Once upon a time, Nigeria discovered oil. Soon enough, it became our main source of livelihood, the foundation upon which our national budget rests, and the one commodity that provides most of our forex inflows. To be able to extract value from this oil, we created refineries all of which are government-owned and managed. Sadly, the rest of the story includes heavy bouts of politicking, lots of bloodshed, corruption, explosions, and billions of Naira in losses. Oil might have been one of Nigerias biggest blessings, but it also undoubtedly doubles as its biggest curse.
On Monday, the Nigerian National Petroleum Company (NNPC) released its audited financial statements for 2018, noting that its refineries recorded losses of N154 billion. As embarrassing and disappointing as it sounds, it is not as surprising. The nations 3refineries located in Port Harcourt, Warri, & Kaduna, reported combined losses of N154 billion. Kaduna Refining and Petrochemical Company (KRPC) incurred a loss of N64.5 billion, Port Harcourt Refining Company (PHRC) recorded a loss of N45.6 billion, while Warri Refining and Petrochemical Company (WRPC) recorded a loss of N44.4 billion. The losses also arent new as all refineries performed better than the preceding year 2017. The only thing more confounding than the billions in losses is the convenience with which Kaduna refinery conveniently recorded zero revenue for 2018.
Many issues feed into the wreckage that has become Nigerias refineriesand most of these issues date as far back as decades prior tonowwith the last of the nationsrefineries built40 years ago. For a recap, heres an overview of some of the problems that have led us this far.
As far back as the 1970s, Nigeria, Norway, and Malaysia set up national oil companies for the exploration, production, and refining of oil. So when Norway came up with Statoil (now Equinor) and Malaysia, Petronas, Nigeria created NNPC. Today, while Malaysia and Norway boast of having the biggest state-owned oil and gas companies in the world, NNPC has a long list of excuses and mind-boggling losses to show for it. While PH and Warri and in oil-producing states, Kaduna does not produce any oil. For the sake of balance and to have a national spread, some of the crudes are moved to Kaduna via pipeline. Hold that thought.
(READ MORE:NNPC GMD gives reasons for shutdown of refineries, to get private managers)
The capacity of all three refineries is also insignificant, compared to the required consumption of the nation. Hence, most of our oil is still imported because we cannot produce enough. This rate of importation is over80%of our consumption.The existing refineriesalsooperatesignificantlybelowcapacity.Sometime last year, the refineries operated as lowas 5.55 percent capacity.Toincreasecapacity,the country carriesout turnaround maintenanceperiodicallyandnot only does it cost an arm and a leg, it takes months but barely anything ever changes. Production stays low and cost stays high.Even if we turn all 3 around successfully, wehave shown that we areincapable of increasingtheir capacity. Essentially, Nigerians will stillneed to import.Other factors contributing to the losses arespillages, explosions, and theft.
Yet in the midst of this, salaries and employee benefits are huge.KRPC, WRPC, and PHRC reported 13.8 billion, 13.8 billion, and 9.2 billion in employee wages and salaries, excluding directors remuneration, staff pension and other benefits. Given the inefficiency of the operations of the refineries, theonly thingthat could have been doneasides creating better refineries is to have an overhaul of the entire thing and shut down the refineries. But thats a different problem.
The first thing youll learn about oil in Nigeria is that everybody wants it. All of our refineries were built in the Military regime as far back as that. Given the failure of the refineries, the first attempt to sell them off was made by former president Olusegun Obasanjo. When Umaru Yar Adua became president, he reversed it citing that the process lacked transparency. The fears of the unions in the oil and gas sector was also palpable as they saw the sale of the refineries as a ploy by the government to award the deal to its cronies. In November 2012, former President Goodluck Jonathan also recommended that the refineries be sold as a result of inadequate finance and under-performance, but they still remained. It didnt take long before more issues emerged.
With developments going on in non-oil producing northern parts of the world like the States capital and barely any developments in the south, Niger Delta Militants sprung up and swore to wreak havoc on the entire nation. Also worthy of note is that today, President Buhari still remains the minister of petroleum.
(READ MORE:260 Nigerians set to be evacuated from India FG)
One of the most confounding things is the fuel subsidy saga.With the costof import landed costhigh, the government had thought it a great idea to subsidizefuelfor the average Nigerian.Forget the question of whether we should be paying subsidies or not, how much in subsidies is the government really paying?Subsidies are based onthe volume of petroleumconsumed,butone unconfirmed information is how the subsidy is being calculated.Eventoday, NNPC and PPRA cannot agree on the volume of petrolbeing consumed daily in Nigeria.
IfDPR saysNigeria isconsumingaround38millionlitres in a day and NNPCsuggests thatthe countrys daily petrol consumptionis around50 60million litres, it means thereare significantdiscrepancies. As it is, no one knows how much subsidies Nigeria is actually paying every day and where the money is going to if were not actually consumingasmuch.
Of the series of challenges therefiningspaceis plaguedwithfromtheft of petroleum products,topoor maintenance andaseriesofoperational challenges, corruption ranks tops and it isnt news.Corruption in the downstream sectorwasalsoexposed during the subsidy probe. It revealed thatsome of the companies that took money for subsidydid not even importrefined productsat all. With marketers preferring toimport,our refineriesstay dormant. The funds used in Turn Around maintenance (TAM) annuallyalsodoes notalsocontribute to any meaningfuland could also be another avenue for exploiting the industry.
While Nigerians sit and watch the decay in the system fester, one billionaire is on course to provide an alternativethat both the government and the private sector are basing all their hopes and dreams.AlikoDangotes650,000 barrels a day refinery which is set to beoneof theworldslargest,is due to start operations inless thana years time.Even as we hope that the refinery brings somesanityto the modus operandi andreverse the decades-oldrot in the system, it too isnt bereft of flaws.Yet, it is the only foreseeable hope we have to put an end to the joke that is our refining system and commence the process of recovery.
See the original post:
Analysis: NNPC and its refining losses - Nairametrics
