
Nigeria: Reforming extractive revenue collection
An analysis of the fiscal impact of Production Sharing Contracts and reforms to maximise Nigeria’s oil revenues.
Context
In the 1990s, Nigeria ventured into offshore oil extraction, awarding licenses through Production Sharing Contracts (PSC)1 to incentivise exploration and production activities. These contracts featured low tax and royalty rates to attract investment in the oil sector. While PSCs initially represented a small portion of Nigeria’s oil industry, they now account for 45% of total oil production.
Nigeria’s 1993 law governing PSCs required contract reviews under two conditions: when oil prices exceeded USD 20 per barrel (which occurred in 2004) and 15 years after the law’s enactment. However, these reviews were not enforced, resulting in significant lost revenue for the government.
Using data for reform
In 2019, Nigeria EITI (NEITI) conducted financial modelling to estimate the scale of revenue losses from failing to review the 1993 PSCs. The analysis concluded that the government lost between USD 16 billion and 28 billion due to non-compliance with the review requirements.
The findings played a key role in driving legislative reform. In November 2019, Nigeria amended the PSC Act to include higher royalty rates, mandatory periodic reviews and stricter penalties for non-compliance. These changes aimed to increase the government’s share of oil revenues and strengthen fiscal accountability in the oil sector.
Timeline
Improving fiscal terms for Nigeria's oil production
- 1990: Nigeria ventures into offshore oil exploration with licensing rounds.
- 1993: PSCs are introduced to attract exploration and production projects.
- 2004: The 1993 PSCs should have been reviewed when oil prices exceeded USD 20 per barrel.
- 2005: A new fiscal regime applies to new contracts, offering terms more favourable to the government.
- 2008: The 15-year review rule for 1993 PSCs comes into effect but is not enforced.
- 2018: Nigeria’s Supreme Court mandates the Attorney General to recover lost revenues due to unreviewed PSC terms.
- 2019: NEITI estimates revenue losses between USD 16 billion and 28 billion due to non-compliance with PSC review requirements.
- 2019: The PSC Act is amended to introduce increased royalties and stricter compliance measures.
Policy brief: The steep cost of inaction
A study by NEITI and Open Oil estimated that between 2008 and 2017, Nigeria lost between USD 16 billion and 28 billion due to failures to enforce the required review of PSCs after 15 years of operation. These findings underline the importance of legislative compliance in safeguarding Nigeria’s oil revenues.

- 1Production Sharing Contracts: Production sharing contracts are a type of agreement for petroleum exploration and development where the state, as owner of the mineral resources, engages a contractor to provide technical and financial services for exploration and development operations.