Running its refineries is rocket science for Nigeria, Africa’s largest oil producer, which has continued to import around 90 percent of its petroleum and related products despite decades and millions spent to refine locally.
The poor state of the country’s refineries is well-known but the maiden audited financial accounts by the Nigerian National Petroleum Corporation (NNPC) still managed to shock many.
Nigeria’s refineries made N154.37 billion in cumulative losses recorded in their operations in 2018 even though oil averaged $71 per barrel in the year. In context, losses made are capable of building 8,380 primary health centres across the country’s 774 local government areas, BusinessDay checks show.
Grounded
One of the most surprising numbers posted was zero – the revenue Kaduna refinery made in 2018 – hence 100 percent decline from 2017’s N2.24 billion. Port Harcourt refinery at N1.99 billion was 70 percent less from the prior year, while Warri refinery recorded 70 percent more revenue to N1.46 billion.
Overall, these refineries posted less than half of N8.31 billion they reported in 2017 despite improvements in consolidated capacity utilisation from 4.9 percent in 2015 to 8.27 percent in 2018, according to BudgIT data. Nigeria desires 85-95 percent capacity utilisation and has current shut down the refineries for Turn Around Maintenance.
Not making money
Compared to other NNPC subsidiaries like the National Engineering and Technical Company Limited (NECTO), Nigerian Gas Company Limited (NGC), and Nigerian Petroleum Development Company Ltd (NPDC), the refineries are barely making the state-owned oil company any money. The Warri refinery which was the best-performing refinery in 2018 made around 5 percent revenue of NETCO while NPDC posted N1.37 trillion in revenue.
Doing bad business
A glance at the operating expenses (OPEX) of these refineries is enough to understand how inefficient they are in the hands of the government.
Kaduna refinery which did not make any revenue incurred N39.99 billion operating cost. Across the board, OPEX was over 1,000 percent more than revenue earned. This means to earn one naira the NNPC had to spend at least N1,000 in running the refinery.
The most notorious, Kaduna refinery, spent nearly half a billion in training staff, N30 million on electricity, N23 billion on employee cost for its 312 staff, only around N4 billion less than it spent in 2017 even though it had around 710 less employees from the prior year. Four directors were paid between N10 million-20 million (excluding pension contribution and other benefits) while the highest-paid took home N33 million.
Losing money
According to a recent BusinessDay report, the 2018 refineries’ loss of N154.37 billion is capable of building 8,380 primary health centres in all the country’s 774 local government areas.
It is also sufficient to rehabilitate Ikorodu-Shagamu road in Lagos State which cost N750 million, while also completing the dualisation of Ibadan-Ife-Ilesha road in Oyo State which has an average cost estimate of N700 million.
The BusinessDay report further estimated that the losses can rehabilitate Gombe-Biu road in Gombe and Borno States with an estimated cost of N1.2 billion, and can also complete the Ijebu Igbo-Olomi Olunde road in Oyo State which has an estimated cost of N350 million.
The opportunity cost is also equal to at least 10,000 libraries (at a cost between N10 million and N20 million each) across the country.
