The fund created to finance Nigeria’s gas infrastructure ambitions is facing fresh scrutiny after an audit uncovered financial discrepancies and compliance failures involving about N94.4bn, raising questions over revenue collection, transparency and accountability within one of the country’s strategic energy institutions.
The findings involving the Midstream and Downstream Gas Infrastructure Fund (MDGIF) come at a critical period when Nigeria is seeking to expand gas utilisation, attract investment into the energy sector and strengthen infrastructure required to support the country’s transition from an oil-dependent economy.
Beyond the billions queried by auditors, the report highlights deeper concerns: billions of naira in expected revenues that were not fully accounted for, questions over payments to consultants, procurement concerns and the failure of the Fund to submit and publish audited financial statements for three consecutive years.
The audit review by the Office of the Auditor-General for the Federation (AuGF) forms part of the 2024 Annual Report on Non-Compliance and Internal Control Weaknesses in Ministries, Departments and Agencies.
The MDGIF was established under the Petroleum Industry Act (PIA) 2021 as a financing vehicle for gas infrastructure development. Its mandate includes supporting midstream and downstream gas projects and receiving specific revenues, including a levy on petroleum products and natural gas as well as gas flare penalties.
However, auditors found that weaknesses in the Fund’s financial controls affected the collection and reporting of revenues expected to support those objectives.
The largest portion of the audit concerns gas flare penalties, with auditors identifying about N51.09bn in alleged under-remittance and under-collection between 2023 and 2024.
Gas flare penalties are payments imposed on oil and gas operators for flaring associated gas. Under the Petroleum Industry Act, proceeds from these penalties were designed to contribute to environmental remediation and support communities affected by oil and gas activities.
According to the audit, the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) reported gas flare penalty revenue of N140.54bn in 2023.
After deducting the approved four per cent cost of collection, auditors calculated that about N134.92bn should have been transferred to the MDGIF.
The Fund, however, recorded N122.44bn, creating a difference of N12.48bn, which the auditors classified as under-remittance.
The MDGIF disagreed with the finding, explaining that the difference was linked to reporting periods and accounting processes involving revenue collection and transfers through government financial channels.
The Fund argued that NUPRC collects the revenue and remits it through the Federation Account process, after which the appropriate balance is transferred to MDGIF.
The Auditor-General, however, maintained that the explanation did not sufficiently address the discrepancy.
A similar issue was identified in 2024.
The audit stated that NUPRC reported N391.26bn in gas flare penalty revenue during the year. After the deduction of collection costs, auditors expected about N375.61bn to accrue to the Fund.
MDGIF accounted for N337bn, leaving an alleged gap of N38.61bn.
Management disputed the size of the discrepancy, saying reconciliation showed that the difference was insignificant. The auditors rejected the explanation and maintained that the finding remained unresolved.
The auditors warned that failure to properly collect and account for gas flare penalties could affect funding available for environmental remediation and projects aimed at addressing challenges in host communities.
The audit also identified problems involving the statutory levy expected from petroleum products and natural gas sales.
Under the Petroleum Industry Act, the MDGIF receives a 0.5 per cent levy on the wholesale price of petroleum products and natural gas sold in Nigeria.
For 2023, auditors said about N39.90bn should have been paid into the Fund through this levy.
Only N13.35bn was recorded, leaving an alleged shortfall of N26.55bn.
The Fund told auditors that reconciliation with petroleum marketers and operators was ongoing and that efforts were being made to recover outstanding amounts.
However, the Auditor-General found the response insufficient and recommended that outstanding revenues should be recovered and evidence of payment provided to the relevant committees of the National Assembly.
For 2024, auditors identified another N12.94bn difference between expected statutory revenue and the amount accounted for by the Fund.
According to the report, about N102.24bn was expected, while only N89.30bn was recorded.
Another major issue raised in the audit involved a payment of N3.52bn to a consultant engaged to recover outstanding gas flare penalties.
The consultant reportedly received professional fees calculated at five per cent of about N65.44bn recovered.
Auditors questioned whether the engagement complied with government rules, noting that they were not provided with evidence of written presidential approval for the use of a private consultant in revenue recovery.
The audit also stated that relevant documents, including due diligence records and evidence showing compliance with the terms of engagement, were not presented.
The Fund said the arrangement was approved by its Governing Council.
The Auditor-General disagreed, insisting that the payment required further justification and recommending that the amount be properly accounted for and recovered where necessary.
Beyond financial discrepancies, auditors raised concerns about the Fund’s reporting obligations.
The MDGIF failed to submit audited financial statements for 2022, 2023 and 2024 to the Auditor-General despite requests.
The Fund also did not publish its certified annual audited accounts for those years as required by the Petroleum Industry Act.
Management attributed the delay to procedural challenges and said the auditing process was ongoing.
However, auditors warned that failure to provide audited accounts could weaken legislative oversight and reduce public confidence in the management of public resources.
For an institution created to support major national infrastructure projects, transparency in financial reporting remains central to maintaining trust among investors, regulators and citizens.
Future of the Fund after gas penalty revenue shift
The audit findings have emerged alongside broader changes affecting MDGIF’s funding structure.
Earlier in 2026, President Bola Tinubu issued Executive Order 9, directing that gas flare penalty proceeds should no longer be paid into the MDGIF but instead transferred directly into the Federation Account.
The Federal Government said the move was aimed at protecting national oil and gas revenues and addressing concerns around deductions and revenue flows.
Following the order, remittances of gas flare penalties into MDGIF were suspended.
However, the Executive Order did not dissolve the Fund.
MDGIF remains a statutory institution under the Petroleum Industry Act, with other funding sources, including the 0.5 per cent levy on petroleum products and natural gas, continuing to apply.
The Fund has also continued to participate in gas infrastructure development. In May 2026, President Tinubu commissioned four compressed natural gas infrastructure projects supported by MDGIF in Lagos, Abuja and Owerri.
The development means the Fund remains active, although the loss of gas flare penalty revenue could affect its financial capacity to support future projects.
Nigeria has identified gas as a major component of its economic and energy strategy, with the Federal Government promoting increased domestic gas utilisation through initiatives such as the Decade of Gas programme.
The MDGIF was designed to provide financial support for that ambition.
But the Auditor-General’s findings highlight the importance of strong financial controls in ensuring that institutions created to drive infrastructure development are able to account for the resources entrusted to them.
The outcome of the audit recommendations — including recovery of outstanding funds, improved reporting and stronger internal controls will likely determine how effectively the Fund can continue to contribute to Nigeria’s gas infrastructure expansion.
For policymakers and stakeholders in the energy sector, the issue is not only about missing revenues but also about ensuring that the financial foundations of Nigeria’s gas future remain credible.