Endless turnaround maintenance: Outrage, anger over NNPC’s $1bn loan for refineries

The Federal Government may soon be on a collision course with Nigerians over its plan to seek a US$1 billion loan for the rehabilitation of the 210,000 barrels per day (bpd) Port Harcourt Refinery.

Nigeria has four refineries located in Port Harcourt, Warri and Kaduna with a combined name plate capacity of 445,000 barrels per day. Regrettably, over the years the refineries have consistently failed to meet the local consumption demand of Nigeria.

In 2019, the refineries lost N167 billion ($439.47 million), and only Warri processed any oil. In April 2020, they were all shut down pending rehabilitation.

Nigeria has struggled with the poorly maintained units for decades. Successive chief executives of the Nigeria National Petroleum Corporation (NNPC) and politicians had announced series of unsuccessful plans to revamp, privatise or expand the refineries.

NNPC abandoned a similar attempt in 2019 to partner with oil traders, producers and engineering firms to fund refinery revamps after more than a year of talks, saying it would fund the projects itself.

The barely functional plants leave Nigeria completely dependent on imports, and subsidy schemes also cost the country billions of dollars. Nigeria says it eliminated subsidies, but the state’s NNPC is effectively the sole gasoline importer, using some 300,000 barrels per day of oil to swap for fuel.

In December 2020, NNPC opened a bid round for a contract to rehabilitate the Port Harcourt complex. NNPC GMD, Mele Kyari, had said last year that private companies would run the refineries once they were rehabilitated.

In July 2020, global energy trader, Vitol and Nigerian firm, Matrix, backed by banks agreed to lend NNPC $1.5 billion to support its upstream arm, NPDC, although the discussions that led to the deal predated COVID-19.

Currently, all the refineries are out of production, leaving Nigeria to import 100 per cent of its petroleum product needs.

Indeed, more worrisome to observers is the endless turn around maintenance (TAM) of the refineries that has gulped trillions of Naira in years past without yielding the expected results.

But in a bid to ensure that the refineries come back on stream, the Nigerian National Petroleum Corporation (NNPC), the owners and managers of the refineries had two weeks ago unveiled plans to seek loan for the Port Harcourt refinery rehabilitation.

Sources close to the deal had reportedly disclosed that the NNPC was in high level discussion to raise about $1 billion in a prepayment with trading firms to refurbish its largest refining complex in Port Harcourt, Rivers State.

If the financing is concluded, the long overdue rehabilitation of the refinery is expected to reduce Nigeria’s heavy fuel import bill.

The move according to the report would also mark Nigeria’s second oil-backed financing since the COVID-19 pandemic that has added to the difficulty in finding investors as fuel demand is sapped by lockdowns with renewable energy gaining ground over fossil fuel.

The money according to sources close to the deal would be repaid over seven years through deliveries of Nigerian crude and products from the refinery once the refurbishment is complete. Cairo-based Afreximbank is reported to be leading the financing deal.

Though NNPC declined to comment, sources close to the deal said discussions were taking place with a range of foreign and Nigerian trading houses, including some who have previously worked with Nigeria, and who asked not to be named.

Apart from the problems of the pandemic and increased investor preference for carbon-free energy, defaults and fraud in commodity trading, mainly in Asia, have reduced the appetite of foreign banks for exposure to commodity trade finance.

A source at one foreign bank, who pleaded not to be named, said it was unlikely to participate in Nigeria’s latest effort because of lower credit availability and increased reluctance to take out exposure in a high risk country.

Commenting on the development, Executive Director, Socio-Economic Rights and Accountability Project (SERAP), Adetokunbo Mumuni, in a telephone interview with Sunday Sun said the idea of borrowing to fix the refinery should not be the way to go, saying that the government has failed to account for what it had so far spent on the refineries without getting the expected result.

The SERAP Executive Director warned the Federal Government against reckless spending and borrowings which have failed to impact the quality of lives of Nigerians.

“Government cannot just embark on a borrowing spree without carrying Nigerians along. Nigerians deserve to know how their monies are spent, especially what it spent on past TAMs and the results achieved.”

Mumuni said he doubts the capacity of NNPC to manage the refineries, saying similar efforts by the corporation had failed the country.

He advised that the NNPC should engage those that are vast in refinery management, stressing that the move to borrow $1 billion would go the way spending on previous TAMs went.

Also speaking, an oil and gas expert who is vast in transaction matters in the sector, Mr. Dele Anifowoshe, in an email response to Sunday Sun inquiry, said the first point is to enquire what happened to the initial loans that were obtained. “Were these loans actually obtained? Were they actually used for the purpose they were obtained and who were the companies that undertook the TAM? What exactly did they do? Was there any independent third party supervision or certification that the TAM was done? If so, who verified and what were the findings? If satisfactory answers are not provided to the foregoing questions, then there is a strong likelihood that the current arrangement too will not lead to any appreciable progress. Nothing will change, effectively,” he said.

Details from the first-ever audited accounts and financial statements of the companies published by NNPC last year, indicate that three of Nigeria’s four refineries gulped N1.64 trillion in cumulative losses recorded in their operations since 2014,

Two of these refineries are the 210,000 barrels per day capacity Port Harcourt Refining and Petrochemical Company Limited and 110,000 barrels per day Kaduna Refining and Petrochemical Company Limited.

The audit reports showed that combined losses from the two refineries were N208.6 billion in 2014; N252.8 billion in 2015; N290.6 billion in 2016; N412 billion in 2017, and N475 billion in 2018.

The five-year audited account details for 125,000 barrels per day Warri Refining and Petrochemical Company Limited were, however, removed from the published details by the NNPC.

A review of the published details showed cumulative losses from the operations of the four refineries in 2017 and 2018 stood at about N412.8 billion.

Critics say the humongous losses, which epitomise the level of rot and decay in the four refineries, counters the logic in the federal government’s avowed commitment to sink more public funds in their rehabilitation before selling them to private investors.

Both the Minister of State for Petroleum Resources, Timipreye Sylva, and the Group Managing Director of the NNPC, Mele Kyari, have spoken variously about the government’s plan to rehabilitate the four refineries before considering privatisation.

A further review showed the bulk of the losses were from the operating costs and administrative expenses accumulated by the companies despite the fact that some have since been shut down or operating at grossly below installed capacities.

Findings showed all the refineries spent huge earnings on administrative expenses, which included head office overhead funding, public relations and publicity, staff training expenses, local/international travels and hotels, employee benefits, director’s remuneration, and consultancy fees.

The worst details are in the financial statement by Haruna Yahaya & Co. and Oye Abioye Quaye & Co., the chartered accountants that conducted the audit on the Kaduna Refining and Petrochemical Company Limited.

The report showed that the refinery did not realise any revenue in 2018 through processing fee due to the shutdown of the plants and ongoing turnaround maintenance.

But, the total comprehensive loss for 2018 was about N64.3 billion, as against N111.9 billion in the previous year, total equity loss put at about N423.4 billion, up from N359.2 billion in 2017.

The expenses that contributed to the losses included auditor’s remuneration N50 million in 2018 and N30 million in 2017; employee benefits N13.9 billion, down from N27.3 billion in 2017; refinery assets N11.4 billion and N73.4 billion in 2017; staff bus N90.7 million and N85.1 million in 2017.

Similarly, operating losses for 2018 dropped by 42 per cent from N112 billion in 2017 to N64.6 billion in 2018, while administrative expenses grew from N21.7 billion in 2017 to N39.995 billion in 2018.

Details of the administrative expenses include NNPC head office overhead (N14.1 billion) in 2018, and N1.3 billion in 2017; Public Relations and publicity N45.1 million in 2018 and N58.5 million in 2017; maintenance N102. 8 million and N567.7 million in 2017.

But observers are hopeful that when operational, the 650,000 Dangote refinery will put an end to the poor refining capacity of the country.

This claim was however faulted by the Nigerian Labour Congress (NLC), saying government’s energy policy was defective.

Secretary-General of NLC, Dr. Peter Ozo-Eson, had far back as 2017, warned the Federal Government against allowing the Dangote Group to monopolise the oil refining sector.

According to Ozo-Eson, the Dangote Group currently monopolises the cement sector. He said that such must not be allowed to happen in the oil refinery sector.

He said the Federal Government failed to pursue a comprehensive policy that could improve local crude oil refining capacity.

It stated that the government was pursuing a wrong policy in the energy sector.

The congress, which said it had warned the Federal Government earlier about its policy, stated that the government failed to listen because it was only interested in increasing the fuel pump price without putting in place the necessary measures that would keep the price stable.

Ozo-Eson stated that the Federal Government did not think its energy policy through, noting that the country would continue to have energy crisis anytime there was a rise in the international prices of crude oil and fluctuations in the exchange rate.

He said, “The government did not think its policies through. We pointed out this danger. If you say you have removed subsidy and you now allow the market to determine the price, when the underlying parameters change, whether it is the international prices of crude oil or the exchange rate of the naira, when you run all these through the template, you are going to face a situation like this.

“What they did was only half-policy, they did not a have a comprehensive policy. If you have a comprehensive policy and you want to maintain a price at a level and you don’t want to pay subsidy, what you should have is price modulation scheme that would build up the funds initially or create funds which would provide a support window to allow you to mediate in the parameters.”

He warned the government against allowing the country to depend on Dangote Refinery, stressing that the firm would exploit Nigerians.

Ozo-Eson explained that every member of the Organisation of Petroleum Exporting Countries has refineries.

He noted that the government would be failing in its responsibility if it allowed Aliko Dangote to have monopoly in the downstream sector.

He said, “A monopoly in the oil refinery sector will kill Nigerians; a recent survey showed that prices of cement in Nigeria are the most expensive anywhere in the world.”

He also said the NLC did not see any sense in increasing fuel price after what Nigerians had gone through.

But two civil societies organisations – SERAP and the Centre for Anti-Corruption and Open Leadership – had, however, criticised the NLC for its warning about impending monopoly in the oil refinery sector.

They said that more Nigerians, who have the wherewithal, could approach the government and acquire the licence.

Mumuni said, “I don’t think the NLC is serious. About 18 licences were issued to people to construct refineries more than two years ago and those who were given the licences failed to commence any work. So, it is not a question of Dangote monopolising the sector, it is a question of who has the wherewithal and commitment to commence work.

“Let the NLC suggest other people that have shown their wherewithal to also construct refineries. The Goodluck Jonathan-led administration issued licences to 18 companies but no one has yet to build. Let the NLC do its work properly and stop giving Nigerians the wrong information. This is the way I see it.”

Also, the CACOL Director, Debo Adeniran, said, “The way the NLC is going about this issue is reactionary. Being labour bureaucrats, they were there when the licences to build refineries were being auctioned and how much agitation did they put forward? Did the labour confront the Federal Government? Will the NLC be fair to now stop those investors, who have paid so much money to purchase the licences, from operating? It is unfortunate that it is this time that the labour is asking the government to stop the operation.”

On his part, an industrialist and President, Azikel Group of Companies, Dr. Azibapu Eruani, said recurring fuel scarcity and acute unemployment would be reduced to the barest minimum when privately-owned refineries commence operations.

The industrialist, who decried the yearly scarcity of petroleum products across the country, particularly during festivities, said the phenomenon had become embarrassing as it had crippled virtually all economic activities in the country.

Eruani noted that the scarcity of the products persisted because of the low production capacity of existing refineries and the country’s penchant for totally depending on fuel imports for local consumption.

He, however, lauded the Buhari-led Federal Government for taking pragmatic steps to address low supply, importation of fuel and price hike by issuing licences to private refineries.

He noted that Azikel Petroleum had achieved 65 per cent completion, stressing that it would soon begin operation.

He expressed confidence that when all licensed privately-owned refineries began to dispense fuel, the development would shore up production capacity and fuel scarcity and inadequate supplies would be a thing of the past. (Sunday Sun)