THE Nigerian National Petroleum Corporation (NNPC) has commenced work on Port Harcourt refinery despite indices showing that spending $1.5 billion on the financial-battered business could be a bad investment.
Group General Manager for Public Affairs Division Kennie Obateru quoted Chief Operating Officer for Refineries & Petrochemicals Mustapha Yakubu on Friday as saying that everything was being done to ensure that the project was delivered hitch-free.
Yakubu was also quoted to have said that the NNPC was engaging the host communities appropriately, stressing that the corporation could not afford to fail Nigerians.
“About 200 million Nigerians are looking up to us and we can’t afford to fail. We’ve been on this journey since 2019,” he said.
The contract for the rehabilitation of Port Harcourt refinery was awarded to an Italian firm, Maire Tecnimont, at $1.5 billion. The fund is coming from Afreximbank, NNPC internally-generated revenue and budgetary allocations.
On Friday, representative of Maire Technimont SPA Masu Alberto said the rehabilitation began in 2017 with an integrity test of the refinery.
“In 2019, we did work on it and then now. We’re deploying a good number of engineers,” he said.
He explained that refurbishing of the technical building, replacement of the fire-fighting, deluge sprinkler systems, refurbishing of 24 offsite tanks, replacement of electrical equipment in the substation, installation of primary earthing integration and new lighting system would begin in earnest.
The rehabilitation is seen as an expensive gamble by financial experts. The NNPC has mismanaged all of its refineries, borrowing money each year to fund them despite incurring humongous annual losses.
According to The ICIR financial analysis, Warri refinery generated revenue of N4.429 billion between 2017 and 2019, but it incurred expenses of N144. 140 billion within the same period.
The refinery incurred N178.315 billion cumulative loss, which rises to N188.436 billion if ‘comprehensive loss is factored in.
Despite the losses, it has a workforce of 515 staff and directors taking home their entitlements amid the losses.
On the other hand, Port Harcourt refinery did not record any revenue in 2019. Yet, it reported N25.19 billion in expenses. Six directors collected N59.65 million in fees, meaning that each of them received an average payment of N9.94 million a month in 2019 from a company that recorded no revenue.
In 2019, total liabilities were estimated at N529.544 billion while assets stood at N93.31 billion. In 2018, total liabilities were put at N399.96 billion whereas assets stood merely at N14.265 billion. In 2017, assets were valued at N26.004 billion while liabilities stood at N365.97 billion.
To further buttress the level of financial recklessness in Port Harcourt refinery, the total number of staff as of 2019 was 675.
Their salaries, wages , allowances, redundancy and pension costs amounted to N22.195 billion. What that means is that, on the average, each staff member received N32.88 million in 2019 from a company that made no revenue. This amounted, on the average, to N2.74 million each month.
Total salaries and pays received by staff of Port Harcourt refinery between 2017 and 2019 amounted at N80.57 billion. But revenues received by the company within the period were estimated at N6.27 billion – implying that the NNPC sought N74.3 billion from outside the refinery to pay staff salaries.
The contention of analysts is that NNPC should hand off the refineries and privatise them to allow efficiency in operations.
It is currently being managed as a ‘no man’s business,’ which puts the investment of Afrieximbank in jeopardy.
“In 2019, PH Refinery contributed zero revenue, but incurred costs of N47bn; almost N4bn a month! Instead of ending this nightmare through a #BPE core investor sale, #NNPC wants to enmesh Nigeria into a deeper financial mess by throwing $1.5bn (incl. debt) at a problem it created?” founder of Stanbic IBTC Atedo Peterside said on his Twitter handle on March 28.
Economist and Senior Lecturer at Lagos Business School (LBS) Bongo Adi said the investment was a step in the wrong direction.
In a telephone interview with The ICIR , Adi explained said it was like government swallowing its own vomit, stressing that none of Nigeria’s refineries had been able to meet the country’s demands for petroleum products.
“… I don’t think that a government that has competent people thinking for it would embark on such a wasteful project at this point in our material existence,” Adi stated.
According to Adi, what Nigerians would have expected from the government was to unbundle the petroleum assets and sell them to the private sector who could take them up for a revamp.