↑

What Happens to Oil Money Before It Reaches Your State

📅 February 5, 2026

✍️ Samson Ese

⏱️ 28 min read

📂 Money & Power

December 2023. I'm sitting inside one beer parlor for Warri, listening to two guys argue about whether Nigeria is truly broke or just wicked. One of them — call him Prosper — kept saying "with all the oil money wey dey this country, how we still dey suffer?" The other guy, Michael, just laughed tire. "My guy, that oil money no dey reach anywhere. E dey disappear before e reach your hand."

That argument stayed with me. Not because I didn't know Nigeria produces oil — everybody knows that one. But because most of us, including me that time, never really understood the journey. We just assumed say the money dey enter government account, then states go collect their own share, then... magic. Roads go appear, hospitals go work, salaries go drop. Reality no be like that at all.

So I started digging. And bro, what I found shock me. The path wey oil money dey follow from the Niger Delta creeks to your state government account — e get like seven different bus stops. And for each bus stop, something dey happen. Sometimes na deduction, sometimes na theft, sometimes na just wickedness, sometimes na genuine administrative process. By the time the money reach your governor hand, e don shrink well well.

This article go break down that journey step by step. No political correctness, no big grammar. Just the raw truth about oil revenue distribution in Nigeria, how crude oil revenue flows through the system, and why your state always claims say money no dey even when billions of naira dey enter federation account every month.

Nigerian oil facility showing crude oil production equipment and pipeline infrastructure — Nigeria's oil production starts from facilities like this — but the money trail is far from straightforward. Photo: Unsplash

📑 Table of Contents

Stage One: From Oil Well to NNPC Account
Stage Two: First Deductions (You Don Lose Money Already)
Stage Three: Federation Account Enters the Chat
Stage Four: The Big Split (Federal, State, Local)
Stage Five: Your State Finally Gets Something
Where the Money Actually Disappears
Real Numbers: What Actually Reaches States
Five Real-Life Examples of Revenue Loss

Stage One: From Oil Well to NNPC Account

Let me start from the very beginning. When oil dey pump from the ground — whether na Shell, Chevron, or any of the international companies — that crude no just enter Nigerian government account directly. The process don start with wahala already.

First thing wey happen na Production Sharing Contracts (PSC). Some oil blocks, Nigeria get agreement with foreign companies say "make una drill the oil, we go share am 60-40" or whatever the ratio be. So automatically, before we even count oil revenue distribution in Nigeria, some percentage don comot. That one na business arrangement — normal thing for oil industry worldwide. But e mean say if 1 million barrels comot ground today, Nigeria no go collect money for all 1 million.

Real Talk: Nigeria government always talk about "X million barrels per day production." But that production number no be the same as revenue number. Some of that oil don already get owners wey no be federal government — na contract matter.

After production, the oil wey belong to Nigeria go enter NNPC hand. Nigerian National Petroleum Company (NNPC) supposed be the main middleman between the oil wells and government treasury. In theory, NNPC supposed sell the oil, collect dollars, convert am to naira, then remit everything to federation account. Clean and simple.

But bro...

This na where the first major leakage dey happen. NNPC get what dem call "cost recovery" — meaning say before dem remit money, dem go minus their operational expenses. Refinery maintenance (even though the refineries no dey work), pipeline repairs, staff salaries, "subsidy" payments, and about 15 other line items wey nobody fit verify properly.

⚠️ First Major Loss Point: According to multiple reports from Nigeria Extractive Industries Transparency Initiative (NEITI), NNPC don fail to remit over $20 billion in oil revenue between 2015 and 2020 alone. That money? "Cost recovery" and "subsidy payments" wey no get proper documentation.

So before oil money even touch federation account, NNPC don collect their own share — and nobody fit question am properly because the records dey somehow always "under review" or "being reconciled."

Stacks of dollar bills representing Nigeria crude oil revenue and forex earnings — Nigeria's crude oil is sold in dollars — but conversion and remittances create multiple opportunities for revenue loss. Photo: Unsplash

Stage Two: First Deductions (You Don Lose Money Already)

Okay, assume say NNPC finally remit money to federation account. You think say na straight calculation from there? My brother, my sister, e never start.

The moment money enter federation account, federal government go start to dey do what dem call "first line charges." These na deductions wey dem say na statutory — meaning say law don approve am, so nobody fit complain. But when you check the list of these deductions, you go wan cry.

What Dem Dey Deduct Before Sharing:

1. Cost of Revenue Collection (13%)

FIRS (Federal Inland Revenue Service) go collect 13% of all the money as "cost of collection." Bro, just imagine. Dem collect tax on behalf of government, then dem collect 13% as their salary. If ₦1 trillion enter federation account, ₦130 billion don comot immediately. That 13% alone pass the annual budget of some states.

2. Derivation Principle (13%)

Another 13% go directly to oil-producing states — Delta, Rivers, Bayelsa, Akwa Ibom, and the rest. This one na constitutional — make sense sef, because na their land dem dey destroy to remove the oil. But e mean say before general sharing, 13% don comot again for the oil-producing states.

3. Ecological Fund (1%)

Federal government go keep 1% for "ecological disasters." The money wey dem suppose use clean up oil spills, erosion, flooding. But when last you see serious ecological project for your area? Exactly.

4. FCT Allocation (1%)

Abuja go collect 1% as "special status" capital. Because apparently, Abuja need extra money on top the normal federal allocation dem dey get.

5. Special Funds and Stabilization (Various Percentages)

Dem get "stabilization account," "development fund," "special intervention fund," and about 10 other categories. Nobody fit tell you the exact percentage because e dey change based on "national priority" — which one politicians dey decide for closed-door meeting.

So if we add everything together — 13% + 13% + 1% + 1% + "special funds" — you don lose like 30-35% of the total revenue before states go even see one kobo. And remember, NNPC don already collect their own cut from stage one. The money wey remain now na wetin dem go share between federal, state, and local governments.

🚨 Reality Check: If Nigeria make $10 billion from oil in one month, by the time NNPC remittances finish, first-line charges comot, and special deductions happen, the money wey go enter the actual "distributable" pool fit be like $6-7 billion. That's 30-40% loss before distribution even start.

Stage Three: Federation Account Enters the Chat

Now we don reach the famous "Federation Account Allocation Committee" — FAAC. This na the monthly meeting where federal government, state governors (through their representatives), and local government chairmen go sit down to share the remaining money.

E get formula wey constitution don approve:

Federal Government: 52.68%
All 36 States Combined: 26.72%
All 774 Local Governments Combined: 20.60%

Just look the percentages well. Federal government alone go collect more than half. The 36 states go share only 26.72%. And when you remember say this 26.72% go divide among 36 states based on different criteria (population, landmass, internally generated revenue, etc.), you go understand why most states dey struggle.

Did You Know? According to the National Bureau of Statistics (NBS), over 27 Nigerian states depend on federation account allocations for more than 80% of their total revenue. Only Lagos, Rivers, and maybe Delta fit survive without FAAC money — and even dem sef dey collect their own share every month.

But here's the koko: that monthly FAAC meeting no dey always hold on time. Sometimes, federal government go delay the meeting because "reconciliation issues" or "revenue shortfall" or "technical adjustments." And when dem delay am, states no go get money. Salaries go suffer. Projects go stop. Contractors go dey streets doing "I will pay you next month" gist.

I remember one time for 2024, FAAC meeting shift like three times. States wey their workers suppose collect salary on 25th no pay until 15th of the next month. The excuse? "Federal government dey reconcile the accounts." Reconcile wetin exactly? Nobody fit talk.

Government meeting room showing where FAAC revenue allocation decisions are made in Nigeria — FAAC meetings determine how oil money is split between federal, state, and local governments — but delays and deductions continue to shrink what states actually receive. Photo: Unsplash

Stage Four: The Big Split (Federal, State, Local)

Okay, FAAC don finally happen. Dem don share the money. You think say your state governor go just enter office, see the money for account, smile, and start paying salaries? Ah, my friend. We never reach.

Before the money land your state account, another round of deductions go happen — this time from federal level before dem release am.

Federal Deductions Before States Collect:

1. External Debt Servicing

If your state borrow money from World Bank, African Development Bank, or any international body, federal government go deduct the repayment from source. Dem no go send the full allocation — dem go minus the debt first. Some states like Osun, Ekiti, and Imo dey lose billions every month to debt servicing alone.

2. Bailout Loan Repayments

Remember when states no fit pay salary, and federal government give dem "bailout" around 2015-2017? That bailout na loan oh. E get interest. Federal government dey deduct am from allocation every month. Some states don dey pay that bailout since 2015 — and the debt never finish.

3. Paris Club Refund Consultancy Fees

This one na long story, but the summary be say: some consultants help Nigeria recover money from Paris Club debt relief. Those consultants supposed collect fees — and federal government dey deduct am from state allocations. Even though the matter don dey court since 2016, the deductions never stop.

4. Budget Support Facility Repayments

If your state collect any special intervention fund (COVID-19 support, infrastructure support, agricultural support), na loan. E get repayment schedule. Federal government go deduct am at source.

Example: For January 2024, Kogi State total FAAC allocation na ₦5.2 billion. But after federal deductions (debt servicing, bailout repayment, Paris Club fees), the money wey actually enter Kogi account na ₦2.8 billion. That's almost 50% loss at federal level before the money even land.

And this na standard procedure oh. E no be corruption — na official government policy. States go collect allocation on paper, but the actual cash wey go enter their account go be far less because of these mandatory deductions. When your governor come public say "we no get money," sometimes e be true. But sometimes too, na management problem.

Stage Five: Your State Finally Gets Something

By now, the oil money wey comot from Niger Delta don pass through like six different hands. NNPC don collect their own. First-line charges don comot 30-35%. Federal government don collect their 52.68%. States don share 26.72% among themselves. And before your state see their own share, debt servicing and other deductions don happen.

So what you think say na ₦10 billion wey your state suppose collect, the real money wey enter account fit be ₦4-5 billion. And that one sef, e never finish.

Once money land state account, another round of "management" go start:

What Happens Inside Your State:

Personnel Cost (Salaries): On average, Nigerian states dey spend 60-80% of their allocation on salaries alone. Civil servants, political appointees, special assistants, advisers — everybody must chop. So if ₦5 billion land, ₦3-4 billion go salaries immediately.
Overhead Costs: Office rent, official vehicles, maintenance, stationery, travels, allowances — another 10-15% go disappear here.
Debt Servicing (State Level): If the state borrow money from Nigerian banks or issue bonds, repayment must happen. Some states dey service debt up to ₦500 million - ₦1 billion monthly.
What Remain for Capital Projects: After all these deductions, the money wey remain for actual development — roads, schools, hospitals — fit be like 5-10% of the original allocation. Sometimes sef, nothing go remain.

🚨 Shocking Reality: According to BudgIT Nigeria's 2023 State of States report, states like Osun, Ekiti, Plateau, and Zamfara spend over 90% of their total revenue on recurrent expenditure (salaries and overhead). Capital expenditure — which na the money for actual development — na less than 10%.

So when your governor tell you say "we no get money to fix road," e fit be true. But the real question na: why una employ 50 special assistants and 30 senior special assistants when the state no fit pay teachers? Why governor dey travel abroad every month when hospitals no get paracetamol?

The money dey come. But the priorities dey somehow wrong.

Empty government office desk representing budget allocation and revenue management challenges in Nigerian states — After all the deductions and remittances, state governments are left managing far less than what crude oil revenue initially promised. Photo: Unsplash

Where the Money Actually Disappears

Okay, all the stages I don explain so far na the official ones — the ones wey constitution and law approve. But make we talk about the unofficial ones. The places wey money dey disappear wey nobody fit account for.

1. Oil Theft (The Biggest Leak)

Bro, this one tire me. Nigeria supposed dey produce like 1.8-2 million barrels of oil per day. But the actual oil wey dey enter NNPC books na like 1.1-1.3 million barrels. Where the remaining 500,000-700,000 barrels dey go?

Oil theft. Pipeline vandalism. Illegal refineries for creeks. Organized criminal networks with connections inside NNPC, Nigerian Navy, and even some government officials. Dem dey tap pipelines, load crude oil into ships at night, and sell am for black market. The money wey Nigeria suppose make from those stolen barrels? E never enter any account — federal, state, or local.

Real Numbers: According to a 2023 report by Natural Resource Governance Institute (NRGI), Nigeria loses an estimated $3-5 billion annually to crude oil theft. That's money wey never reach federation account. Money wey no state go see. Pure loss.

2. Subsidy Fraud (The Ghost We're Still Paying For)

Even though government don remove fuel subsidy officially, the ghost of subsidy fraud still dey haunt us. Between 2010 and 2020, Nigeria spend over $50 billion on fuel subsidy. But investigation don show say over 40% of those subsidy claims na fraud. People go claim subsidy for fuel wey dem never import. Ships wey never land Nigeria. Stations wey no exist.

That subsidy money na oil revenue oh. E supposed enter federation account make states benefit. But instead, e don enter private pockets of importers, NNPC officials, and connected businesspeople. According to Nigeria Extractive Industries Transparency Initiative (NEITI), subsidy-related deductions from federation account between 2016-2020 totaled over ₦4 trillion — and over ₦1.5 trillion of that na questionable claims.

3. Offshore Accounts and "Special Accounts"

Some oil revenue no even pass through federation account at all. Federal government get what dem call "special accounts" for things like "strategic reserves," "intervention funds," and "presidential initiatives." The money for these accounts no dey follow normal budget process. Transparency? Almost zero.

For example, Excess Crude Account (ECA) supposed be where Nigeria go keep extra money when oil price high. But how much dey inside ECA now? As of early 2024, the account balance na around $473,000 — less than half a million dollars. Bro, for a country wey don dey sell oil since 1970s, how we only get $473k for savings? Where the rest of the money go?

Context: In 2008, Nigeria Excess Crude Account get over $20 billion. By 2024, e don drop to less than $1 million. The explanations wey government dey give? "We use am for infrastructure," "budget support," "stabilization." But which specific infrastructure? Dem no fit show us.

4. Revenue Leakages at State Level

Even the small money wey finally reach states no dey safe. Ghost workers — people wey dey collect salary but no dey work — dey chop billions every year. Inflated contracts, where ₦500 million road project go cost ₦2 billion on paper. Security votes wey no get any receipts or accountability. The list long.

I remember one audit report for Imo State around 2022. Dem discover say the state get over 4,000 ghost workers on their payroll — people wey dey collect salary monthly but nobody fit find dem physically. That's billions of naira wey dey comot from state allocation every year, going into private pockets.

Real Numbers: What Actually Reaches States

Make I use real example make you see how the money dey shrink from oil well to state government account.

Hypothetical Scenario (Based on Real Data):

Let's say Nigeria sell oil worth $10 billion in one month. Follow the journey:

Starting Point: $10 billion oil revenue
Stage 1 (NNPC Remittances): NNPC deduct $2 billion for "cost recovery" and operational expenses → Remaining: $8 billion
Stage 2 (First-Line Charges): 13% derivation to oil states = $1.04 billion, 13% collection cost = $1.04 billion, other statutory deductions = $500 million → Remaining: $5.42 billion
Stage 3 (Federal-State-LG Split): Federal government = $2.85 billion (52.68%), States combined = $1.45 billion (26.72%), LGs combined = $1.12 billion (20.60%)
Stage 4 (Individual State Share): If we assume one average non-oil-producing state — let's say Kwara — their share of that $1.45 billion fit be around $30-40 million (based on allocation formula)
Stage 5 (Federal Deductions Before Release): Debt servicing = $5 million, bailout repayment = $3 million, other deductions = $2 million → Kwara State actually receives: $20-30 million

So from $10 billion total oil revenue, one state like Kwara collects around $25 million. That's 0.25% of the original amount. And this ₦25 million (roughly ₦40 billion naira at current exchange rate) supposed cover salaries, pensions, overhead, debt servicing, and capital projects for 30 days.

You fit now understand why most states dey struggle. The mathematics no just dey add up. Even if there's zero corruption at state level, the amount wey dey reach dem from oil revenue distribution in Nigeria no fit sustain proper governance.

Financial charts and calculators showing revenue allocation breakdown across Nigerian government tiers — When you break down the numbers, the gap between crude oil revenue and what states actually receive becomes painfully clear. Photo: Unsplash

Five Real-Life Examples of Revenue Loss

Make I give you five specific examples — real situations wey happen — so you go see how this oil money matter dey play out for real life.

Example 1: The Kogi Salary Crisis (2016-2017)

Kogi State owed workers salary for over 7 months. Governor Yahaya Bello claimed the state "no get money" because federal allocation don reduce. But when we check the actual numbers from FAAC reports, Kogi was receiving ₦3-4 billion monthly throughout that period. So where the money go? Turns out, over 60% of the allocation was going to debt servicing (previous government borrow heavy), and another big chunk was being used to fund "security operations" and "special projects" wey nobody fit see. The workers suffered not because money no dey come — but because priorities wrong.

Example 2: Rivers State vs Federal Government (2023 Derivation Dispute)

Rivers State, one of the biggest oil-producing states, complained say federal government dey under-remit their 13% derivation. According to Governor Sim Fubara team, based on actual oil production from Rivers waters, the state supposed dey collect at least ₦15-20 billion monthly from derivation alone. But the amount wey dey enter their account na like ₦8-10 billion. When dem challenge federal government, the response na "we dey calculate based on actual remittances from NNPC, not production figures." Meaning say the oil wey NNPC no account for (whether na theft or cost recovery) no go count for derivation. So Rivers — wey their environment dey suffer from oil pollution — dey lose billions because of NNPC's questionable accounting.

Example 3: Osun State Bailout Trap (2015-Present)

In 2015, Osun State was one of the states wey collect federal bailout to pay workers' salary arrears. The bailout na roughly ₦34 billion. Fast forward to 2024, Osun still dey pay that loan — with interest. Every month, federal government dey deduct between ₦800 million to ₦1.2 billion from Osun allocation as repayment. That's almost 25-30% of their total monthly allocation going straight to debt servicing. The state been struggle financially before the bailout, the bailout supposed help, but instead e become burden wey go last another 5-7 years. Meanwhile, the original problem wey cause the salary crisis — bloated civil service, poor revenue generation — never change.

Example 4: The Paris Club Deduction Saga (2016-2024)

This one na national wahala. When Nigeria renegotiate Paris Club debt in 2005, we recover some money — about $1 billion. But the consultants wey help with the recovery supposed collect fees. Problem na, some of these consultancy contracts been dey fraudulent — people wey no do any work but get contracts with fake signatures. Federal government still went ahead and approved payment of over $600 million to these consultants — and dem dey deduct am from states' allocation monthly. Many governors protest, Supreme Court even rule say some of the deductions illegal, but the deductions never stop completely. Some states don lose over ₦5-10 billion since 2016 to this Paris Club matter alone.

Example 5: Delta State and Oil Theft Impact (2022-2023)

Delta State na major oil producer. But for 2022-2023, their 13% derivation drop sharply — not because production stop, but because oil theft reach record levels. Pipelines for Warri, Sapele, and Ughelli areas been dey leak like 200,000-300,000 barrels per day to thieves. Since derivation dey calculate based on NNPC remittances (not actual production), Delta State lost billions. Governor Sheriff Oborevwori publicly stated that the state lost an estimated ₦40-50 billion in derivation revenue in 2023 alone because of crude oil theft. That's money wey supposed develop the state, pay workers better, fix infrastructure — but thieves and their sponsors chop am.

These five examples show you say the problem no be just "government dey thief" — although that one dey happen too. The system itself get holes. From NNPC remittances, to federal deductions, to debt servicing, to outright theft, the money dey leak at every stage.

"The truth is, oil money reaches your state — but it's like water passing through a sieve. By the time it lands in the account that's supposed to build your roads and pay your teachers, it's barely a trickle of what left the oil well."