States Oppose Cuts to Power Subsidy and Other Deductions from Federation Account

The government bodies representing states within the Federal Account Allocation Committee (FAAC) Postmortem Sub-Committee have voiced their discontent concerning the rising deductions from federation revenue. These deductions include obligations related to power subsidies, debt write-offs, and operational expenses taken directly from the funds.

This issue was highlighted in a communique released after a recent three-day retreat held in Enugu State.

The committee described these practices as incompatible with the principles of transparency, budgetary discipline, and the constitutional objectives intended to guide revenue allocation.

In previous discussions, the federal government proposed a deduction of ₦3.6 trillion from the Federation Account aimed at supporting electricity subsidies over the years 2026, 2027, and 2028, in an effort to share the financial responsibility with federal, state, and local authorities.

The proposal, outlined in the Medium-Term Expenditure Framework Fiscal Strategy Paper for the years 2026 to 2028, represents a strategic approach to distribute the financial challenges associated with the power sector across all tiers of government. This comes in response to rising concerns regarding unsustainable debt levels and persistent inefficiencies in the system.

According to the communique derived from the February 2026 FAAC documents, the participants unanimously noted that ongoing revenue losses, unclear deductions, institutional inefficiencies, and a lack of proper oversight are diminishing the distributable revenue pool.

While recognizing the potential benefits of the Petroleum Industry Act (PIA) 2021 in enhancing governance and clarity within the oil and gas sector, participants expressed significant concerns regarding the transfer of Joint Venture assets to the Nigeria National Petroleum Company (NNPC) Limited. They raised issues about management fees, profit oil handling under Production Sharing Contracts (PSCs), and the Frontier Exploration Fund.

Observations indicate that these developments have led to a considerable decrease in revenue inflows into the Federation Account while also undermining effective oversight.

The retreat underscored the critical importance of transparency, accountability, and governance in addressing revenue leakages.

Participants also conveyed serious worries about borrowing arrangements tied to crude oil and unclear crude-for-product exchanges, including schemes like Project Gazelle and Direct Sale Direct Purchase (DSDP).

There was a consensus that such arrangements risk compromising future federation revenues and proposed that they be subjected to strict transparency protocols, legislative supervision, and FAAC approvals, along with clearly defined allocations of revenue and responsibilities.

The communique advocated that all revenues received by the federation must be directly credited to the Federation Account without any deductions, adhering strictly to Section 162 of the 1999 Constitution of the Federal Republic of Nigeria (as amended).

Furthermore, it called for the establishment of a consolidated, real-time revenue data architecture accessible to FAAC, underpinned by periodic independent verifications involving the Revenue Mobilization Allocation and Fiscal Commission (RMAFC), the Central Bank of Nigeria, and other relevant agencies. It emphasized the need for a stakeholder engagement organized by the RMAFC to reassess specific sections of the PIA that may negatively impact the Federation Account.

The strategy for revenue collection should be aligned with efficiency and performance metrics, enforcing stringent limits on operational and capital expenditures by revenue-generating agencies. All crude oil-related borrowing agreements should receive full legislative approval, complete transparency, and independent audits. Moreover, existing arrangements should be reviewed and subjected to forensic audits to restore guaranteed federated revenue integrity. The RMAFC should deepen engagement with NNPC Limited to secure comprehensive documentation on joint venture asset transfers, accurately calculate net revenues owed to the Federation, and initiate appropriate recovery actions where required.