Explainer: How do refineries that processed no crude spend N10bn in June?

Nigeria’s three refineries refined no crude oil yet guzzled billions of naira for operational expenses in the month of June.

According to the Nigerian National Petroleum Corporation’s (NNPC) monthly financial and operations report for June, the latest, the combined value of output by the three refineries (at Import Parity Price) for June 2020 was approximately N0.04 billion.

There was no associated crude plus freight cost for the three refineries since there was no production but operational expenses amounted to N10.27 billion. This resulted in an operating deficit of N10.23 billion, the report stated.

In the same month, the three refineries processed no crude and combined yield efficiency was 0.00 percent owing largely to ongoing rehabilitation works in the refineries. The declining operational performance is attributable to an on-going revamping of the refineries which is expected to further enhance capacity utilisation once completed, NNPC claims.

In most oil-producing countries, local refining creates jobs, contributes to gross domestic products (GDP), and earns the country foreign exchange. Some experts have described Nigeria as crude sales, not an oil economy because the country refines little of the crude oil it produces.

Africa’s biggest oil producer refineries have become waste pipes, which breed inefficiencies and corruption without producing a single litre of petroleum products. The lost job creation opportunities are a steep cost for the country’s over 200 million people.

The consolidated report of refinery financial performance from June 2019 to June 2020 for the Warri Refinery and Petrochemical Company (WRPC), Kaduna Refinery and Petrochemical Company, and Port Harcourt Refining Company, show total operating expenses (losses) of N155.17 billion. This is an average of N12.93 billion monthly. During these 12 months, the refineries operated at 0.00 percent capacity utilisation. The trend shows that it is unlikely that rehabilitations are going as the NNPC claims.

“The refineries have some fixed overhead costs such as salaries, wages and utilities. So, even when capacity utilisation is zero, these overhead costs have to be paid,” Ademola Henry Adigun, team lead, Facility for Oil Sector Transformation Project (FOSTER) told Businessday on phone.

The government continues to spend taxpayers’ money in maintaining and training staff at refineries that are moribund, recording hundreds of billions of losses.

Were the refineries private-sector led, experts, suggest, the investors or shareholders would have liquated or disposed of the losing refineries. Based on the Net Income Per Employee ratio, which is a company’s net income divided by the number of employees, NNPC is incurring losses per employee.

This losing trend of the refineries was reflective in the first audited report of Nigeria’s national oil company for the year ending in December 2018. The refineries employed 1,639 staff and had a combined total personnel cost of N46.26 billion, leaving their cost per employee at N28.83 million.