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Nigerian refineries face impending solvency over debt

Nigeria’s largest refineries face impending insolvency over debt, as they continue to generously pay workers for doing nothing, validating calls by experts that the moribund assets be privatized.

The remarkable collapse of refineries once operating at full capacity is a big loss to government and reputational damage to stakeholders.

The existential risk to the 3 assets (Port Harcourt Refining Company Limited, Warri Refining and Petrochemical Company, and Kaduna Refining Company) is the combined total short term debt of N687.39 billion and cumulative total liabilities of N1.25 trillion as at December 2018.

Perhaps more worrisome is that they haven’t been generating revenue over the past few years, while pipelines are lying fallow, which is why the country imports petroleum product to meet local consumption.

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According to the 2018 audited financial statement of the 3 refineries as glimpsed from their websites, cumulative sales stood at N3.44 billion as at December 2018, a 58.86 percent drop from N4.87 billion the previous year.

That means Nigeria National Petroleum Corporation (NNPC) has been piling debt and expenses on moribund refineries over the past year, which underscores gross mismanagement, corruption, and lack of transparency on the part of managers.

Little wonder these refineries are technically insolvent as total liabilities of N1.25 trillion exceeds total assets of N101.34 billion, resulting in a negative shareholder fund or total equity of N1.15 trillion,

A N1.15 trillion deficit means Nigerian assets have been making losses more than profit since their existence. And that gives us an idea that investors will only be willing to pay pea nuts for refineries that cost government hundreds of millions of dollars to build.

Analysis of losses is grim, but the story has to be told so that stakeholders will know the level of decadence in the oil and gas industry.

For the year ended December 2018, the largest refineries in Africa’s largest economy recorded combined loss of N154.54 billion.

Over the past five years, Port Harcourt refinery posted a combined loss of N205.15 billion.

NNPC is paying inefficient workers, as huge wage bill are more than revenue. Even Manchester City was banned by football governing body UEFA from next year’s Champions league for breaking financial fair play rules.

The cumulative average loss per employee for the three largest refineries was N94.18 million as at December 2018; what this mean is that each staff is making N94.18 million loss per head.

They employed 1639 staff, and have a combined total personnel cost of N46.27 billion, their personnel cost per employee is N24.39 million. This means on average a worker is paid N24.39 million in organizations that have not been producing a drop of refined products in eight months.

Kaduna Refinery, which did not generate revenue in 2018, has the largest wage bill as personnel cost per employee is 74.63 million as at December 2018.

Industry experts say the refineries should be privatized and included in the public assets that Bureau of public Enterprises (BPE) is poised to dispose in its 2020 Privatisation Work Plan.

While refining capacity is below 60 percent, turnaround maintenance has not been done in the past decade.

The NNPC said that the three refineries processed no crude and produced -5031 metric tonnes of finished products; comprising -3052MT and -1979MT utilised by the WRPC and the PHRC respectively in November 2019.

It added that the combined yield efficiency is 0.00 per cent owing largely to on-going rehabilitation work in the refineries. For the month of November 2019, the three refineries produced 385MT of intermediate products at combined capacity utilisation of 0.00 per cent.

While Nigeria has 445,000 bpd of refining capacity across four separate facilities, the NNPC imports bulk of the country’s gasoline because the refineries operate below capacity.

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