Would NNPC model Brazil’s Petrobras planned sale of 8 refineries?

Executives at Brazil’s statecontrolled Oil Company Petrobras want to cut down debt ratios boost profitability and payout more dividends to shareholders. To achieve this, they are embarking on aggressive divestments that will include a multi-billion sale of eight refineries.

The Ibovespa or Stock Marketlisted Petroleum Company plans to reach a net debt to earnings before interest, taxes, depreciation, and amortisation (EBITDA) ratio of 1.5. That ratio currently stands at 2.69.

Anelise Lara, Petrobras downstream head said in a call with analysts that Petrobras had received many expressions of interest in the refineries from trading firms, local distribution firms and international oil companies.

The Nigerian National Petroleum Company (NNPC) can learn two lessons from Petrobras. The first is to come to terms with the fact that Africa’s biggest oil producer’s refineries have continued to incur losses despite efforts at rehabilitating them, a sign that it is probably time the NNPC to divest from these oil asset classes.

At their establishment, operating capacity utilisation targets for Nigeria’s four refineries were meant to meet international standards of 90 percent capacity utilisation, secure crude supply to 95 percent availability and reduce the time needed for turnaround maintenance (TAM). Other operational targets were to produce at optimal yields as defined by the linear programming model and reduce the cost to $5 per barrel inline with international best

practice.

However, following the abysmal consolidated capacity utilisation of less than 30 percent for the four refineries in 2018, the NNPC embarked on a TAM starting with the Port-harcourt Refining Company Limited in March last year. But uncertainty continues to surround the proposed rehabilitation of these refineries. And many experts have said the Federal Government has a track record of failing at running businesses from the Nigerian Telecommunication Limited (NITEL) to the National Electric Power Authority (NEPA).

Nigeria’s refineries have extended their losses, recording an operating deficit of N133.9 billion from January 2018 to January 2019.

“The Federal Government and NNPC do not have the funds to turn around Nigeria’s dwindling refining fortunes and there are other issues that are legal and legislative in nature” Maikanti Baru, NNPC’S group managing director said at his induction as Fellow of the Nigerian Academy of Engineering on recently at the University of Lagos.

This has not always been so. The post-war Nigerian economy was growing in leaps and bounds and that drove high consumption of petroleum products particularly the premium motor spirit (PMS) or petrol. Consequently, inadequate local facilities to produce, refine and distribute caused tremendous shortages across the length and breadth of the country. Nigeria’s good fortune was that it had square pegs in square holes at that time, people familiar with the matter have said.

Under the leadership of Shetima Ali Monguno, minister of mines and power, petroleum and energy 1972-75 and president of the Organisation of Petroleum Exporting Countries between 1972 and 1973; there were technocrats and executors who laid the foundation of what still stands today in terms of refining and distribution capabilities. Monguno operated from a little office on the Island in Lagos.

The refineries were created in sequence. First, there was the expansion of the 50, 000 barrels a day Port-harcourt Refining Complex (PHRC) to 60, 000 barrels a day. Then there was the construction of the Warri refinery, the Kaduna refinery and subsequently new Port-harcourt refinery that has the capacity of 210, 000 barrels a day.

A second lesson the NNPC can learn from Petrobras is the need to re- enter a pre- listing mode and set timelines for listing on the Nigerian Stock Exchange to facilitate raise funds and ensure accountability.

A listed NNPC will lift out Nigeria’s oil sector largely in recession and also uplift Nigeria’s oil and gas reserves which have remained stagnant or dwindling, while oil production declines.

Listed NNPC means huge gas reserves estimated at 182 trillion cubic feet (TCF) could help feed power generation for energystarved Nigeria, which have largely remained undeveloped 20 plus years after being discovered due to NNPC’S inability to either fund the capital expenditure needed to develop the fields or let go of the fields for private oil firms to develop.

Brazilian State Oil Company Petrobras which was created in 1953 sold its first shares to the public in December 1957.