NIGERIA’S three petroleum refineries have incurred losses totalling N142.07bn ($380m) over the last 12 months as a result of staying idle while they chalk up huge operating expenses at a time when they are not generating any revenue.
According to recent data from the Nigerian National Petroleum Corporation (NNPC), the refineries did not refine one barrel of crude oil over the last year. NNPC officials attributed the declining operational performance of the refineries to an ongoing revamp aimed at enhancing their capacity utilisation once completed.
Located in Port Harcourt, Kaduna and Warri, the three refineries have a combined installed capacity of 445,000 barrels per day but have continued to operate far below the installed capacity for years. Nigeria now relies heavily on imported refined petroleum products as its refineries have remained in a state of disrepair for many years despite several attempts to fix them.
“No white product (premium motor spirit and dual purpose kerosene) was produced in June 2020 and apparently for the past 12 consecutive months. This lack of production is due to ongoing rehabilitation works at the refineries,” the NNPC said in its monthly June report.
According to the corporation said the combined value of output by the refineries at import parity price for the month of June amounted to about N40m. “No associated crude plus freight costs for the three refineries since there was no production but operational expenses amounted to N10.27bn, which resulted in an operating deficit of N10.23bn by the refineries,” it added.
According to the NNPC, the Kaduna refinery incurred an operating expense of N60.20bn from July 2019 to June 2020, while the Port Harcourt refinery’s operating expense was N43.37bn while that of the Warri refinery was N38.49bn. Joseph Nwakwue, the chairman of the Society of Petroleum Engineers Nigeria Council said the refineries should have been sold some years ago to private investors.
He added: “Our position is that the refineries are key national assets and it is in our interest that they are optimally run from a commercial perspective and we think that the private sector will do a better job of running it. I think it is important that we recognise that it serves no purpose that we have refineries that are sitting idle.
“They don’t just sit idle, we spend money to keep them idle, which is a huge drain. So, it is not in our national interest to continue to pump money into things that are not adding value.
“From that perspective, it is only reasonable that one would say we should have sold these things a long time ago to those who can run them. Maybe if we did, we won’t be importing the quantity of fuel we are importing today, so, I think that we should have sold them 10 years ago.”
NNPC managing director, Mallam Mele Kyari, said that Nigeria was importing practically every petroleum product being consumed in the country. Under a direct sale direct purchase arrangement, selected overseas refiners, trading companies and indigenous companies are allocated crude supplies in exchange for the delivery of an equal value of petrol and other refined products to the NNPC.
President Muhammadu Buhari had planned to rehabilitate the refineries to attain a minimum of 90% capacity utilisation. His plan was to use third-party financiers and the original refinery builders to provide the requisite funding and technical support but after over one-and-a-half years, negotiations with financiers were stalled in December 2018 due to varying positions on key commercial terms.
Mallam Kyari, who took over the NNPC leadership in July 2019, announced plans to revamp the refineries and end fuel importation by 2023. Nigeria is the world’s sixth largest exporter of crude oil.