Nigeria’s bold new policy to cut upstream oil production costs must overcome legal ambiguity, regulatory overlaps, and institutional frictions, warns Tominiyi Owolabi, managing partner at Olaniwun Ajayi LP
Nigeria’s recent executive order targeting cost efficiency in the upstream oil sector marks a high-profile attempt by President Bola Tinubu’s administration to address one of the industry’s most persistent structural weaknesses: production costs that rank among the highest globally.
The Upstream Petroleum Operations (Cost Efficiency Incentives) Order, 2025, introduces performance-based tax incentives tied to cost reductions, with benchmarks to be defined by the Nigerian Upstream Petroleum Regulatory Commission (NUPRC). While the policy has drawn attention for its ambition, legal and policy experts have cautioned that implementation will be the decisive factor.
“Executive Orders don’t lower costs. Execution does,” said Tominiyi Owolabi, managing partner at leading commercial law firm Olaniwun Ajayi LP.
According to Owolabi, the Order “sets out tax reliefs for operators who demonstrate cost discipline,” assigns “a clear role for regulators to define and enforce efficiency standards,” and reflects “an intent to cut waste, improve project delivery, and reward performance.” Yet, he noted, “policies are only as effective as the machinery that drives them.”
Deep-rooted constraints risk undermining the Order
Owolabi pointed to a number of entrenched challenges that could blunt the impact of the new fiscal framework. These include “procurement practices riddled with inefficiency,” “regulatory overlaps that create costly delays,” and “misaligned interests between government and operators that dilute the drive for cost discipline.” He also highlighted the “lack of data transparency and verifiable cost benchmarks” as a fundamental barrier to implementation.
“Unless these issues are tackled head-on,” said Owolabi, “the Order risks becoming just another well-intentioned directive.”
Legal limitations raise further questions
Beyond execution, Owolabi expressed concern about the legal force of the executive order. “Executive Orders can only go so far,” he noted. “While they may signal political will, they don’t have the same legal force as legislation or formal amendments to existing fiscal frameworks.”
He explained that tax reliefs in the petroleum sector typically require statutory backing. Although the Order relies on Section 89 of the Companies Income Tax Act (CITA) for legal basis, Owolabi questioned its enforceability without further legislative action.
“But without a robust legislative mechanism,” he asked, “how will these incentives be enforced across agencies? Can they override existing tax laws or fiscal terms in production contracts? Will the Federal Inland Revenue Service (FIRS) recognise them without legislative authority?”
Recommendations for impact
To give the Order meaningful effect, Owolabi called for “clear legislative harmonisation,” “independent, transparent benchmarking from NUPRC,” and “seamless coordination across NUPRC, NNPC, FIRS and the Ministry of Finance.” He also stressed the need for “operator innovation, not just compliance,” and “fairness in tax validation.”
“The direction is right, and the ambition is welcome,” he concluded. “But the difference maker will be the discipline of execution.”
