By Frontline Reporters
State governments have called for a forensic audit of Nigeria’s crude oil-backed borrowing arrangements, warning that opaque crude-for-loan and swap deals may be reducing inflows into the Federation Account.
An earlier report by Frontline Reporters showed that the Nigerian National Petroleum Company Limited (NNPC Ltd) pledged about 272,500 barrels of crude oil per day in a series of crude-for-loan agreements worth $8.86bn, based on an analysis of data from the Nigeria Extractive Industries Transparency Initiative and the company’s financial statements.
Findings indicated that the national oil firm had fully repaid $2.61bn, representing 29.4 per cent of the total facility, while $6.25bn or 70.6 per cent remains outstanding. Of the total credit facility, about $6.97bn had been received from seven crude-backed loan arrangements as of December 2023.
However, state governments, through their commissioners of finance, are now demanding a comprehensive audit of the transactions.
The demand was contained in a communiqué issued after the 2026 retreat of the Federation Account Allocation Committee (FAAC) Post-Mortem Sub-Committee, obtained by Frontline Reporters on Thursday.
The communiqué stated that all crude oil-backed borrowing arrangements should undergo legislative approval, full disclosure, and independent auditing to safeguard public finances.
“All crude oil-backed borrowing arrangements should be subjected to legislative approval, full disclosure, and independent audit. Existing arrangements should be reviewed, with forensic audits conducted to restore confidence and protect future Federation revenues,” the communiqué said.
Concerns over revenue leakages
The resolution followed a three-day retreat held in Enugu from February 9 to 11, where fiscal authorities, state representatives, revenue agencies, and policy experts examined persistent revenue leakages affecting the Federation Account.
The meeting, themed “Assessing Fiscal and Sectoral Policies for Closing Revenue Leakage in the Federation Account,” aimed to review fiscal frameworks and administrative practices affecting federal revenue collection and distribution among the three tiers of government.
Participants reaffirmed that the Federation Account — established under Section 162 of the 1999 Constitution — remains the backbone of fiscal sustainability for the Federal Government, states, and local governments.
However, they warned that persistent revenue leakages, opaque deductions, institutional inefficiencies, and weak oversight continue to erode the pool of distributable revenue.
The retreat also raised concerns about growing quasi-fiscal deductions from Federation revenues, including power sector subsidy obligations, debt write-offs, and operational expenses deducted before funds are remitted into the account.
According to the communiqué, such deductions undermine transparency and budgetary discipline.
Petroleum sector reforms under scrutiny
Participants also examined the implications of the Petroleum Industry Act on oil and gas revenue management.
While acknowledging that the law has improved governance in parts of the sector, stakeholders expressed concerns over operational practices such as the transfer of joint-venture assets to NNPC Ltd, management fees, production sharing contract profit-oil administration, and the Frontier Exploration Fund.
The communiqué noted that these developments may have reduced inflows into the Federation Account and weakened oversight mechanisms.
Crude-backed loans raise transparency concerns
Another major issue discussed at the retreat was Nigeria’s growing reliance on crude oil-backed borrowing and crude-for-product swap arrangements, including Project Gazelle and the Direct Sale Direct Purchase (DSDP) scheme.
Participants warned that such arrangements could weaken transparency in oil revenue flows and recommended that any future crude-backed financing must receive legislative approval and be subject to full disclosure and independent audit.
They also called for stronger collaboration between the Revenue Mobilisation Allocation and Fiscal Commission (RMAFC) and NNPC Ltd to ensure proper accounting for oil revenues and recovery of any outstanding funds due to the Federation.
Large share of crude tied to loan repayments
Earlier analysis by Frontline Reporters showed that about 14.66 per cent of Nigeria’s crude oil production in 2025 may have been committed to servicing crude-backed loan facilities.
Four major arrangements — Project Gazelle, Project Yield, Project Leopard, and Eagle Export Funding — are backed by a combined 213,000 barrels of crude oil per day.
If maintained throughout 2025, this would translate to 77.75 million barrels of crude dedicated to debt servicing for the year.
Data from the Nigerian Upstream Petroleum Regulatory Commission shows that Nigeria produced 530.41 million barrels of crude oil in 2025, meaning a significant share of output was already earmarked for loan obligations.
Using the average 2025 Bonny Light price of $72.08 per barrel, the crude tied to these loans is valued at about $5.6bn, equivalent to roughly ₦8.36tn at the official exchange rate.
Experts demand transparency
Industry experts say opaque crude-for-cash arrangements are contributing to declining oil revenue inflows.
Chief Executive Officer of AHA Strategies, Ademola Adigun, noted that some of Nigeria’s crude production is already locked into undisclosed loan agreements.
“Some of our crude is already tied up in loan agreements. The problem is that Nigeria doesn’t know the full details of these transactions because there’s little transparency around them,” he said.
Development economist and CEO of CSA Advisory, Dr Aliyu Ilias, also warned that Nigeria’s crude trading structure has become increasingly complex, involving swaps and oil-to-naira transactions that may not be fully captured in official records.
Similarly, the Director of the Centre for the Promotion of Private Enterprise, Dr Muda Yusuf, said several forward-sale deals signed during the tenure of former Central Bank governor Godwin Emefiele continue to affect current oil revenues.
He added that although transparency within NNPC Ltd has improved under its current management, full disclosure of crude swap and forward-sale agreements is necessary to restore confidence in Nigeria’s oil revenue reporting.
Efforts to obtain comments from the Chief Corporate Communications Officer of NNPC Ltd, Andy Odeh, were unsuccessful as at the time of filing this report.
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