State governments have called for a forensic audit of Nigeria’s crude oil-backed borrowing arrangements, expressing concerns that opaque financing structures tied to oil production may be affecting inflows into the Federation Account.
The demand was made through state commissioners of finance during a retreat organised by the Federation Account Allocation Committee (FAAC) Post-Mortem Sub-Committee, where fiscal authorities and government officials reviewed issues relating to revenue leakages and public finance management.
According to a communiqué issued at the end of the meeting, participants urged that all crude-backed borrowing arrangements should undergo legislative scrutiny and independent audits to ensure transparency and safeguard government revenues.
“All crude oil-backed borrowing arrangements should be subjected to legislative approval, full disclosure, and independent audit. Existing arrangements should also be reviewed through forensic audits to restore confidence and protect future Federation revenues,” the communiqué stated.
The recommendation followed deliberations at the three-day retreat held in Enugu from February 9 to 11, where representatives of federal and state governments, revenue agencies, and policy experts examined fiscal policies affecting revenue collection and distribution among the three tiers of government.
The call for an audit comes amid growing scrutiny of crude-for-loan arrangements entered into by the Nigerian National Petroleum Company Limited (NNPCL).
An earlier report by The PUNCH indicated that the national oil company pledged about 272,500 barrels of crude oil per day under several oil-backed financing deals valued at approximately $8.86bn.
The analysis, based on disclosures from the Nigeria Extractive Industries Transparency Initiative (NEITI) and NNPC financial statements, showed that $2.61bn of the loans had been repaid, representing about 29.4 per cent of the facility. In contrast, roughly $6.25bn remained outstanding.
It also indicated that about $6.97bn had been drawn from the credit facilities as of December 2023.
Concerns Over Revenue Leakages
Participants at the FAAC retreat expressed concern that crude-backed borrowing and swap arrangements could weaken transparency in the management of oil revenues and reduce funds available for distribution through the Federation Account.
The communiqué also highlighted concerns over other deductions made from oil revenues before remittances to the Federation Account, including quasi-fiscal obligations such as power sector subsidies, debt write-offs, and operational expenses.
Participants noted that these deductions could undermine fiscal discipline and reduce the amount of revenue available to federal, state, and local governments.
The retreat further examined the impact of the Petroleum Industry Act (PIA) on oil revenue management. While acknowledging improvements introduced by the law, stakeholders raised concerns about issues such as joint venture asset transfers to NNPCL, production-sharing contract administration, and allocations to the Frontier Exploration Fund.
According to the communiqué, participants said these developments may have contributed to lower inflows into the Federation Account and reduced oversight of oil revenue management.
They emphasised that the Federation Account, established under Section 162 of the 1999 Constitution, remains the primary pool through which national revenues are shared among the three tiers of government and therefore requires stronger accountability mechanisms.
The retreat also called for improved collaboration between the Revenue Mobilisation Allocation and Fiscal Commission (RMAFC) and NNPCL to ensure accurate accounting of oil revenues and facilitate recovery where discrepancies are identified.
Discussions also covered broader fiscal governance issues, including tax policy reforms, audit oversight, the cost of revenue collection by government agencies, and measures to strengthen transparency in public finance.
Participants emphasised that oversight institutions, particularly the Office of the Auditor-General for the Federation, should have unrestricted access to Federation Account data to enhance monitoring, auditing, and revenue recovery efforts.
Industry analysts have also raised concerns about the implications of crude-backed financing arrangements for Nigeria’s oil earnings.
Some experts say the country’s crude trading framework has become increasingly complex, involving forward sales, swaps, and other financing structures that may reduce the portion of oil revenue available for government spending.
Efforts to obtain comments from NNPCL on the crude-backed loan arrangements were unsuccessful as of the time this report was filed.