Nigeria’s path to restoring confidence in its petroleum sector, by Benjamin Ajayi
For several years leading up to 2021, Nigeria faced a period marked by significant investment uncertainty in the oil and gas sector. This uncertainty was driven by governance gaps, weak regulatory structures, revenue losses, and unresolved legal issues. During this time, investment dollars flowed to other African nations; a 2019 report indicated that Nigeria received only $3 billion (4%) of the $75 billion invested in Africa’s oil and gas projects between 2015 and 2019. This represented a dramatic decline for a country that once commanded a larger share of petroleum investment on the continent.
The decline was tied to several challenges, including legal ambiguities, overlapping governance structures, changing policies, and inefficiencies that eroded investor confidence. Disputes over fiscal provisions, crude oil theft, under-reporting of production, and unclear contract management further deterred investments. These issues diminished confidence and raised concerns about the commercial viability of long-term investments.
The Petroleum Industry Act (PIA) was introduced to address these longstanding challenges. It aimed to resolve disputes, establish modern regulatory bodies, and improve fiscal terms to restore investor confidence and boost production. The Act replaced fragmented regulations with a single legislative framework. Its full enforcement promises to unlock billions of dollars in investment, stabilise fiscal revenues, and accelerate Nigeria’s energy transition.
The PIA replaced the Petroleum Profits Tax with a dual tax structure: the Hydrocarbon Tax for upstream operations and the Companies Income Tax for all entities. It links royalty payments to production volume and crude prices and introduces a clearer method for determining government take. These reforms provide investors with predictable terms before sanctioning new projects.
Two new regulators emerged from the reforms, addressing previous ambiguities where a single agency supervised multiple streams. The Nigerian Upstream Petroleum Regulatory Commission now oversees technical and commercial issues in exploration and production, while the Nigerian Midstream and Downstream Petroleum Regulatory Authority manages processing, transmission, distribution, supply, and sales. The Act also clarifies the role of the Minister of Petroleum, focusing on policy, while regulators handle technical and commercial decisions, reducing political interference in regulatory functions.
The conversion of NNPC into a commercially operated limited liability company is another important step in restoring confidence. NNPC Limited operates with financial independence, no longer reliant on government budgetary allocations and exempt from Treasury Single Account requirements, public procurement rules, and fiscal responsibility restrictions that apply to government agencies. This creates clearer distinctions between state revenue and corporate operations.
The structured fiscal system has improved discipline with clearer rules for remittances of royalties, taxes, and profit oil payments to the Federation Account. Transparent revenue tracking supports government planning and reduces leakages associated with weak reconciliation in earlier years. Recent reports indicate more than 530 community projects are ongoing, financed through the Host Community Development Trust (HCDT) funds, covering water supply, infrastructure, education, security, and small-scale industrial development. The total fund has grown to over 333 billion naira and continues to rise.
The Act also established strategic investment funds such as the Frontier Exploration Fund (FEF), Midstream and Downstream Gas Infrastructure Fund (MDGIF), Environmental Remediation Fund (ERF), and the Decommissioning and Abandonment Fund (D&A Fund) to drive transformational changes in the industry. FEF supports exploration in under-explored areas such as Chad, Sokoto, Anambra, and the Benue Trough, providing a steady source of financing to expand Nigeria’s hydrocarbon reserves and strengthen long-term energy security.
MDGIF closes gas infrastructure gaps, facilitating construction of pipelines, processing plants, storage, and distribution networks vital for unlocking Nigeria’s gas resources. This fund is financed by a levy on petroleum product prices and donor contributions. Since inception, MDGIF has invested over 122 billion naira in indigenous companies developing projects nationwide, including gas-to-power, residential gas access, LPG penetration, and CNG transport solutions.
ERF ensures that operators allocate resources for environmental remediation due to petroleum operations, protecting communities and ecosystems. The D&A Fund is an escrow account that energy companies are required to establish and maintain to cover future costs of safely restoring exploration and production sites at the end of their operational life. Operators make mandatory periodic contributions to cover site rehabilitation and abandonment costs.
To ensure PIA’s objectives are met, a performance framework with clear metrics is essential. Regular monitoring of revenue generation, regulatory compliance, project approvals, community development, and investment flows will help identify challenges and promote accountability. Fiscal terms must be reviewed regularly to remain globally competitive and preserve investor confidence by responding to market changes. Transparency in managing community development funds and effective monitoring of community development trusts will support stability. Capacity building for regulators is also critical to managing technical, legal, and fiscal complexities, improving oversight and strengthening enforcement.
The success seen in the four years since the PIA’s enactment highlights the potential of the reforms. With full enforcement, Nigeria can strengthen its position as a leading investment destination in Africa, expand production, deepen gas monetisation, improve foreign exchange inflows, and foster real development in host communities. The Act’s long-term value lies in its ability to drive growth, rebuild investor confidence, and promote a more secure energy future for the country.
Benjamin Ajayi is an energy expert.
