Businesses exist to make profit, but Kaduna refinery seems to have been set up for other reasons. Based on the financial statements released by the NNPC, Kaduna refinery made a revenue of N2.278 billion between 2017 and 2019 but incurred a loss of N241.527 billion.
Analysts wonder how the financials of the refinery would look like if the NNPC releases the statements of the company for the last 10 years.
By implication, the refinery lost N239.249 billion in three years. Total assets of the company in the three years under review stood at N116.189 billion, while liabilities were estimated at N1.511 trillion. An investment dictionary, Investopedia, classifies Kaduna refinery as an asset deficient company which might not be able to meet obligations due to asset-liabilities negative gap.
“Asset deficiency is a sign of financial distress and indicates that a company may default on its obligations to creditors and may be headed for bankruptcy,” Investopedia says. The debt-asset ratio examines the percentage of assets funded by borrowing compared with the percentage funded by the investors.
A debt- asset ratio less than one means that a significant portion of a company’s assets is funded by equity or investors’ money. But when it is above one, then a significant proportion of company’s assets is funded by debt and the firm could be at a risk of default.
In the case of Kaduna refinery, the debt ratio for the three years was 13.006 – a red flag to lenders who wanted their money back, said Innocent Unah, an investment banker and accountant.
In simple accounting, when liabilities stand above assets, it is a sign that a company like Kaduna refinery is headed for bankruptcy.
The NNPC has been borrowing to fund activities at the refinery, even when its operations do not show any capacity to pay back.
Net income is negative, meaning that other metrics of assessing profitability of the company turned out negative.
NNPC failed to stop wastes
In 2018, Kaduna refinery made no profit, but it did not stop the management of the company led by Ladenegan Adewale Solomon (CEO in 2018) and Tsavnande Thaddeaus Atighir (Executive Director in charge of operations) from spending N317.50 billion on transport and travels.
In 2019, the refinery was managed by Ezekiel Osarolube (CEO). Usman Umar was his executive director in charge of operations.
In three years under review, the refinery incurred N443.421 billion cost as transport and travels expenses.
Maintenance of the inefficient refinery gulped N2.461 trillion in the three years under review. In the 2018 when the refinery made no revenue, the management of the refinery spent N1.687 trillion for its maintenance. In that same year, salaries and welfare of workers gulped N2.853 trillion. In three years, salaries and welfare of workers cost N4.268 trillion – as against revenue of N2.278 billion.
“Why did refineries become moribund despite all the talks about turn-aroud maintenance?” an oil sector governance expert Henry Ademola Adigun asked, in an interview with The ICIR.
“These questions have to be answered. Is it for lack of maintenance? Is it for administrative purposes? Or is it because they could not find people who were competent enough to support them? Now the question we ask is: Why don’t you allow the private sector to do that if you think they are viable?” Adigun further asked.
The Kaduna refinery was built and commissioned in 1980. It was made up of 50,000 bpsd fuels plant with a CRU and an FCCU, and a 50,000 bpsd lubes plant for production of lubricating oil blendstocks, waxes and bitumen, a 2018 article by Anthony Ogbuigwe said.
A report said the corporation had spent up to $25 billion on turnaround maintenance since inception. After several years of wastes, the NNPC announced that it would carry out a fresh turnaround maintenance on Kaduna refinery in 2005. It also embarked upon the same project in 2008, but admitted that the technologies at the company were obsolete.
“The control room is three decades behind in technology and Nigeria should be proud of the NNPC team for keeping the refinery working with obsolete technology,” the then Group General Manager of Public Affairs Division of NNPC late Levi Ajuomuna said.
In 2013, the Andrew Yakubu-led NNPC said it would embark on another turnaround maintenance, claiming it would boost the refinery’s revenue by N1 trillion. Despite all these, maintenance of the inefficient refinery gulped N2.461 trillion between 2017 and 2019 years.
Analysts say all the managing directors of refineries in Nigeria, including Kaduna refinery, should be called to question, considering that they supervised enterprises that incurred humongous debts and wasted the nation’s scarce resources.
What N239.249 billion loss can do for Nigeria
The N239.249 billion loss incurred by Kaduna refinery in three years can pay minimum wages(N30,000) of 221,527 Nigerians for three years. This would be a boost in a country where 105 million people are extremely poor and earn less than $1.90 per day, according to World Poverty Clock. Alternatively, it can build Lagos-Ibadan Road re-awarded to Julius Berger Nigeria and Reynolds Construction Company Limited at a sum of N167 billion in 2013.
At the cost of N100 million each, the amount can build 2,392 primary healthcare centres across Nigeria, thereby reducing incidences of death and emergencies. These could have reduced the needed 9,855 primary healthcare centres by 24 per cent.
“We have barely one-thirds of the required 9,855 PHCs, which define Universal Health Care, to bring health closer to the people and begin to address Nigeria’s horrendous health indices,” Nigeria’s health minister Osagie Ehanire said in December 2020.
Hand over to private sector now
As associate consultant for the British Department of the International Development (DFID) Celestine Okeke noted that Kaduna refinery was not a good business for the government.
“Why is the government so interested in rehabilitation of the refineries that they told us they have been doing turnaround maintenance on overtime?” he asked.
“For me, if they cannot leave it for the private sector to handle, I wonder the interest in Kaduna refinery rehabilitation when we have all kinds of challenges in our economy,” he said.
Former President of the Nigerian Society of Petroleum Engineers Joe Nwakwue told The ICIR that the issue was not so much about the cost as much as it was about policy clarity.
“The question then is, could we not give majority stake to private sector players and save ourselves the inconvenience of the additional loan burden?” he asked.
“What strategic purpose does retaining full ownership of the refineries serve?”
“Having an Operate and Manage contractor with no skin in the game by way of equity can be challenging and we have no successful story of such arrangements,” he observed, stressing that the country should have gone through sale of majority stake to a core investor and let them worry about rehabilitation and operation.
The NNPC has admitted the humongous losses at the refineries -Warri, Port Hacourt and Kaduna.
A press release by the NNPC’s Spokesperson Kennie Obateru in April 2020 quoted Group Managing Director Mele Kyari as saying that the corporation would not run refineries again. But the corporation is rebuilding Port Harcourt refinery with $1.5 billion – which is considered a total waste by industry players.
In November 2020, Kyari said the corporation deliberately shut down the nation’s refineries because it no longer made sense to operate them.
“For instance, to run Kaduna and Warri refinery, you need to deliver 170,000 barrel of oil per day so that both will operate at 70 per cent capacity,” Kyari said in a report published by The Guardian.
Kyari assured that he would run the corporation with transparency and accountability, noting that the NNPC had published its audited report of 2018 and 2019.