State governments have called for a forensic audit of Nigeria’s crude oil-backed borrowing arrangements, raising concerns that opaque crude-for-loan and swap agreements may be reducing inflows into the Federation Account.
The demand was made by state commissioners of finance in a communiqué issued after the 2026 retreat of the Federation Account Allocation Committee (FAAC) Post-Mortem Sub-Committee held in Enugu from February 9 to 11.
Participants at the retreat warned that several crude-backed financing arrangements could be undermining transparency in oil revenue management and weakening the pool of funds shared by the Federal Government, states and local governments.
According to the communiqué, all crude oil-backed borrowing arrangements should be subjected to legislative approval, full disclosure and independent audit, while existing deals should be reviewed through forensic audits to restore confidence in the management of federation revenues.
“Existing arrangements should be reviewed, with forensic audits conducted to restore confidence and protect future Federation revenues,” the communiqué stated.
An analysis of reports by the Nigeria Extractive Industries Transparency Initiative and the financial statements of Nigerian National Petroleum Company Limited showed that the national oil company had pledged about 272,500 barrels of crude oil per day under several crude-for-loan agreements worth about $8.86bn.
Out of the total facility, about $2.61bn, representing 29.4 per cent, has been repaid, while $6.25bn remains outstanding. Data also indicate that approximately $6.97bn had been drawn from seven crude-backed loan arrangements as of December 2023.
The retreat, themed “Assessing Fiscal and Sectoral Policies for Closing Revenue Leakage in the Federation Account,” brought together fiscal authorities, state representatives, revenue agencies and policy experts to examine factors affecting government revenue collections and distribution.
The meeting was opened by the Governor of Peter Mbah of Enugu State, represented by the Secretary to the State Government, Prof. Chidiebere Onyia, who emphasised the importance of fiscal coordination and stronger accountability mechanisms in the management of public funds.
Participants at the retreat reaffirmed the constitutional importance of the Federation Account, established under Section 162 of the 1999 Constitution, as the central pool for revenue sharing among the three tiers of government.
However, the communiqué noted that persistent revenue leakages, opaque deductions, institutional inefficiencies and weak oversight mechanisms continue to erode the volume of distributable revenue.
The retreat also expressed concern over increasing quasi-fiscal deductions from federation revenues, including power sector subsidy obligations, debt write-offs and operational expenses deducted before revenues are paid into the Federation Account.
“These practices were considered inconsistent with transparency, budgetary discipline and constitutional intent,” the communiqué stated.
Participants also reviewed developments in the petroleum sector under the Petroleum Industry Act and raised concerns over issues such as the transfer of joint venture assets to NNPC Limited, management fees, administration of production sharing contract profit oil and the Frontier Exploration Fund.
According to the communiqué, these developments were observed to have reduced inflows into the Federation Account and weakened oversight.
The retreat further highlighted the growing reliance on crude oil-backed borrowing and crude-for-product swap arrangements, including schemes such as Project Gazelle and the Direct Sale Direct Purchase programme, warning that they could further complicate transparency in oil revenue flows.
Participants therefore recommended that future crude-backed financing arrangements must receive legislative approval and be subjected to full disclosure and independent audits.
They also called for stronger collaboration between the Revenue Mobilisation Allocation and Fiscal Commission and NNPC Limited to ensure proper accounting of oil revenues and recovery of any discrepancies.
Meanwhile, analysts say crude-backed loan commitments continue to take up a notable share of Nigeria’s oil output.
Data from the Nigerian Upstream Petroleum Regulatory Commission indicate that about 14.66 per cent of Nigeria’s crude production in 2025 may have been committed to servicing such loan arrangements.
The volume—estimated at about 77.75 million barrels for the year—was tied to four major facilities: Project Gazelle, Project Yield, Project Leopard and Eagle Export Funding.
Using the 2025 average Bonny Light price of $72.08 per barrel, the crude allocated to servicing these debts was valued at approximately $5.6bn.
Experts have warned that the complexity of crude-for-loan arrangements and forward sales may obscure the true picture of Nigeria’s oil earnings unless transparency and independent audits are strengthened.
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