Nigeria's Supreme Court on Wednesday delivered a landmark judgment upholding the Rivers State government's claim to ₦240 billion in disputed oil royalties from the Nigerian National Petroleum Company Limited, in a ruling that legal analysts say will fundamentally reshape the fiscal relationship between oil-producing states and the federal government.

Background of the dispute

The case stems from a 2019 disagreement over the calculation of royalties from oil wells in the state's onshore and shallow offshore territories. Rivers State argued that NNPCL had been systematically underpaying royalties by using an outdated pricing formula, while the federal government maintained that payments were made in accordance with the Petroleum Industry Act.

The seven-member panel ruled 5-2 in favour of Rivers State, finding that NNPCL had indeed applied incorrect pricing benchmarks between 2016 and 2022, resulting in underpayments totalling ₦240 billion.

Implications for other states

Legal experts say the ruling could open the door for similar claims from Delta, Bayelsa, Imo and Akwa Ibom states, which together account for over 90% of Nigeria's crude oil production. Analysts estimate the total potential liability across all states could exceed ₦1.2 trillion.

"This judgment establishes that royalty calculations are justiciable and that states have standing to challenge federal agencies on fiscal matters. It is a watershed moment." — Chief Wole Olanipekun, SAN