Prosper Okoye
Nigeria’s revenue-sharing system may be heading for a major shift following a new policy on how oil income is handled.
In February 2026, President Bola Tinubu signed Executive Order 9 of 2026, directing that all oil and gas revenues be paid directly into the Federation Account before distribution.
This means earnings such as profit oil, profit gas, royalty oil, tax oil, penalties, and other proceeds from petroleum contracts must go straight to the pool shared by the federal, state, and local governments through the Federation Account Allocation Committee (FAAC).
Join our WhatsApp ChannelThe directive effectively removes several deductions previously allowed under the Petroleum Industry Act 2021, including the 30% management fee and the 30% Frontier Exploration Fund retained by NNPC Limited.
Analysts estimate the change could add about ₦14.57 trillion annually to the Federation Account based on recent oil revenue data.
Since state allocations come from this pool, the policy could reshape how much money flows to Nigeria’s 36 states each month.
Here are seven ways the new policy could affect state allocations.
1. Larger Allocations for All States
One of the most immediate effects could be larger statutory allocations for every state.
Under the existing revenue-sharing formula, FAAC distributes funds roughly as follows:
Federal Government – 52.68%
States – 26.72%
Local Governments – 20.60%
With more oil revenue entering the Federation Account, the total pool will increase, meaning states will receive higher monthly transfers.
This could help reduce budget shortfalls faced by many state governments.
2. Bigger Derivation Funds for Oil-Producing States
Nigeria’s oil-producing states receive 13% derivation from revenue generated from natural resources within their territories.
The nine states that benefit from this include:
Abia
Akwa Ibom
Anambra
Bayelsa
Delta
Edo
Imo
Ondo
Rivers
Because the new policy ensures more oil revenue enters the distributable pool, derivation payments to these states could increase substantially.
In 2025 alone, oil-producing states reportedly received about ₦1.6 trillion in derivation funds.
3. More Predictable Monthly Revenue
Another expected impact is greater stability in monthly allocations.
Previously, several deductions and off-account flows created uncertainty about the amount of revenue entering the Federation Account.
By requiring direct remittances, the policy could reduce revenue leakages and make monthly FAAC distributions more predictable.
For states, this means easier planning for salaries, projects, and debt obligations.
4. More Funds for Infrastructure and Public Services
Higher allocations could translate into more spending on development projects.
States may have additional resources for:
Roads and transport infrastructure
Hospitals and healthcare services
Education and schools
Social welfare programmes
In theory, the policy could help reduce dependence on federal bailouts and borrowing.
5. Stronger Fiscal Federalism
Some analysts say the policy strengthens fiscal federalism by ensuring all constitutionally required revenues enter the Federation Account before distribution.
This reduces the ability of federal entities to retain large portions of oil revenue outside the revenue-sharing framework.
As a result, states may gain greater financial empowerment within the federal structure.
6. Short-Term Fiscal Relief for States
With implementation already underway, some state governments could begin seeing improved cash flow in the short term.
This could help address pressing fiscal challenges in 2026, including:
salary payments
pension obligations
infrastructure backlogs
rising debt servicing costs
For many states struggling with tight budgets, even modest increases in FAAC allocations could provide breathing space.
7. Possible Long-Term Risks
Despite the potential benefits, some experts warn that the policy could create long-term risks if not carefully implemented.
Critics argue that removing certain incentives provided under the Petroleum Industry Act could:
discourage investment in deep-water oil projects
disrupt existing contract structures
weaken the financial position of NNPC Limited
If oil investment declines and production falls, overall oil revenue could shrink over time—leading to smaller FAAC allocations in the future.
The Bottom Line
In the short and medium term, the new oil revenue policy is widely expected to increase the funds shared among Nigerian states and improve transparency in the management of oil income.
Non-oil states may benefit through higher statutory allocations, while oil-producing states could see larger derivation payments.
However, the long-term impact will depend on several factors, including crude oil prices, production levels, and how smoothly the policy aligns with existing petroleum sector reforms.
Prosper Okoye is a Correspondent and Research Writer at Prime Business Africa, a Nigerian journalist with experience in development reporting, public affairs, and policy-focused storytelling across Africa
