. Improving oil revenue capture could help ease those constraints.
Agbakoba’s called for privatisation of NNPCL reflects a broader global trend toward commercialising national oil companies.
Countries such as Norway and Brazil transformed their national oil companies, Equinor and Petrobras, into commercially driven entities with reduced fiscal control functions.
Strengthening regulatory institutions
Experts agree that fiscal sovereignty ultimately depends on strong regulatory institutions.
Agencies such as the Nigerian Upstream Petroleum Regulatory Commission and the Nigeria Revenue Service play critical roles in ensuring accurate revenue assessment and collection.
Improving regulatory capacity could help Nigeria: monitor production volumes accurately, prevent cost inflation by operators, enforce tax and royalty obligations and ensure proper remittance of revenues.
Transparency initiatives such as the Nigeria Extractive Industries Transparency Initiative (NEITI) have repeatedly highlighted revenue leakages and reporting discrepancies.
Addressing these institutional weaknesses is essential for long-term fiscal sovereignty.
Balancing sovereignty with investor confidence
Nigeria must also carefully manage its relationship with international oil companies, which provide capital and technical expertise. Abrupt termination of existing contracts could trigger legal disputes and discourage investment.
“What are we telling investors? What signal are we sending out there that, just with an executive order, you can set aside a law of the land?” asked Festus Osifo, the president of the Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN), who kicked against the president’s decision.
“If this sails through, the international community will lose faith in the PIA. Investors will lose faith in the PIA. Tomorrow, they will think that any provision safeguarding their investment can be set aside by executive order. The signalling is troubling.”
To resolve this, Agbakoba proposed a phased transition approach that respects contractual obligations while gradually increasing national control.
Such a strategy could allow Nigeria to renegotiate terms, improve revenue share, and strengthen fiscal sovereignty without destabilising the investment environment.
Read also: Why I issued executive order on NNPC’s finances— Tinubu
The path forward: Beyond executive action
The executive order represents a critical first step, but reclaiming fiscal sovereignty requires sustained structural reform.
Key priorities include: Ensuring full implementation of direct revenue remittance, reviewing and amending fiscal provisions of the Petroleum Industry Act, strengthening regulatory and fiscal oversight institutions, improving transparency in oil revenue management, clarifying the commercial role of NNPCL, and renegotiating or restructuring oil contract frameworks where necessary
Nigeria’s oil wealth remains its most significant fiscal asset. Ensuring that wealth fully serves national development will depend on the country’s ability to align its institutional structures, legal frameworks, and fiscal policies with its constitutional principles.
The executive order may have reopened the door. Whether Nigeria fully reclaims its fiscal sovereignty will depend on the reforms that follow.
