It is meant to be a cash cow with average oil price of $71.04 in August, but latest report from state oil company of Africa’s biggest producer showed the country is still bleeding money to wide range of old perennial problems.
BusinessDay analysis of the September report of NNPC showed modest gains made by NNPCs upstream and gas processing subsidiaries such as the Nigerian Petroleum Development Company (NPDC), Retail and Nigerian Gas Processing Transportation Company Limited, were wiped off largely by Kaduna, Port Harcourt and Warri refinery which all incurred a combined loss of N95 billion.
NNPC report also showed other subsidiaries such as Nigeria Pipelines and Storage Company Limited (NPSC), Shipping, CHQ and Ventures incurred a combined deficit of N154.5 billion in August. This is beside the N70 billion on Under Recovery, Crude Losses, Product Losses, Pipeline Repairs and Management Cost.
The report noted that in September 2018, there was no Crude processed by the country’s three domestic Refineries as against the 56,804 metric tons processed in the preceding month translating to zero combined yield efficiency as against the 80.74percent in August 2018.
“The lower operational performance recorded is attributable to the ongoing revamping of the refineries which is expected to further enhance capacity utilization once completed,” NNPC said in latest report.
Despite having a combined processing capacity of 445,000 barrels per day, the combined value of output by the three refineries (at import parity price) for the month of September 2018 amounted to N1.44 billion while the associated Crude plus freight costs and operational expenses were zero and N8.41billion respectively resulting to an operating deficit of N6.97 billion by the refineries.
“The problem is not that the refineries are old or obsolete; the oldest refinery in Nigeria is younger than the oldest refinery in Europe, the problem is who is managing them?” asked Henry Ademola, team leader, Facility for Oil Sector Transformation (FOSTER), a project under the Oxford Policy Management, an international development consulting firm.
He noted that refineries are not only meant for refining petrol alone but at least eight other petroleum products including diesel which will have a positive multiplier effect on Nigeria economy if the sector is deregulated.
Adeola Adenikiju, a gas and policy analyst for the World Bank and professor of Economics at University of Ibadan told BusinessDay that there are people working in these refineries that are being paid and promoted for not doing anything but yet receive hefty salaries.
“So the refineries are loss centers and not profit oriented compared to other oil producing countries which is a shame,” Adenikiju, told BusinessDay some weeks back.
Babajide Soyede, a former general manager of Warri Refinery told BusinessDay that selling the refineries is the best option, adding that fundamentally refineries are potentially profitable if they are upgraded and handled professionally.
“The refineries can be upgraded. It is the size of refinery that is most important and unless all the units are upgraded we cannot have 90 per cent optimization from these four refineries,” he said.
With less than three days to the end of 2018, the poor performance of the country’s refinery is a fatal blow to Ibe Kachikwu, Nigeria’s minister of state for petroleum resources who had on 22 May 2017 in an interview with the BBC World Service said he would resign if Nigeria continued to import refined petroleum products by 2019.
Asked when Nigeria was going to be self-sufficient in terms of refining petroleum, Kachikwu said “2019 is the target time. I target 2019. If I don’t achieve it, I will walk. I put the date and I will achieve it.”
NNPC financial position contrasts with those of state oil firms in other major producers. For example, Petrobras reported net income of $6 billion (R$ 23,677 million) in nine month 2018, the best result since 2011 and a growth of 371 percent compared to nine month 2017 thanks to higher margins in the sales of oil products in Brazil and in exports, both driven by the increase in Brent and the depreciation of the Brazilian Real while Sonangol’s 2017 net profits rose by 176 percent to $224 million, according to provisional results announced by the state-owned oil company at end-February.
Also, Norway’s Equinor reports adjusted earnings of $4.8 billion and $2 billion after tax in the third quarter of 2018. IFRS net operating income was $4.6 billion and the IFRS net income was $1.7 billion.
“With solid operational performance and production efficiency, we delivered strong results and cash flow across all segments. We continued to strengthen our balance sheet and reduced our net debt ratio to 25.7 percent in the quarter,” Eldar Sætre, President and CEO of Equinor said in the company’s financial statement.
With oil accounting for more than half of government revenue and 97 percent of export income, NNPC is a primary target of those seeking access to state funds and is vulnerable to political interference.
The 38th edition of the report indicated a trading surplus of N9.85 Billion which is higher than the previous month’s deficit of N3.90Billion representing a N13.75 billion increase relative to August performance.
“This increased performance as compared to the previous month is attributable to higher revenue by NPDC and offsetting rise in NPSC’s expenditure level,” NNPC said.
Group operating revenue for the month of September 2018 stood at N304.45billion which is N4.93billion lower than the previous month performance following increase in NPSC’s expenditure.
“This month revenue is lower than the budgeted revenue by 39.22percent while operating expenditure in the month which stood at N294.60 billion is lower than the budget by 6.70percent owing largely to the decreased expenditure reported by Refineries,” NNPC said in its report.
The pain for NNPC, which produces oil and natural gas in partnership with Royal Dutch Shell Plc, Exxon Mobil Corp. and Chevron Corp, lays bare President Muhammadu Buhari’s difficulty in fulfilling his pledge to modernize a company that’s been a byword for inefficiency and opacity since its creation in the 1970s.
Statistics from the latest audit report of the Nigeria Extractive Industries Transparency Initiative (NEITI) revealed that several factors led by pipeline vandalism and reduced funding for various Joint Venture (JV) cash call obligations led to Nigeria’s worst crude oil loss in 18 years with an average of 245 million barrels of oil “going down the drain” in 2016.
The reasons for the drop in production and consequently lifting are inadequate funding and technical challenges. Also, several force majeures were declared in the year due to pipeline vandalization.
According to the NEITI report, between March and December of 2016 alone, Nigeria suffered crude oil loss that averaged 130 million barrels.
About six different force majeures were declared in the country in 2016, with Shell Petroleum Development Company (SPDC) accounting for three out of that number.
DIPO OLADEHINDE
